If there’s anything the 2020s have taught us, it’s that everyone needs an emergency fund. Why?
Because, according to a February 2023 Bankrate poll, a startlingly high proportion of Americans struggle with financial uncertainty. An astonishing 68% of people surveyed reported being concerned that they couldn’t afford their living expenses for a single month if they lost their primary income. Not only that, but:
- Only 43% of adults had the cash to pay for an emergency out-of-pocket
- 49% of U.S. adults had less savings in 2023 than they did in 2022
- 36% of Americans had more credit card debt than they did emergency savings
And it’s not just those living on poverty wages. In December 2022, nearly 51% of workers earning over $100,000 annually were also living paycheck-to-paycheck.
These numbers share a common thread: women were consistently more likely to report financial instability than men. In other words, while everyone benefits from an emergency fund, women have added incentive to build a safety net.
What is an emergency fund?
An emergency fund is simply a cash-based account earmarked for urgent or unplanned expenses. These may be as minor as paying for a new dental crown to covering major surgery, home or vehicle repairs, or floating your family through job loss.
Typically, it’s wise to keep your emergency fund liquid (in cash) and readily accessible. Many people turn to high-yield savings or money market accounts to earn extra interest on their growing funds. Another option is to invest in high-yield, short-term certificates of deposit (CDs) to keep your money working for you.
Why every woman needs an emergency fund
The purpose of having an emergency fund is to prevent or limit taking on debt when life surprises you. Think of it like a safety net ready to catch you when you stumble.
But for some women, it represents even more: the ability to leave an unhappy, unhealthy, or even dangerous situation.
Here’s are six reasons why every woman should safeguard against the future – no matter what you think it might hold.
1. To hedge against the unexpected
The future is, by definition, unknown and largely unpredictable. Layoffs, medical emergencies, car crashes, roof cave-ins – these can happen with little to no warning. Failing to save for life’s surprises risks having to raid your retirement or take on debt to pay for them.
2. Women still earn less than men
According to the Department of Labor, women working full-time earn around 82-84 cents for every $1 men are paid for comparable labor. Minority women earn even less: as few as 57 cents per dollar.
3. Women typically save less than men do
Earning less money means that women save less than men on average. The reasons for this vary. Some women report a lack of confidence with money, while others simply can’t afford to save.
In fact, research shows that even though most women manage their day-to-day finances well, they struggle to save for emergencies. As a result, they’re more likely to suffer financial instability or go into debt to pay for emergencies.
4. The “pink tax” is still hanging around
While women continue to earn more and save less than men, they also run into higher price tags.
There’s the “pink tax,” where manufacturers charge women more for identical or near-identical products.
The “Period Tax,” which over two dozen states tack onto menstrual products that are deemed nonexempt from state taxation.
Even makeup is a form of pink tax, as women are often pressured into splurging on beauty products to look “professional.” (And it “works,” sort of: women who wear makeup tend to earn more money than women who don’t.)
All these extra taxes and products add up to more comparable expenses for women than men. That’s another chip off your financial stability – and another reason for to protect yourself with a nice, fat emergency fund.
5. Women are more likely to leave the workforce to be caregivers
The National Alliance for Caregiving reports that women are nearly 70% more likely than men to become primary caregivers to children or elderly parents.
Taking this time away from the workforce isn’t just expensive now; it also results in lost income and career momentum. (In fact, becoming a mother is a key contributor to the gender-wage gap.)
But having an emergency fund can provide the freedom and flexibility you need to make these decisions and cushion the blow.
6. Women live longer than men
Around the world, women tend to live anywhere from 3-13 years longer than men. That’s more time to enjoy life, but also more time to have to afford life. With women already prone to smaller savings balances than men, extended lifespans often incur financial complications.
That’s where a well-stocked emergency fund comes in handy. Even if you never encounter a financial gap, simply having money in reserve can provide peace of mind as you age.
How much should you save in your emergency fund?
Every person and family should set their own threshold for an emergency fund. Often, families with more expensive lifestyles or medical requirements aim to build a bigger buffer. Likewise, the closer you get to 60, the larger your fund should grow to cover any emergent pre-retirement expenses.
If you’re just getting started with your savings, aim to stash at least 3-6 months’ worth of living expenses. Depending on your financial situation, that may take a few months to a couple of years to reach. Once you do, consider pushing further – say, setting aside 1-2 years’ worth of expenses in an interest-bearing account.
Your emergency fund is another step toward financial independence
Many modern women dream of achieving financial independence for themselves and their families. A well-stocked emergency fund puts you one step closer to achieving your financial milestones and securing your future (and even your safety).
But don’t stop there; after all, you shouldn’t spend your emergency funds unless you have to!
Instead, lock down your financial security across the board. Raise your income and fight for fair pay. Save for a house, a car, and that vacation of a lifetime you’ve always wanted. Along the way, don’t forget to invest like a boss for retirement. And who knows? With a tight-knit financial strategy, you might even put yourself on the path to FIRE.