How many of us are in debt? Raise your hands.
How many of us have come to the end of the month and had more bills than money? Raise your hands.
How many of us have lost our jobs and scrambled to figure out what to do? Raise your hands.
If you haven’t raised your hands yet- congratulations!
If you have… You know the importance of having additional money set aside. This is where an Emergency Fund comes in!
What is an emergency fund?
An Emergency Fund is a chunk of money you’ve saved for those unexpected incidents. Maybe the car broke down, maybe one of the kids broke a bone, maybe a pipe burst in the house and your basement is flooded. All of these seem like things that would cost quite a bit of money to fix.
What happens when you’re living paycheck to paycheck?
More debt. You often don’t have the money to pay for these incidents and end up needing to use credit to fix them. Then we find ourselves further in debt, and the cycle continues on as we keep charging the things we can’t predict will happen, and paying off the debt puts us further and further behind on our goals.
So what do you need to do?
Establish an emergency fund. Put money away and keep it there. For some it’s easier to put it into an account that’s harder to withdraw from so they wont be tempted to use it. This can be good motivation, until you find that there’s an emergency at 2am and no way to grab the money you need to pay the plumber to stop the flooding in your basement. I recommend finding a good hiding place in your house. This should also be somewhere that your children wont be able to find it. (Don’t put it where you hide their Christmas presents! Children always know where you hide their presents- they’ll find anything you hide here)
How much should you put in your Emergency Fund?
Good question. I’ll leave that one up to you. A standard recommendation- $1000. But everyone considers an emergency a different thing. A new roof costs anywhere from $6,000-$10,000. Should you rely on your Emergency Fund for this? No. But if there’s a leak in the roof and it needs to be repaired, you may choose to use the fund for this situation.
How can you even start an Emergency Fund?
It’s hard to put away money. As was said earlier, we’re living paycheck to paycheck, how can we find the extra money to set aside? Well, we all make purchases that we probably shouldn’t. That shirt on clearance, you didn’t really NEED it. That cup of coffee from the coffee shop, you didn’t really NEED that either.
If you cut out these expenses during the month:
$4 for a cup of coffee- 3 times a week x 4 weeks a month= $48.
$6 clearance shirt- 2 times a month= $12.
$10 eating out for lunch- 3 times a week x 4 weeks a month= $120.
$1 trip to the vending machine for an afternoon snack- 5 times a week x 4 weeks a month= $20.
That’s around $200 a month you can put towards your Emergency Fund.
And if you feel like you don’t do these things, take a look at all of your weekly expenses. Jot down every receipt, and every single item you purchased on those receipts. Find the things you can cut out of your weekly spending. It will seem like a lot of work, but if you’re being frugal and cutting everything you can already- you wont have anything to hide. Your list would actually be rather short…
I have established my Emergency Fund, now what?
Now that you have the money set aside- leave it alone. When there’s an emergency, you’ll pull funds from this envelope and once the emergency is over, and you’re able to get back on with your life, replenish the money back to it’s original value. This fund should always be full for the next emergency.
What kind of unexpected incidents have you had that you wish you had an Emergency Fund for? Leave a comment below