Emergency Fund
All financial experts agree that, in times like these, you should have an "emergency fund". This is a great article from About.com that tells you a little more:
Financial emergencies can come in the form of a job loss, significant medical expenses, home or auto repairs or something you’ve never dreamed of. The last thing you want to do is be forced to rely on credit cards or a loan which could simply compound the problem.
How Big Should Your Emergency Fund Be?
Most experts agree that you should keep between three and six months worth of your living expenses set aside in your emergency fund. Depending on your specific situation and whether or not you have children, carry substantial debt and types of insurance coverage will determine what amount is best for you.
The reason you want to have three to six months of expenses saved up is that the most common reason for the need of an emergency fund is due to a sudden loss of income. If you or your spouse loses a job you still have bills to pay and it may take a few months to find suitable new employment. It is best to plan for a worst-cast scenario so that the smaller emergencies such as replacing the hot water heater that just went out will be easily covered.
Start Small
If you currently don’t have an emergency fund or find it difficult to save money the key is to start small. You have to realize that accumulating one month’s worth of expenses will take some time, let alone three to six months. If you set your immediate goals to be small and manageable you will have a better chance in reaching them.
The best way to get started would probably be through your bank. Open up a new savings account if you currently don’t have one and begin to save with this first. The next step is to get into the habit of making regular deposits into this account. Whether it is weekly, bi-weekly or monthly, create a schedule and stick to it. Once you make saving automatic you won’t even have to think about it.
If you feel it is difficult to begin saving simply start with a small amount. Maybe you begin with $10 a week initially. While this won’t amount add up all that quickly the important thing is to start putting something away and to make it a habit. After a few weeks you won’t even notice that $10 missing so you can bump it up to $15 or $20 after a month or so. You will begin to get used to that money not being there and can slightly increase it again.
Where to Keep Your Emergency Fund
You should start with a savings account because it is simple to use and generally does not cost anything. The convenience factor is what is important when getting started. As your account grows you will want to find an account that can earn reasonable interest so that your money is working for you. The next best options to look into are money market accounts or certificate of deposits (CDs).
It is important to keep this emergency fund in a place that will fairly liquid so that you can get to the money quickly in the event of an emergency. You also don’t want to have this money tied into stocks or mutual funds because the volatility of the market could cause you to lose money over the short-term.
Now that we have that covered...a few things are a little different in these times.
First of all, instead of a three month fund, you should aim for nine to twelve month's worth. That is important in these challenging economic times as it is a little harder to find a new job quickly.
Secondly, this means you have to work the debt payoff like I mentioned but instead of snowballing the payments into what is left as you may things off - you use the payments you are no longer making and put that money into your Emergency Fund. Gradually, everything will be paid off and you will be putting that same amount of monthly cash that you were used to NOT having to flush out that fund.
WHY is this important?
You might be facing a situation like we are. Where DH works, is installing a lot of automation that would eventually replace a lot of what he does...if they don't find a different "slot" for him, we become a single income family.
Granted, I make enough to more than cover our basics, it would just mean my house fund became our Emergency Fund for when his unemployment would run out and if he didn't have a new job yet...
It's funny how God directs you sometimes isn't it? I am not panicked at all about this (even though HE is a tad...) because I know what we can live with (and without) and feel secure in the bank balance.
I wish that feeling of security on all of you! Make a plan NOW to tuck away cash - secure your future and eliminate sleepless nights of things you can't really control.
Blessings to you
:)
Financial emergencies can come in the form of a job loss, significant medical expenses, home or auto repairs or something you’ve never dreamed of. The last thing you want to do is be forced to rely on credit cards or a loan which could simply compound the problem.
How Big Should Your Emergency Fund Be?
Most experts agree that you should keep between three and six months worth of your living expenses set aside in your emergency fund. Depending on your specific situation and whether or not you have children, carry substantial debt and types of insurance coverage will determine what amount is best for you.
The reason you want to have three to six months of expenses saved up is that the most common reason for the need of an emergency fund is due to a sudden loss of income. If you or your spouse loses a job you still have bills to pay and it may take a few months to find suitable new employment. It is best to plan for a worst-cast scenario so that the smaller emergencies such as replacing the hot water heater that just went out will be easily covered.
Start Small
If you currently don’t have an emergency fund or find it difficult to save money the key is to start small. You have to realize that accumulating one month’s worth of expenses will take some time, let alone three to six months. If you set your immediate goals to be small and manageable you will have a better chance in reaching them.
The best way to get started would probably be through your bank. Open up a new savings account if you currently don’t have one and begin to save with this first. The next step is to get into the habit of making regular deposits into this account. Whether it is weekly, bi-weekly or monthly, create a schedule and stick to it. Once you make saving automatic you won’t even have to think about it.
If you feel it is difficult to begin saving simply start with a small amount. Maybe you begin with $10 a week initially. While this won’t amount add up all that quickly the important thing is to start putting something away and to make it a habit. After a few weeks you won’t even notice that $10 missing so you can bump it up to $15 or $20 after a month or so. You will begin to get used to that money not being there and can slightly increase it again.
Where to Keep Your Emergency Fund
You should start with a savings account because it is simple to use and generally does not cost anything. The convenience factor is what is important when getting started. As your account grows you will want to find an account that can earn reasonable interest so that your money is working for you. The next best options to look into are money market accounts or certificate of deposits (CDs).
It is important to keep this emergency fund in a place that will fairly liquid so that you can get to the money quickly in the event of an emergency. You also don’t want to have this money tied into stocks or mutual funds because the volatility of the market could cause you to lose money over the short-term.
Now that we have that covered...a few things are a little different in these times.
First of all, instead of a three month fund, you should aim for nine to twelve month's worth. That is important in these challenging economic times as it is a little harder to find a new job quickly.
Secondly, this means you have to work the debt payoff like I mentioned but instead of snowballing the payments into what is left as you may things off - you use the payments you are no longer making and put that money into your Emergency Fund. Gradually, everything will be paid off and you will be putting that same amount of monthly cash that you were used to NOT having to flush out that fund.
WHY is this important?
You might be facing a situation like we are. Where DH works, is installing a lot of automation that would eventually replace a lot of what he does...if they don't find a different "slot" for him, we become a single income family.
Granted, I make enough to more than cover our basics, it would just mean my house fund became our Emergency Fund for when his unemployment would run out and if he didn't have a new job yet...
It's funny how God directs you sometimes isn't it? I am not panicked at all about this (even though HE is a tad...) because I know what we can live with (and without) and feel secure in the bank balance.
I wish that feeling of security on all of you! Make a plan NOW to tuck away cash - secure your future and eliminate sleepless nights of things you can't really control.
Blessings to you
:)
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