I’m a Millionaire: How I Save For Emergencies — and Why I Still Worry About Having Enough
One of the smartest pieces of financial advice out there is to have an emergency fund in case the unexpected happens. And while all of that is well and good, how much is enough?
GOBankingRates spoke with millionaires Tommy Mello, founder of A1 Garage Door Service, and David L. Blain, CFA, CEO of BlueSky Wealth Advisors, to discuss exactly how they save for emergencies and when they feel it’s sufficient.
“Since I founded A1 Garage Door Service in 2007, the company has grown to be a leader in the home-service industry,” Mello said. Through this journey, he’s faced numerous financial challenges and learned valuable lessons about saving for emergencies.
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“No one likes to think about worst-case scenarios, but being prepared financially for emergencies gives you peace of mind,” Blain noted. “Then you can focus on living your life without constant worry over what might go wrong.”
Here is how these two millionaires save for emergencies and why they still worry about having enough, along with tips for creating an emergency fund.
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How I Save For Emergencies
“Building an emergency fund has always been a priority for me,” Mello said.
He sets aside a percentage of his business profits into a separate savings account dedicated solely to emergencies. “This fund acts as a financial cushion, providing security and peace of mind. I aim to have at least six to 12 months’ worth of operating expenses saved,” he explained.
This approach ensures that his business can weather any unexpected downturns or crises without compromising operations.
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Concerns About Not Having Enough Savings
“Despite having a substantial emergency fund, I sometimes worry about whether it’s enough,” Mello said.
He explained that the home service industry can be unpredictable, and unforeseen expenses can arise at any time. “For example, economic downturns, natural disasters or sudden equipment failures can significantly impact our financial stability,” he said.
These concerns drive him to continually evaluate and adjust his savings strategy to ensure he is well prepared for any eventuality.
Blain shared a similar view. “As a millionaire, I do worry about emergencies depleting my savings, even with a sizable emergency fund,” he said. “We keep enough cash on hand to cover six to 12 months of expenses, but medical issues or natural disasters could wipe that out quickly.”
Tips for Building a Solid Emergency Fund
According to Mello, when building an emergency fund, you should start small and be consistent. He advised beginning by setting aside a small percentage of your income each month. “Consistency is key. Over time, these small contributions will accumulate into a significant emergency fund,” he explained.
He also emphasized that building a solid emergency fund is crucial for long-term financial stability, especially in the unpredictable world of entrepreneurship. “By adopting disciplined savings habits and continuously evaluating your financial preparedness, you can ensure that you’re ready to face any challenges that come your way,” he said.
Blain agreed. “Building wealth is a marathon, not a sprint,” he said. Making regular contributions to your emergency fund and saving diligently over time is the key, according to Blain. “Stay disciplined, cut excess spending, and your emergency fund and net worth will grow over the years through the power of compounding,” he said.
Here are some additional tips for how to build a solid emergency fund.
Automate Savings
A good practice for establishing an emergency fund is setting up automatic transfers to your emergency savings account.
“This way, you won’t be tempted to skip a month, and your fund will grow steadily without requiring constant attention,” Mello explained.
Blain advised the same. “To build your emergency fund, start by saving at least $500-$1,000, then work up to three to six months of essential expenses,” he said. “Pay yourself first by automatically transferring money to savings each month.”
Cut Unnecessary Expenses
“Review your monthly expenses and identify areas where you can cut back,” Mello advised.
Then, redirect those savings into your emergency fund. He said this practice not only boosts your savings but also helps you develop better financial discipline.
Diversify Income Sources
Having multiple streams of income can provide additional security.
Mello suggested investing in side businesses, real estate or other ventures that can generate passive income.
“This extra income can bolster your emergency fund,” he said.
Review and Adjust Regularly
Periodically assess your emergency fund and make adjustments as needed.
“As your financial situation changes, you may need to increase your savings rate or reallocate funds to ensure you are adequately covered,” Mello said.
Maintain Insurance and Health Plans
For added security, Blain said he also maxes out high-deductible health plans and maintains life insurance, disability and homeowners insurance policies with high coverage limits.
“While insurance isn’t a substitute for cash savings, it provides another layer of protection for catastrophic events,” he said.
Seek Professional Advice
Consult with financial advisors to develop a comprehensive savings strategy tailored to your specific needs and goals.
“They can provide valuable insights and help you optimize your emergency fund,” Mello said.
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This article originally appeared on GOBankingRates.com: I’m a Millionaire: How I Save For Emergencies — and Why I Still Worry About Having Enough