On my last post, I wrote about the importance of savings. In this post, I want to focus on the importance of having an emergency fund. Some also call it a safety net or rainy day fund. Regardless of what it is called, it is intended to be there in case a large unexpected circumstance happens. So what would fit in this category? Below are some suggestions:
- Major car repairs
- Job loss
- Medical emergency
- Home repairs
Life will throw curveballs at us; this is a given and highlights the importance of having an emergency fund available to be there to handle those curveballs. Having an emergency is already a stressful situation but not having the funds to pay for it will exponentially increase that stress. What would it feel like if you have funds ready for that emergency? How much peace will you have in this emergency? Isn’t that worth saving for? Furthermore, having an emergency fund gives you options. Say you lost your job or decided to quit your job, instead of finding the first job that comes your way out of desperation, you can be more thoughtful in choosing a job that is the right fit to your giftings and goals.
You might be thinking that you want to start an emergency fund now but how much should I save? A good rule of thumb is to save enough to cover three to six months of your monthly expenses. If you have trouble figuring out what your monthly expenses are, I suggest creating an account on Mint.com and input your credit card and checking accounts. If you haven’t heard of Mint, it’s a website that helps track all your financial transactions all in one place. As for security, this comes from their website, “We work to keep your information secure. All your data is encrypted with a 256-bit encryption level and the data exchanged with Mint is encrypted with 128-bit SSL.” They are also owned by Intuit, the makers of TurboTax, Quicken, and Quickbooks. In order to get a rough estimate of your average expenses, simply click on the “Budgets” tab. You can see your monthly expenses or yearly expenses at a quick glance. If you feel uncomfortable about giving information online here’s a suggestion for doing it manually:
- Write down your monthly recurring expenses
- Add in your variable expenses such as groceries, gas, entertainment, gifts, or dining out; this could be a rough average.
- Then add your fixed expenses and variable expenses and multiply it by 3 for three months or 6 for six months to get your emergency fund amount
Having an emergency fund as a goal in mind and having a specific number you want to save for will help focus what you are saving for instead of an ambiguous idea. As Tony Robbins says, “Setting goals is the first step in turning the invisible into the visible.”