Why My Investments Grow While My Cash Balance Shrinks
In one of my recent posts, I shared that my net worth had grown by $8,000. Most of that came from my investments performing well in the markets. But here’s the twist: my cash balance has been steadily dropping.
So, what’s going on? Is it poor money management?
Not at all.
The reason is simple — I actively use and replenish my emergency fund when life happens. Over the past few months, I’ve had to cover classes, doctor visits, and a few unexpected bills. Since I’m currently unemployed, I don’t have steady income coming in to handle these expenses. That’s exactly why my emergency fund exists — to protect me when things get unpredictable.
The Power of an Emergency Fund
I keep around $20,000 in my emergency fund. For me, that’s about six months’ worth of expenses if I were renting and making car payments with no income at all.
That money has been a financial safety net in every sense. It’s saved me from swiping my credit cards too often. It’s allowed my investments to stay untouched and continue compounding month after month. My $8k net worth jump wasn’t a fluke — it was the result of planning and saving in advance.
Imagine if I had to pull money out of my investments during a market downturn. That would set back my long-term growth plan. Instead, my emergency fund buys me time and reduces stress. I know I can tap into it for big expenses without derailing my future.
Yes, I do need to work on building it back up — but that’s a challenge for when I’m earning again (fingers crossed).
How Much Should You Have in Your Emergency Fund?
The common advice is 3–6 months of expenses.
3 months if you have a stable income and low expenses.
6–12 months if you’re self-employed, supporting others, or in a high-risk situation.
If you don’t know your monthly expenses, pull up your bank statements and calculate your average spending over a few months. When I did mine, I even asked ChatGPT to estimate averages for rent, food, and transportation, multiplied by six, and rounded up.
I personally keep six months’ worth — which gives me extra confidence. If something huge comes up, like a $10,000 expense, I know I’m covered.
How to Build an Emergency Fund
Start small. Aim for $500–$1,000 as your first milestone.
Separate it. Use a dedicated savings account so you’re not tempted to spend it.
Automate it. Set up automatic transfers from each paycheck.
Refill when you use it. Make replenishing it a priority after any withdrawal.
The key is to make it as easy as possible. The less you have to think about it, the more likely you are to succeed.
Start Early — Future You Will Thank You
The best time to start building your emergency fund is early in your career, before major responsibilities like a mortgage or a baby. Even if you can only set aside $20 a week, start now. Small amounts grow faster than you think.
Life will happen. Emergencies will come. But if you have your safety net in place, you won’t have to panic — you’ll be ready.
