I borrowed a strategy from my 401(k) to build up a cash emergency fund 2 years ago, and I'm never turning back

I borrowed a strategy from my 401(k) to build up a cash emergency fund 2 years ago, and I'm never turning back

how to save more cash


The author is not pictured.

  • Saving money can sometimes feel impossible when you live in a high cost-of-living city or have lingering debt to pay off
  • I've always contributed automatically to my 401(k) and just learned to live without that money. Two years ago, I decided to implement the same strategy to build up a cash emergency fund.
  • I set up my direct deposit so that a specific amount of money from each paycheck goes into my high-yield savings account at Ally.
  • Then, I budget whatever is left over in my checking account for other expenses and discretionary spending.
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It was about two and a half years ago that I realized I had no real emergency fund.

I live in one of the most expensive big cities in America, where saving money can feel impossible at times, but that was my only excuse. 

Immediately after starting full-time at Business Insider, I began contributing to my 401(k). The money was taken out of my paycheck before I even saw it and I learned to live without it. I felt really good about how much I was saving, until I realized I had a paltry cash cushion to fall back on.

I needed to make my now as much a priority as my future, so I decided to take a page out of my beloved retirement savings book and contribute to a cash savings account automatically. I basically started to treat my savings an expense.


I soon opened an Ally high-yield savings account and went to my payroll provider to change my direct deposit - $100 out of every paycheck would go into my Ally account, the rest would go into my checking account. I can part ways with $200 a month, I thought, and if it turns out I can't, I'll just pull back. Besidesthe stakes are low when the money is accessible without excessive fees or penalties.

The beauty of utilizing a high-yield savings account is that your money earns interest while it's sitting there. Ally currently offers a 2.2% annual percentage yield and requires no minimum account balance. Every month, my account balance increases by the same amount, plus interest. That money is off-limits to me - unless there's an emergency, of course - and I can spend only what's in my checking account, which is at an entirely different bank.

Ultimately for me, this strategy works in part because I don't have to contemplate what I'm going to cut out in order to save more. I work backwards in a sense - pick a savings amount and force myself to live on what's left over. If something is important to me, whether it be my monthly clothing subscription, daily tea, or an indulgent dinner, it will find its way into my budget.

After about two years of automatic saving, and a little boost from a tax refund, I have enough money in my emergency fund to cover about three months of expenses. My goal is to shore up about six months worth of expenses, but I also want to start saving for all the weddings and bridal activities I'm attending over the next few years - a not-my-wedding fund, if you will. Thankfully, I have a solid system in place to help me get there.

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