Maintain Fabulous Financials: #3 Save for Emergencies
The third step to maintain Fabulous Financials is to save for emergencies.
Many of you already know how important an emergency fund is to me. In my opinion, you don’t have fabulous financials just because you own a home, drive a luxury vehicle, play with the latest gadgets, and wear designer clothes. That’s only an “appearance” of the fabulous life. 9x out of 10, those people are only one paycheck away from the soup kitchen. The only thing worse than being poor is being middle class one day, then a disaster hits, and you’re dirt poor the very next day. At least poor people know they’re poor and learn how to manage within their limited means.
When life is abundant, that is when you should be planning for the worst. Just because you have $200 left after all of your bills are paid, doesn’t mean you should spend the entire $200. Of course you CAN, if you want, but you shouldn’t. Why not? Because shit happens! So if you’ve mastered step #1 (increase income) and step #2 (reduce expenses), consider putting a little change aside to plan for the day when things may not be all cookies and creme.
Plan for the day your HVAC system stops working in the dead heat of summer. Plan for the day your car breaks down in the middle of rush hour. Plan for the day there’s a family emergency and you need to hop on a plane immediately. You never know what life may throw your way. When you truly have fabulous financials, your bank account (and standard of living) will overcome a minor emergency and survive the storm in stride.
If you had an emergency TODAY that required $1,000, would it put you in a bind?
Please share tips on how YOU save for emergencies?
~*~*~*~*~*~Work to achieve, not to acquire.
And always, BE FABULOUS!
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Yes, even after a year of budgeting it would put me in a bind. I had built my emergency fund up to $500 and then had that dratted emergency. I was thankful that I had the money in savings but I am back to square one in rebuilding my fund. I think that’s why we all are so hesitant to spend the emergency fund once we have it. It takes work and dedication to build it up but once you have, it’s a very secure feeling even having a small one to fall back on.
I wouldn’t be happy, but we’d be alright. Any time we have extra money in our house account at the end of the month we put some in the e fund and send the rest to pay off debts. Our goal until we pay off debt is 5K. We’re just a couple Benjamins away. Once we’re debt free we’ll make it bigger.
I always pay myself first. So ING takes $200 the day my pay check hits my bank account. My second tip for saving is never spend your windfalls. If I receive a tax return, stimulus check, year end bonus, extra pay check (the months with 3 pay periods) etc I pay off whatever is on my credit card and then save the rest.
I’ve had a few emergencies recently and I’m glad I have my fund. First was the tornadoes that damaged the roof on my rental property. While covered by insurance, my deductible is $1,000. I have a rental property emergency fund and a personal one. I’ve since restored those funds. Then I had to deal with Hurricane Ike at my personal property. The damage wasn’t more than my deductible. I’ve also restored that one.
My most recent extra expense is relocating. It’s not an emergency because it’s a decision I’ve made, but I’ll also be dipping into my surplus savings for that. There are some expenses that are e-fund worthy like fixing things around the house to prep it for sale, and others that aren’t like certain moving expenses that won’t be covered by my new employer.
I have no secret to saving for my emergency fund now, but before it was fully funded all extra funds went to the emergency fund. I didn’t even do half for me, half for the fund. Once I set a goal for that fund, I just felt the need to put everything I had into it. Now I make sure I set aside at least $500 per pay period for non-retirement savings.
I’ll admit I was living paycheck to paycheck with a student loan, several credit cards and rent and other “regular” bills. I drive a hoopty that I bought from a private owner, so no car note. It took me forever to save $1000. I got the idea from reading The Total Money Makeover by Dave Ramsey. Saved it bit by bit and stuck it in an online savings account.
I got laid off on July 15th. Totally didn’t see it coming. Since I’m still looking for a job, that $1000 has been a wonderful buffer with my unemployment checks. I still shudder when I think of what I’d do if I didn’t have it.
When I get another job, I can’t wait to build up my emergency fund again, and I will definitely make sure it’s more than a grand!
My A/C did go out in the middle of last summer and I ended up having to put $4,000 on my Visa card. That was NOT fabulous folks. It took a minute but I paid it off but I never want to be in that situation again. I now have an emergency fund that I contribute to regularly and at the beginning of the year I’m increasing the deposit. I also add a portion of any “found” money to this account as well
If I needed $1,000 for an emergency today it wouldn’t break me, thank God, ’cause I’m a super saver. I could probably pay myself back within a couple of months. But that’s because I’ve increased my income and drastically lowered my expenses, like you said the first steps are.
I keep $5k in a “life happens” account, which I learned from Michelle Singletary at The Washington Post. It is linked to my checking account and $125 goes into it from every paycheck. I also rebuild it occasionally because money does flow between the two. I pay for things like car insurance 2x year, oil bills in the winter, big car repairs, and new appliances when they have gone completely kaput. I plan for those things with regular savings and stock up with any “found money.” I’ve been fortunate that the balance has never gone below $3,700 and when it has risen above $5,000, I have taken out the extra and plowed it into old debts, which I am steadily attacking and plan to demolish soon (I’m below $2K now in CC debt but I am holding on to cash in case of job loss… maybe not smart but it works for my sanity at the moment).
I also have an ING Direct savings for true emergencies, like job loss, illness -anything that would prevent me from working. That has about $6,500 right now but I’d like it to be at $10K. That would take care of my expenses for six months before I cut them to the bone, which I would do because then I could stretch it to 8 months … or much longer if I had unemployment, severance, or disability.
I am having a dental procedure (root canal on an infected tooth) on Monday to the tune of $570 and that is my portion with dental insurance.
I have my emergency fund, so when the dental assistant told me how much, I didn’t break down in tears. Two years ago, I would have either broken down in tears and called a relative or charged it. Probably both.
I keep about 1500 in my emergency fund and about another thousand in my life happens fund. (I’m a fan of Michelle Singletary too). I have a goal of increasing both of these funds to five thousand each by mid 2009.
I’m really impressed that everyone is so dedicated to building and maintaining their e-funds. You guys are FABULOUS!! Keep up the great work!
It wouldn’t put me in a bind but since my E-fund is slowly creeping toward 3K, (I had car expenses of 1,200 this year) I’d trying like crazy to put that money back even while paying down my debt.
I’m also a big fan of ING’s automatic savings - I pay myself every month, like a bill. For decades, I’ve never been comfortable with less than 10K in an emergency fund - any time it gets below that, I divert other savings to it until it’s back up. Right now my automatic savings is going towards my next car. (It’s fun to pay cash for a car, especially when you’re an unattached female - gives you lots of clout).
“It wouldn’t put me in a bind but since my E-fund is slowly creeping toward 3K, (I had car expenses of 1,200 this year) I’d trying like crazy to put that money back even while paying down my debt.”
If you are just starting with the concept of developing a financial cushion, using an E-fund works for car expenses. However, really they are not emergencies, they are quite predictable. What works very well for expenses like this is to put a given amount aside every month and let it build up, because car repair expenses, although irregular, are recurring.
I find that reserving $50 per month, or $600 per year, just for repairs and maintenance works well. and usually stays ahead of things. This is separate from the e-fund. In fact, I call it a car repair & mnaintenance fund in my budget!