Most financial writers, planners, and teachers recommend having an emergency fund.How much varies, some say $1000, some say 3 months, or 3-6 months worth of household expenses. Why? Well, the emergency fund is supposed to be your insurance against going into debt when that unexpected, but inevitable thing happens.The idea is you are your own bank, you can borrow from you.How much do you really need to survive? Bare bones? I always like it when I have a bit of an outline, so I will share what our bare bones are.
Home Insurance(we pay once a year, but set aside the monthly amount each month)
Property Taxes(we pay once a year, but set aside the monthly amount each month)
Medical Services Plan
Cell(we are on a plan, so even though this isn't a necessity it can't be left off, it is only $28 all taxes in per month)
Car Insurance(we pay once a year, but set aside the monthly amount each month)
Life Insurance(we pay once a year, but set aside the monthly amount each month)
Grand Total is what we need to survive on.(A normal budget would include giving and saving but that's when there is an income).
As, I have written before we were really working at getting past one month of expenses saved. Well, we finally did! Taking on an extra job we stashed away another 3 months...just in time! We got our emergency! Hubby's place of employment closed down! So, once again...I can say having an emergency fund is really, really important.
Where to begin?Start off small if it seems like a huge undertaking. I know how you feel, it felt impossible to squeeze anymore from our income....be encouraged you can do it. Once you get your $1000 you have already started taking steps backwards from the financial debt cliff. Having an emergency fund takes away some of the panic that can be involved in a backed up sewer, blown tire, or job loss. Having an emergency fund gives you some options. Suddenly you don't have to hurry up and decide, you can think about it. There is another thing that kicks in....you know how hard you worked to save that money, so you may be more thoughtful when making that big ticket purchase..how much do I really want to spend? When charging a purchase on a credit card, it feels pretty hopeless and kind of like it's not your money anyways..so maybe there's a bit more impulsiveness to our spending?
We have spent many years gathering up a small emergency fund, having emergencies, and then starting all over again. The good news is we don't charge us interest! If we had to use credit cards or lines of credit the interest charges would be hefty! How are you doing getting your rainy day fund????