It never fails that bad things seem to happen when you least expect them. Likewise, unexpected expenses seem to rise to the surface when your budget is already stretched to the extreme. Maybe the water pump in your car stops working. Or maybe your dentist just informed you that your son is going to need braces. When money is tight, news like this can strike fear into your heart instantly.
Having an emergency fund is the answer to these types of situations. If you have money put aside in an emergency fund, you can take these little financial catastrophes in stride. You’ll know exactly how you’re going to pay for these unplanned expenditures. Regardless of your financial situation, you will benefit from some variation of an emergency fund.
If you’re just beginning to budget and get your financial boat ship-shape, you can start with a pint-sized version of an emergency fund. Consider putting $500 into a savings account to get started. Although this isn’t a huge cushion, you’ll still take comfort in knowing that you have some money put away for a rainy day.
If you’ve already started to get the hang of budgeting and are working towards paying all of your debts, aim to put a full month’s expenses away. Add together the cost of your regular expenses, such as rent, utilities, car payments and food, and start saving until you get that much cash accumulated in your savings account. With a cushion this size, you’ll be able to relax when your financial boat springs a leak.
Finally, if you’ve mastered budgeting and have already paid off most of your debts, you’re ready to create a full-sized emergency fund. Take that monthly expense amount you already calculated and multiply it times six. With six months’ worth of expenses in your emergency fund, you’ll be prepared to face any financial tidal wave. Even being the victim of a lay-off doesn’t seem so scary when you already know how you will be making your mortgage payment for the next six months.
Whatever your financial situation, an emergency fund is a must-have. No other financial tool will allow you to endure the stormy financial waters that life throws your way with as much ease and as little tension.
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1 response so far ↓
1 Harrington Brooks // Mar 14, 2008 at 3:55 am
Likewise, unexpected expenses seem to rise to the surface when your budget is already stretched to the extreme.
How true that is, nice blog by the way, glad we came across it.
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