The 3-part strategy early retirees used to build a $100,000 emergency fund before the worst of the pandemic

  • Steve Adcock and his wife Courtney are early retirees who live off-the-grid in Arizona.
  • Before retiring in their mid-30s, the couple saved up a $100,000 emergency fund.
  • They used automation and separate accounts to make the most of their high salaries.
  • Get a second opinion on your retirement plan from an advisor. Set up a free virtual consultation today »

Emergency savings has taken on renewed importance during the coronavirus pandemic. 

Financial experts generally recommend having three to six months’ worth of expenses in a savings account. That way you have enough money to pay bills if you temporarily lose your job, but you’re keeping your opportunity cost in check by not sitting on too much cash. 

That rule of thumb doesn’t quite work for Steve Adcock and his wife, Courtney. Before the couple retired a few years ago in their mid-30s, they amassed an emergency fund worth $100,000 — equal to about three years’ worth of living expenses. They keep it separate from their spending money and their long-term investments.

“Since we’ve quit our jobs so early in life, we felt like having the extra cash outside of investments was a great way to reduce risk during recessions and other market collapses,” Adcock told Business Insider.

“In fact, we lived off of that emergency fund during the COVID-19 market crash in March and April so we didn’t need to sell even a single share of stock to maintain our standard of living,” said Adcock, who lives in a completely solar-powered home in Arizona.

“Three years is much more than most people would save — and in general, I don’t necessarily recommend having that much cash, but in our case, I think it makes sense,” he said.

Adcock has shared several tips for building an emergency fund — whether you’re aiming for $10,000 or $100,000 — on his blog. Here’s the three-part strategy he and his wife used to build up theirs, and how they’re replenishing it after using some to cover a big tax bill and living expenses during the pandemic.

1. They lived on one income before retiring

Dual-earning couples who maintain a low cost of living are in a fortunate position to supersize their savings.

“Both my wife and I worked, so we devoted her entire paycheck to the emergency fund,” Adcock said. “It was a critical part of our money strategy before quitting our jobs.”

Adcock said in a previously published spending diary on Business Insider that they both worked high-paying jobs and managed to save around 70% of their combined income. Because they were so dedicated to saving for financial independence and early retirement, they also cut some discretionary costs, like TV and magazine subscriptions, and rarely went out to eat.

2. They keep their checking and savings at separate banks

The impulse to spend money can often overtake the logic to save it. Adcock’s solution is to separate savings from everything else.  

“Our emergency fund is saved in a separate Ally savings account. We have no other money with Ally. Our emergency fund is it,” Adcock said. It’s impossible to “accidentally” spend the cash when it’s not comingled with their everyday spending money, which is held in a checking account at a different bank, he said.

Ally offers a high-yield savings account with a competitive interest rate that helps savers earn a small amount on their cash. “It doesn’t keep up with inflation,” Adcock notes, “but every little bit helps, no doubt.”

Most importantly, the money is accessible when they need it.

3. They use automatic transfers to put savings on auto-pilot

Automation is one of the worst-kept secrets in the personal finance world. Many people who have saved a considerable sum of money or paid off debt attribute their success to putting the process on auto-pilot.

“Automation was key in helping us save all that cash,” Adcock said. “When my wife and I both worked full-time, we set up monthly bank transfers from our primary checking account that our paychecks got deposited into, to that Ally savings account.

“We set it up once and just let it run. We never had to lift a finger, which made the process pretty easy,” he said.

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