How do you plan for an emergency? How do you plan for unexpected expenses? You do understand these things will happen right?
Everyday before you start saving you wonder, and hope that nothing goes wrong to your car, house, etc. It’s a funny thing that happens once you start saving for an emergency fund, at least it did for me. All of sudden, stuff just stops happening. There seems to be no more emergencies. It’s the opposite of Murphy’s law, where everything that goes wrong, suddenly doesn’t.
I remember when I first discovered the concept of saving for an emergency fund. It was like the feeling we all got when we were 16 and finally passed our drivers license test. All of a sudden, you feel liberated. You feel free to do the things you want to do. If you wanted to, you could drive across the country without anyone stopping you. Not only did this make your life better, but you didn’t have to nag your parents to take you somewhere. Total freedom!
Saving up an emergency fund is a little bit like that. It allows you the financial freedom and excitement to make decisions that aren’t impacted by money.
Building an emergency fund is essential to building a proper financial foundation.
It’s one of my philosophies, that you can tell how great of a financial position someone is in, by knowing if they have an emergency fund set up and funded. If they don’t, this is a sign of little, or no planning.
However, there is no better time to start. Think of a big check you have possibly coming from the Government. You have already been living without this money, why not use it to boost your emergency cash reserve?
I know that you may be in the midst of paying down debt, saving for a house, or looking to invest for your retirement, but you can’t buy that new car without passing the driving exam right?
The best emergency funds have somewhere around 3-6 months of living expenses. Think about if you were to get laid off, or have a short term disability. You need living expenses to get you through those would be tough times.
An emergency fund is not there for when you want to take a trip, can’t meet the bills one month, do a home upgrade. It is there if something goes wrong. Using the funds for any other purpose is a separate savings goal. So even, if you have started or have funded an emergency reserve don’t think of it as a savings account, think of it for emergencies!
I get it though. There is nothing flashy about putting money aside in a savings account. In fact it feels elementary, boring even.
But, just like studying for that drivers test you know that once you pass the test, there are endless possibilities of what you can do, and where you can go. This is how emergency funds are built. With the knowledge that they can give you the financial freedom to do the things that really matter to you.
So if you don’t have an emergency fund, why not? Start today or next month and start building that foundation!