Do You Have an Emergency Fund?
My husband and I decided that we wanted to do something special with our family for summer and started saving money right after Christmas was over. We scrimped and saved and were able to come up with the money for a small vacation, plus a little extra that we put away in our emergency fund. When our vacation day finally arrived, we packed our bags and got on the road. At the last minute, my husband ran into Wal-Mart to grab some last minute items. As I sat in the car waiting for my husband to come out, I noticed the car running erratically and the temperature gauge started fluctuating. We decided not to chance it and headed home and switched cars. When we got back from our vacation, we took the car into the shop and they estimated it was going to cost us $1,800. As shocking as that figure was, we prepared for life going awry and had an emergency fund just for that reason. If we hadn’t of been saving money, we would have been in a world of hurt.
Out of the Blue Emergencies Can Be Costly
With a majority of our population living paycheck to paycheck, one minor emergency could send them into major debt. Having an emergency fund is your own personal safety net and a common sense approach to dealing with life’s unexpected issues. Minor emergencies such as job loss, car repairs, medical expenses and home fixes come out of the blue and can be costly if you aren’t prepared.
Keep in mind that an emergency fund is different from your savings account. Of course, both take a lot of restraint and sacrifice to build up; but the underlying reason to use an emergency fund is strictly for … you guessed it, emergencies.
Start Modestly and Gradually Build It Up
The goal for our emergency fund is to carry us for six months of job loss and we set aside a small percentage of our monthly budget to slowly grow this fund. After we pay our monthly expenses and bills, we normally break up twenty-five percent of our remaining income down in the following manner:
15% – savings/retirement
7% – emergency fund
3% – movies and family activities
As with all budgets, sometimes this figure fluctuates, so if we are able to put more or less in our emergency fund and savings, we have to adjust. But we try and always put something in. That said, what works for my family may not work for yours. Many financial experts suggest saving up to ten percent of your monthly budget to really get ahead in your emergency fund. Check out the steps below to get some ideas on how to build your family’s emergency fund.
Build Your Financial Freedom With These Easy Steps
1. Get out of debt. Your primary goal is to have financial freedom. Paying off your debt is the best way to free up extra money. After all, who wants to be paying interest on something you purchased two years ago? Organize and list you debts from the smallest to the largest and start paying the smallest debts first. Once the small debts are paid off, move on to the next largest debts on this list and snowball the payments. Essentially, you are creating a snowball effect with your payments and freeing up additional money in your budget for other uses – like an emergency fund.
2. Have a monetary goal set. Starting small and building upon your initial investments for your emergency fund is an easy way to start and not get overwhelmed. (i.e., I want to have an emergency fund to pay for car repairs). Some people start with saving $1,000 and many can find this amount hiding in their budgets. Once you reach your goal, move on to another one. Read more below on how to slash the budget.
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