When I first moved abroad nearly three years ago as a freelancer, I had to deal with several expensive setbacks in quick succession. I lost a client. I had to get rid of most of my belongings and find a new place to live after getting bedbugs, which cost about $600. And I found myself in a Croatian emergency room.
At that point, I decided that having an emergency fund was no longer an option. It was a necessity for someone living and working abroad.
"An emergency fund is important because it helps you sleep at night knowing that if anything unexpected happens, you'll have the money to cover it," says Grant Sabatier, creator of Millennial Money and author of the book "Financial Freedom."
Most financial experts recommend setting aside three to six months worth of living expenses to cover unforeseen costs, yet nearly 30% of U.S. adults have no emergency savings, according to a 2019 survey from Bankrate.
Having an emergency fund is arguably even more important if you want to travel, work or live in another country, because of how much it matters to have cash on hand for when things go wrong.
Sophia Bera, certified financial planner (CFP) and founder of Gen Y Planning, agrees that a strong safety net is crucial if you want to live, travel, or work abroad. In 2019, she spent four months running her company from South America, living and working abroad through a group travel program called Remote Year.
"There are a lot of unexpected expenses that can come up while traveling abroad, and having access to cash is important," Bera says. "Things like missed flights, unexpected delays, a crummy hotel, and going to the doctor can all result in overspending your travel budget."
International travelers should be especially mindful of where they keep their emergency savings, because of fees associated with currency exchange and accessing your cash. Bera recommends choosing the right accounts before you leave, including a credit card that doesn't charge a fee for foreign transactions and a checking account that will reimburse you for ATM fees.
Always make sure to carry back-up cards, too. A few years ago, I booked a ferry via a Skype call; next thing I knew, someone in the U.K. had charged over $600 worth of electronics on my card. Although my bank was able to quickly remedy the situation, it still took a few days to get the money back into my account. Luckily I had my emergency fund to fall back on in the meantime.
While you're traveling, watch out for situations where you credit card information could be recorded and stolen. Open Wi-Fi networks, unencrypted phone calls, and ATMs with card-skimming devices can all leave you open to identity theft. In the event that something like that happens, you'll be glad to have an emergency credit or debit card ready to go while you freeze your other account.
Also be aware of the potential limitations of credit cards. "Depending on where you are traveling, credit cards might not even be accepted," says Samantha Gorelick, CFP at Brunch & Budget. So make sure you carry and have ready access to cash.
Video by David Fang
When determining how much money to put into your emergency fund, Bera says, you need to know what your expenses are and approximately how much you plan to spend each month — and how far that money will go based on where you are.
As I found out, it's much different budgeting for a month in Madrid versus a month in Reykjavík; recently, Iceland was ranked the most expensive country in Europe.
If you have inconsistent income from freelancing or entrepreneurship, Bera notes, save more aggressively in the "good months" so you can pull from savings during times when your income is lower than you anticipate.
Gorelick says the easiest way to build your savings is to redirect a portion of your direct deposit to your savings account with each paycheck. "You can start off small so you don't feel like it is cutting into your budget too much," she says. "Once it feels normal to put aside money each month, you can gradually increase your savings amount. The more you can automate this, the better."
You may well also have a gym membership or streaming service you don't use. Go through your bank and credit card statements and highlight all the membership services you might be willing to cancel. Consider putting the total into your emergency fund each month, instead, since you were already spending that money anyway.
When I moved abroad, I still had an Amazon Prime membership. I soon learned that some Amazon TV shows don't have the capability to play abroad. That $15 a month was better spent going into my emergency fund. In Warsaw, $20 can get you a night of emergency housing in a one-bedroom apartment on Airbnb.
Gorelick says your emergency fund isn't just helpful in case the worst happens. It can also allow you to give yourself permission to do things that are meaningful to you. "Having cash savings on the side is great in the event of any unplanned expense that is beyond the scope of your normal budget."
For instance, Bera says she enjoyed partaking in side trips when she was living abroad — but they were often a few hundred dollars more than she expected.
"I was glad to have money in savings and that my business continued to grow while I traveled so that I could say 'yes' to adventures and continue to pay off my credit card in full every month and grow my savings," she says. "I wanted to enjoy each city I was in while also working, and I think if I was stressed about money, it would have been hard for me to do that."
Natalia Lusinski is a remote journalist who primarily covers personal finance, travel, and dating topics — sometimes all three at once. Her byline can be found in several publications, from Business Insider to Forbes. She also writes about life as a digital nomad, and solo female budget traveler, at NomadicNatalia.com. You can follow her journey on Instagram @Nomadic_Natalia.
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