How To Build Emergency Funds In College

Gildea: In a word, "emergencies!" people get sick, need medicine, or have flat tires. If there is one thing that will most reduce your money stress, it is having money available to you when life happens.

Let's shift our mindset ("Emergencies don't happen to me… I'll figure it out if something happens.") and start calling this the "freedom fund." "Freedom" is a lot more liberating and exciting than "emergency."

Your short-term freedom fund frees you from worry, stress, anxiety, bad bosses, and angst. If it gets big enough, it can also allow you to go on that weekend get-away or register for that certification. Your long-term freedom fund gives you the freedom to choose the work you want, to take a break from work if you need it, to start your own business, to travel, etc. Now, that long-term fund needs to be big to manage some of those. But if you think about why some people want to be "rich," it is for freedom.

Gildea: Specifically, it will free you from:

Late fees! They can be hugely expensive. If you have to wait extra days because your parents didn't deposit money for rent, your payday fell after your rent was due, or your student loan hasn't been funded yet, it can cost you $20 or more in late fees.

Overdraft fees. Mistakes happen and occasionally the numbers don't add up. If you overdraw your checking account, you face a $25-$50 fee from the bank, plus the late fee to the person you were supposed to pay, plus potentially an interest fee if you were trying to pay on a credit card or other loan. Those are dollars that students generally don't have to throw away.

TIP: Always have some kind of overdraft protection on your checking account. Even if all you have to draw on is your credit card, it will likely be cheaper than facing overdraft fees. And wow, if you have an emergency fund in a savings account, that can be your overdraft protection. The bank will automatically transfer the funds needed to "cover" the check. Yes, there may be a small fee for doing that, but it is nothing compared to all of the other fees.

TIP: Set up text alerts when your balance drops below a certain amount so you can take action.

Stress. It is so stressful not to know how you can cover a car repair, a flat tire, medicine, or other essentials. If you need a book for class, you need it. If you have to use savings to buy it, do. Then work hard to repay it to yourself.

Gildea: In a perfect world, 3-6 months of expenses. That is the general rule, but not necessarily practical for students. Set a goal to build up $100 and do it — even $5 at a time is something. Then set a goal to save another $100. Or start with $50. Pick a goal that feels achievable in a relatively short period of time so you get some sense of accomplishment. Trying to save $5,000 is going to be overwhelming and defeating.

• Small, consistent saving will add up over time. Weeks, months, and years pass quickly, so if students can tuck away a few dollars a week, it will add up more quickly than you think.

• To help, here is a great mantra: "Five bucks matters." It matters if it is spent mindlessly; it matters if it pays down debt; it matters if it accumulates over time.

• Don't fall into the trap of thinking (as I did!) "I'll have plenty of money when I get my real job. I'll worry about saving and paying off debt when I'm working." Even if you are making a good salary, life is expensive — clothes for your job, transportation to work, parking, an apartment, etc. The time to establish the habit of saving is always today.

If you can save 10% to short-term freedom and 10% to long-term freedom, you will be well on your way to financial security.

Gildea: Set up automatic transfers to savings every payday, when parents provide monthly funds, or when you get loan proceeds.

Pay for fun things with only cash so that you don't overspend. Yes, real dollar bills. Spending cash actually feels like "giving up" something, versus a "swipe" which feels like nothing. It makes you more mindful about spending; when the cash is gone, your fun stuff budget has been spent.

Do this with eating out versus going to the grocery store. It is way more expensive to "drive through" than to "run in" to the grocery store.

Clearly define a "need" and a "want." Do you "need" a cup of $7 coffee in the middle of the afternoon or could you do a quick five-minute brisk walk outside to recharge? Ask yourself, "If I didn't buy this, how could I still meet my current need/want?" Become really mindful about what you spend money on. Writing it down, even in your notes app, is a way to be mindful: date, amount spent, for what, "Why do I need this?"

Consciously assessing this for every dollar will be enlightening! Add up what you spent by category: "true need," "stuff," "fun" — just three categories will cover most everything. If it is not "true need," such as school stuff, food (not dining out!), utilities, medical, etc., you are making a choice in that moment to fulfill a "want" rather than to protect yourself in the future.

Create a challenge with friends to come up with fun, free things to do. Everyone takes a weekend evening or day to find something. I promise it will be more memorable than just hanging at the bar on a Saturday night!