Taking The Urgency Out Of The Emergency
People today spend more time thinking about their next hairstyle, tattoo or electronics than they do their finances. When we mix the daily distractions of life with our lack of financial planning and intentionality, we end up in reaction mode instead of proactive mode. We all know how easy it is to spend exactly what comes in. Most people even go past that into spending more than what comes in. Life is always full of unexpected and under-estimated expenses. For instance, our oil change “expected bill” was $80. We had everything checked and were told our brakes were in the mid-range. 1 day later, we hear grinding on the back brakes. Our “mid-range” brakes now are needing a complete rear set of brake pads, rotors and an alignment. Hundreds of dollars later, we are back on the road again. The difference between $80 and $800 is quite a lot of stress.
The term “emergency fund” is well known. We all know that it makes sense and is a good idea. But actually taking the steps yesterday and today to create and build our emergency fund is something many of us say I will do that when…..I pay off this bill, get my next raise, or I get my tax refund. All of those are great opportunities to add to your emergency fund, but they should never be the starting point. Why? They don’t come to pass often enough. If we are waiting for all the things to align to make the wise choice, then it will never happen. Instead we look at where we are now, and then start.
Getting control of our finances can be a big task. We need to find out where we are exactly. -What debts do we have? Find everything, from credit cards, student loans, car loans, medical payments, family loans, etc.
-Downsize/Eliminate unnecessary subscriptions, eating out and impulse purchases.
-Keep making minimum payments on all debts, and then do whatever is needed to start building your emergency fund. Maybe that is taking a few extra shifts at work or selling some things you no longer need. People are scrappy and tenacious when they want to be. If you take these steps seriously you will be shocked at how quickly extra money can be scraped together to create a nice little stash. Your first goal to reach is the cost of rent for one month. This could take you 1 month or 4 months to achieve. Just don’t let it take too long.
After that, your next goal is to expand it to cover all your bills for one month. I’m sure you can see where this is going. Next, you’ll want to achieve 3 months of expenses, and then 6 months of expenses. You can choose a weekly, biweekly, or monthly deposit goal into your emergency fund. Set a realistic goal for yourself that is attainable if you stretch your capacity. As challenging as this is going to be, the peace of mind you will have when you have 6 months of living expenses set aside is unlike anything you can imagine. When a life changing event happens it is stressful enough as it is without adding the financial strain to it as well.
Once you have your emergency fund, no matter what level it is at, you need to set up some ground rules. Where is it going to be located? Separate savings account in a separate bank? At home? Wherever it is, the same rules apply. What kinds of emergencies constitute dipping into it? For us, we have chosen if we have an interruption in our income from say a long-term sickness or job loss. This fund is not for when you overspend on groceries and now are short on rent. It’s not necessarily even for the unexpected car brakes that cost $800. The reason I say this is because if we use it for the uncomfortable moments, then it becomes easier to use it every time. Lets face it, overspending on groceries or car brakes is uncomfortable. But in many cases people can scramble and do what it takes to handle the small detour.
A true emergency fund is for those things that really set you back and take time to get back on track. A long-term sickness or job loss takes time for the next paycheck to catch up. You might be doing the steps to get a stable paycheck coming back in but you just need that 2-4 weeks of buffer. This is where the emergency fund covering rent or a months’ worth of bills really can make the difference. Being able to handle these unexpected life events with less financial strain really makes a difference in our relationships as well. Financial stress is one of the leading causes of marital problems. Having a healthy emergency fund and working a consistent budget helps keep things in the right perspective.
If you’re ready to jumpstart your finances, check out this “Getting Debt Free” workbook.
https://www.lanternlit.org/shop/p/getting-debt-free-workbook