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 in Your Emergency Fund
- 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). Check out this post about where you may be able to cut spending to use that savings towers your emergency fund.
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.
I would be interested in who has the most interesting use of their emergency fund. Send us a note and share your story with us.
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.