As important as it is, saving an emergency fund can be a long and challenging process. But when that day finally comes when you accomplish your goal, it’s normal to find yourself wondering what to do next.
The good news is that once you finish building an emergency fund, the world of personal finance becomes a much more exciting place. After spending months protecting yourself from the uncertain future, a thing I like to call ‘playing financial defense,’ you finally get the chance to play offense and start chasing your dreams.
And that’s precisely why we’re here.
For the rest of this guide, I’m going to dive into 7 of the best things you can do after saving an emergency fund.
Let’s get to it!
1. Open A New Savings Account
After you finish saving your emergency fund, one of the very first things you should do is separate it from all of your other savings. After all the hard work you put into building your emergency fund, the last thing you want to do is intermingle it with your other savings and end up using it for something other than an emergency.
The best way to do this is to open a completely different account at an entirely new bank. From there, you can either move your emergency fund into it or use your new account for any new savings you decide to stash away.
Depending on your different savings goals, you might even want to open multiple savings accounts. Doing so will not only help you protect your emergency fund but will also keep your savings separate and organized.
If you’re interested in opening a new savings account, be sure to check out our resources page for our list of recommended savings accounts. Here at Be the Budget, we have not only researched dozens of different savings accounts, but we’ve also opened quite a few ourselves. And after all that experience, in our opinion, the accounts on that list are the ones that continually seem to rise to the top.
2. Save For A House
Once you have an emergency fund stashed away, one of the next best things you can do is to save for a down payment on a house. Or, if you live a debt-free lifestyle like my wife and me, you can start saving to pay cash for a home.
Like saving up an emergency fund, this can take months, or in some cases, even a few years. But remember, the more money you can put down for a home, the less of a financial burden it will be on your monthly cash flow.
So, if buying a house is even slightly on your radar, the sooner you start saving for it, the better off you’ll be.
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2. Invest For Retirement
Whether through an employer-sponsored retirement plan or not, investing in retirement is one of the best things you can do with your money. And since you have an emergency fund in place acting as a bit of a financial security blanket, you can feel free to invest a more aggressive portion of your income.
In other words, rather than investing 10% to 15% of your income, take this opportunity to turn things up a notch and invest 20% to 50%.
Use the peace of mind that your emergency fund provides, cut some unnecessary expenses, and crank up your retirement investing. Even investing an extra 5-10% of your income can have a powerful effect on your net worth over the years.
3. Start A College Fund For Your Kids
Another great thing to do after saving an emergency fund is to start a college fund for your kids.
I don’t think it’s any big secret how much a four-year university costs these days, and that cost is only increasing. So, if you want to be prepared for it, the best time to start saving is right now.
4. Pay Extra Toward Your Mortgage
If you’re wondering what to do after saving an emergency fund, another excellent option is to put some extra money toward your mortgage every month. Seriously, even adding a couple hundred dollars per month to your mortgage payment can reduce your payoff timeline by years.
By paying off your mortgage early, you will free up more income, increase your ability to invest, and maximize your wealth-building potential. Plus, when you finally pay off your mortgage, your cost of living will be significantly lower, which, in turn, will reduce the amount of money you need to build-up in order to retire.
When it comes to building wealth, paying off your mortgage early is one of the smartest things you can do. And when you have an emergency fund backing you up, it’s a lot less intimidating to make those extra payments.
6. Save For Future Expenses
Along the same lines as saving for a down payment on a home, after you finish saving an emergency fund, there are quite a few other expenses for which you might want to consider saving.
For instance, if you think you might need to purchase a car in the next few years, it’s a good idea to start setting aside some money for that each month.
If you see yourself, or one of your children, getting married in the near future, stashing some money into a wedding fund is another great idea.
Or, if you have designs on taking an annual vacation with your family, starting a vacation fund might be something you incorporate into your monthly budget.
Put simply, life can get expensive. And the earlier you start preparing and get in the habit of saving for large expenses, the easier your financial life will be.
7. Relax And Have A Little Fun
I don’t know about you, but when my wife and I were working on saving our emergency fund, there was this ever-present, and might I add unpleasant feeling of being financially unprepared. Because of that, we pretty much lived on the bare minimum until our emergency fund was complete.
And truthfully, after finishing our emergency fund, that was a hard feeling to shake.
But here’s the thing, the whole point of an emergency fund is to increase your financial security so that you can relax, focus on building wealth, and have more fun. And that’s why we highly recommend taking a step back, acknowledging your accomplishment, and enjoying yourself a little bit.
For example, you could take your spouse or significant other on a celebratory date. You could take a break from saving for a month and spend the money on a short vacation. Heck, you could even buy yourself a new TV as a way to celebrate all your hard work (just be sure to pay cash for it).
Remember, it’s ok to take some time and enjoy your accomplishments. And after all the hard work and discipline it takes to save an emergency fund, this is one accomplishment worth celebrating.
Figuring out what to do after saving an emergency fund can be a little overwhelming. With so many different options, and so many experts telling you to do a variety of different things, it’s easy to get stuck in analysis paralysis.
So I’ll finish with this: when in doubt, just keep taking small steps toward your long-term financial goals. Whether that means preparing for a future expense, investing in retirement, paying off your mortgage early, or a combination of a few different things, just keep moving forward.
Oh, and if you ever find yourself feeling a little discouraged, don’t forget to look back and celebrate how far you’ve already come.