How to quickly create an emergency fund with $70,000 a year
- An emergency savings fund is 3-6 months of living expenses kept in a savings account.
- Sunem and Israel Tovar built up emergency savings while each earning less than $70,000 a year.
- Here are 3 simple steps they used to build their emergency savings fund, starting with $1.
Earlier this year, CNBC reported that 56% of Americans could not cover a $1,000 emergency expense with their savings. Siblings Sunem and Israel Tovar were once part of this group.
When she started her financial literacy journey, Sunem, who works in human resources, made just $20,000 a year with $42,000 in student loans, while Israel, a teacher, made $44,000.
Since 2018, the Tovars have held each other accountable to a few goals: finding better-paying jobs with salaries of at least $60,000; repay Sunem’s debts; and building six-figure investment portfolios.
Now, with combined investments worth over $325,000, they are teaching other teachers of color how to build wealth through their business, the Dream Teacher project.
The siblings credit their success to prioritizing their emergency funds. Experts generally recommend keeping an emergency savings of three to six months of living expenses in an easily accessible savings account.
Israel told Insider that one of the things that motivated him to start an emergency savings fund was to leave a toxic workplace. Working as a queer teacher of color at a school that served low-income students of color, Israel struggled with mental health issues and was able to speak his mind. Reflecting on that time, he said, “If they see me tomorrow, I’ll still have my emergency fund.”
Here are five steps the Tovars took to start building their savings.
1. Minimize your living expenses
After buying a house in Nashville, Tennessee, which he could barely afford, Israel quit his teaching job which paid $44,000. He decided to move to Washington, DC, for a job that paid $65,000 a year. While in DC, he rented out his house in Nashville.
Of his move to DC, Israel told Insider, “I was living with a friend from college on the outskirts of DC, sharing a room for $350 a month. I was just determined to get my money back.”
2. Start small
While earning only $20,000 a year, Sunem started small by contributing $5 from each paycheck to her savings account.
She said, “If you can save $1 every week, then you know, that dollar is always better than zero. Once you build momentum, $5 eventually becomes $10, then $20, and over time , you’ll have your emergency fund right there.”
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3. Find ways to make your debt repayments manageable
While Israel graduated from Yale and Stanford debt-free with full scholarships, he still struggles to pay his mortgage and credit cards. The siblings recommend making your monthly debt payments manageable by calling your servicers to offer affordable payment plans. Once you feel that sense of accomplishment paying the minimum, you’ll feel able to pay off your debts more aggressively over time.
4. When you’ve finished paying off your debts, put that monthly payment into your savings
“Once I was able to settle my debt to a manageable amount, I was able to transfer that money to my emergency fund,” Israel said. Sunem also said that she got used to living on only a small part of her salary, so she also redirected her monthly debt amounts to her emergency savings fund.
5. Find a side hustle
When Israel was between jobs, he started driving for DoorDash or Instacart. When he moved to DC, he said, “I started doing all these side gigs. I was like, ‘Give me the homework center, give me this and that after school.’ I was just determined to get my six-figure net worth and my emergency fund so I could have more agency.”