You Should Always Expect The Unexpected!
And So, financially speaking, you need to be prepared for the unexpected by having an emergency fund set aside for a rainy day.
An Emergency Fund Is One Of The Best Defenses Against A Financial Emergency.
Your Emergency Fund Should Be Held As “Liquid Assets”.
At least one month worth of your income or expenses should be free to access at any time without any penalties or fees charged for withdrawing the money. The remaining amount of your fund can be held in term deposits or certificates of deposit (CDs), If you need additional months worth of funds, do not renew the current month maturing term deposit or CD and then use that money for the additional month(s) worth of expenses.
We know – For most of us, setting up an emergency fund is easier said that done, but it is possible and a sacrifice that is needed. Many of us have doubts that we can even can afford to start, build, and maintain an emergency fund. But the truth is you can’t afford to not have an emergency fund.
A financial emergency could be an auto or home repair, medical expense, job loss, death, or anything else requiring a significant amount of money on short notice.
Unfortunately, these challenges force many people to deal with the situation by using credit cards or taking out a loan. By needing to borrow the money for the emergency and adding to your debt load, a solution where you borrow money makes the situation even more challenging and much harder to recover from in the long-term.
How Much Money Is Enough To Have In My Emergency Fund?
The general rule is to keep between three and six months of living expenses saved in a readily accessible account.
Of course, that’s just a general rule. There are those that would suggest having even more saved is a better solution – have at least one years worth of expenses saved. Of course, the proper amount for you will depend on your specific situation. No two situations are identical.
When working on figuring out how many months worth of income or how many months worth of expenses to save, things to consider include, but are not limited to:
- Are children are part of your equation.
- How much debt load are you currently carrying?
- What types of insurance coverage do you currently have and would need to continue to pay for?
The answers to these questions will allow you to make an informed decision about the size of your emergency fund.
A sudden loss of income is the most common reason for needing to dip into an emergency fund. If there is a job loss, bills still need to be paid. Finding significant employment can take at least a few months. Don’t be caught without an income and without the money in your savings to cover your expenses!
It is always best to have a plan in place for the worst-case scenario. It’s easier to handle the smaller emergencies, like buying new tires for the car.
Situations will arise. It is not a matter if something will come up, but when something will come up. It’s simply a part of life.
I Do Not Have An Emergency Fund Yet.
Then Start Small But Start Now!
If you do not already have an established emergency fund or if saving money is difficult for you, starting out small is fine. Even accumulating a single month of living expenses can take some time.
As with all worthwhile things in life, set small, manageable goals and the odds of reaching them will be better.
The simplest way to get started is by opening a savings account at your bank. This should be an account separate from any other account you may currently have. Get into the habit of making consistent regular deposits to that account. Set a schedule and stick with it.
Even just $10 or $20 a week can be a good amount to start with. Try to slowly increase the amount you’re saving each month. Then with two months worth of money saved, you should seriously consider moving one months amount of funds into an account that can earn more interest.
After attaining the minimum balance levels, money market accounts and certificates of deposit can be better solutions.
Being Prepared Is Always The Less Stressful Solution Than Being In A Position Where You Find Yourself Caught Short
Have discipline. You must have discipline!
And only use this money in times of financial emergency. Things like a vacation or a new wardrobe is not an emergency! Avoid dipping into your emergency fund to pay for other large expenses that are not true emergencies. We all know what should be considered an emergency. Do not rationalize your way to using up your emergency fund for things that are not truly an emergency.
Having an emergency fund is a big part of maintaining financial stability.
It protects you and your family from unforeseen emergencies. If you do not have one, you must get started today! If you already have one, then work on ways to increase the fund. Every little bit can make a difference.
Everyone faces financial challenges at times. If you’re not ready when the time comes, you’ll hate yourself for not having made the proper preparations. Be prepared for the inevitable challenges of life – They will come! Not only will it be easier to weather the storm, you’ll sleep better knowing you’re ready.
6 Common Expenses That Require a Rainy-Day Fund
Saving money isn’t always fun or exciting, but a rainy-day fund is imperative to your financial health. It only takes one unexpected expense to topple your finances and your financial plan. The lack of an emergency fund can result in taking on additional debt or not being able to pay for a critical expense, like your child’s braces.
There are several reasons you might require a rainy-day fund:
1. Medical Bills.
It’s no secret that medical care is outrageously expensive in the United States. A simple out-patient operation, like a hernia repair, might only take 30 minutes. But it can easily cost $15,000 or more. How long would it take you to pay back $15,000? Even if you have insurance, you might still be on the hook for a deductible of several thousand dollars.
2. Automobile Repairs.
Once the warranty has expired, your automobile has the potential to become a financial disaster. Once you’re no longer making an automobile payment, continue making the payment to yourself. Save the money for future repairs or your future automobile.
- At some point, all cars become more expensive to fix than they’re worth. Ensure that you have the funds in place to minimize the amount of debt necessary to obtain a new car.
3. Unemployment.
Currently, 10-12% of us will be without a job at some point in the next 12 months. Over the course of a lifetime, the number is much larger. Could you survive for at least 6 months until you find another job? What would happen to your family, home, car, and insurance?
4. Major Home Repairs.
Replacing a roof, a/c unit, furnace, repaving the driveway, or replacing appliances can cost more than the average homeowner has sitting around in his bank account. Some repairs can wait, but others cannot.
- A rainy-day fund is necessary for many of these expenses. Your homeowners’ insurance doesn’t cover everything.
5. Funeral Expenses.
Funerals are expensive. And even if you don’t have to pay for a funeral, you may have to travel half-way across the country to attend one. Deaths are often unexpected, and this isn’t an item that people usually build into their budgets. If there’s one truth in life, it’s that everyone dies eventually. There’s no escape.
6. Dental Expenses.
A broken tooth, braces for the kids, too many teeth, not enough teeth, or mishap with a baseball can cost more than your bank account will support.
- While your health insurance might be great, most dental plans leave a lot to be desired, especially with regards to cosmetic issues.
When Should I Start An Emergency Fund?
- The best time to start an emergency fund was 10 years ago.
- The second best time is right now!
Begin today by setting aside a percentage of your income and seek to increase the amount over time. Aim for at least six months of living expenses. That will be enough to handle most financial emergencies. Anything you’re able to save beyond that can be invested with a more long-term focus.
Rainy-Day Funds (Emergency Funds) Have Advantages You May Not Have Considered:
- You’ll be much more relaxed. Knowing that you have money available to meet your unexpected financial needs is reassuring. You’ll worry much less.
- It can prevent you from making poor financial decisions. When you need cash, but don’t have any, it’s easy to make financial mistakes that can be costly. Payday loans and the use of high-interest credit cards are two examples of bad solutions to financial problems.
A Rainy-Day Fund Is A Financial Necessity!
It provides a cushion for life’s unexpected twists and turns. One financial mishap can easily undo years of your hard work. Begin your emergency fund today and secure your financial future.
Having a rainy-day fund is not an option.
It’s never too late to get started.
If you never get started, then it can be too late!
Tips For Creating An Emergency Fund
Emergency funds are essential for financial health because they safeguard you against an uncertain financial future. Even if you’re currently having financial troubles, you can still take positive steps toward creating a rainy day or emergency fund for your family.
An emergency fund will prevent a financial crisis from putting you into deep debt and it’ll help to smooth out your budget.
Follow these effective strategies to create an emergency fund:
1. Start Off Small.
You don’t need to have a lot of money to put away in order to fund an emergency account. Just start putting away anything you can spare and you’ll be well on your way to having a working emergency fund. Your emergency fund will grow as long as you make the effort to put money in consistently.
- Strive to tuck away at least $10 to 20 per week into a separate bank account that you don’t touch on a day-to-day basis.
2. Pay Yourself First.
Use an automatic deduction through your bank to take a small portion of your paycheck and add it to your savings account. When the money is deducted automatically, it is less “painful” and you will adjust your spending to the “missed” amount from your daily use. This makes it even easier to put money toward your emergency fund as your primary goal.
- Within a short while, you will feel the benefit of the small sacrifice that you made as you watch your emergency fund grow.
3. Reduce Your Expenses.
If you have not already done so, take a hard look at how you’re spending money and determine ways to reduce your current expenses. Take the amount you save and apply it directly toward your emergency fund.
- At least temporarily cut out or lower all unnecessary expenses, such as entertainment, gourmet coffee or extended cable, and you’ll have a sizable emergency fund to work with in no time.
4. Round Up The Amounts Of Your Checkbook Entries.
When you write expenses into your checkbook, round them up to the nearest dollar no matter what they are. Even an expense of $10.01 can be rounded up to $11. At the end of the pay period, you’ll have the real money left in your checking account from these virtual “round ups,” which you can then move into your emergency fund account.
5. Make Payments To Yourself.
After you finish paying a debt off, such as a car payment or a credit card bill, take whatever money you would normally put into that debt and put it into your savings account. Your budget won’t take a hit; yet you’ll be putting significant money into your emergency fund every month.
6. Stash Bonuses And Tax Refunds.
When you receive a bonus from work or a tax refund, stash this windfall directly in your emergency fund account. Out of sight, out of mind. Now you can put this money toward a better purpose – your emergency fund – rather than an impulse purchase that you may regret later.
- Remember! TAX REFUNDS ARE NOT GIFTS from the government. A tax refund is the government returning your money that you had overpaid for your tax liability of that year.
8. Save Your Change.
Make your purchases in cash whenever possible, and save the change. Stash it away until you have a substantial amount; then put it in your bank. The same can be done with $1 bills. Whenever you break a larger bill, just stash the ones away and turn them in when you have a substantial amount.
9. Have A Garage Sale Or Sell Your Items On Line.
Sell items that you don’t need, including stuff you’ve stored in the garage, extra electronics or even a rarely used car. If you have things in your life that you can live without, sell them and put the proceeds into your emergency fund.
- This way, when an emergency comes up, you’ll have the money that you need to protect what’s most important to you.
The Bottom Line
It doesn’t take much to begin an emergency fund, and every dollar counts. Take the small steps toward building up a savings account and it will pay off in the end. There are ways to save the money and not feel the hit of the missed money from daily use.
To be prepared financially in case of an emergency is one of the smartest moves you can make for yourself and your family.
And remember, if you do need to use money from your emergency fund, the amount that was used needs to be replaced as soon as possible so that your are once again prepared for the next emergency.
Do it now! Login to your bank account and set up your emergency fund saving account and transfer that first bit of money over to the account right now!
BAM! Be A Man. Do The Right Thing. Take Care Of Yourself And Your Money
BAM! Be A Man. Do The Right Thing.
Be The DtRTy Guy!
