(originally published, OCTOBER 26, 2012, updated 2/2015) I wanted to start our fourth installment of Fourth Friday Financial by wishing my beautiful bride of 15 years a Happy Birthday! What a blessing it is to share life with you! (comment from Mary- *sniff*, awww, so sweet!)
Last month we talked in greater detail on how to create a spending plan, aka a budget. There is one category in your spending plan called “emergency fund” that I thought would be good to discuss today. Your emergency fund is for unexpected events. And just to be clear eating out for dinner or buying a big screen TV does NOT qualify as an emergency!
Recently, I gained a whole new appreciation for having this category funded. About two weeks ago, I went down in our basement and noticed there was some water on the floor. I then had that terrible feeling in my stomach. Yup – the hot water tank was leaking! Ugh! We all have these disruptions in our life and frankly we never know when they are going to occur. And when they do; it never is at a good time. Whether it is a hole in the roof, major car repair, or medical procedure – it is not a matter of IF, but WHEN you need to tap into the emergency fund.
So you are probably wondering how much should I have in my emergency fund? Dave Ramsey has some great guidelines on how much to squirrel away. Here are some highlights- TIPS FOR CREATING AN EMERGENCY FUND:
How Much to Save
- Your first goal should be to make sure you have at least $1,000 saved or $500 if your income is less than $20,000.. Ultimately, you should work to have 3-6 months of your monthly expenses saved. Think of it this way, if you happen to lose your job- you will have 3-6 months of “cushion” saved up to live on until you go back to work.
How to Determine Expenses
- Fortunately, you are all diligently working your budget (nudge, nudge) so as you fine tune your plans you should be able to have a good idea of what are your minimum monthly expenses.
How to Find the Funds
- You might need to get creative with how to come up with the funds. This is when you may need to take a “money walk” around your house and see what items you can sell, get more serious about using coupons or maybe even cut the cable (at least for a while).
I can tell you, I did not expect my hot water tank to leak but fortunately we had planned for it. So while it was a total bummer, the sting was not as bad because our emergency fund was fully funded. Check out Proverbs 21:20 as it speaks to planning for those seasons of life that will be more difficult.
Fourth Friday Financial (FFF) is written by Mary’s Dear Hubby Andy, because he was “voluntold”. We have been together for 2 decades and you will begin to see that our differences compliment each other well. Through this monthly series we hope you find practical information for taking control of your finances.