What is an emergency fund?
An emergency fund is designed for life’s unexpected mishaps. It’s for medical emergencies, surprise family obligations, employment loss, home/auto repairs and so much more. Emergency funds are ALL cash and must sit in your bank as a cash reserve.
An emergency fund should not be used for trips with friends, nights on the town or anything that is not deemed urgent in your life. It’s invisible, untouchable money for REAL emergencies.
Why do you need an emergency fund?
- Its a step in the right direction. A mental thing. The more cash reserves the stronger the financial net becomes in your home. If you don’t have an emergency fund, then you are at the mercy of life. There are many setbacks possible when you are as exposed as you are. Most people hate being controlled so think of an emergency fund as “F – U” Money! Not having to rely on someone to “save” you or worst, looking down on you in your time of need. An emergency fund gives you a taste of what it’s like to have true financial independence.
- Avoid adding more charges onto your credit cards, tapping into your retirement accounts (which carry tax penalties) and borrowing from family and friends. Your emergency fund will prevent you from taking out other forms of debt that will hinder your financial progression even more.
How much should be in the emergency fund?
Reasonably speaking, your emergency fund should be able to cover your basic expenses for 3 to 6 months. Everyone has different expenses. Most of the time, I suggest to my clients to have at minimum $1,000 – $2,500 saved up. Just have it sit in the bank, all cash, and forget about it. If you work a w2 job, you can have a portion of your check go to a specific account without you ever touching it (via direct deposit). If you send $50 to this account every pay-period, this account will grow and be the cushion you need should a catastrophe arrive. You may want to have an accountability partner also. Someone else on the account who would need to sign with you in order to release funds. That way you won’t be tempted to use these funds in a frivolous manner.
Set a goal to save your first $1,000. Once you’ve accomplished that objective, work on saving $1,000 more. Take baby steps if you have to but just take action. We all know procrastination is the thief of time! Stop putting off what you NEED to do today because we all know life can throw a big monkey wrench in your plans and you don’t want to be caught in a financial deficit when or if a catastrophe occurs.
Adding a second income source
I am an advocate for people having more than one income stream. One that you can do from home preferably. Not only will having your own home-based business give you a great tax benefit, but you’ll position yourself to earn additional money that you can apply towards your emergency fund.
In addition, I never understand why people who have just ONE job get “comfortable!” These same people will also go out to get another job on a part-time basis and & still struggle financially. If you desire true financial freedom, you have to begin thinking on another level. If you have a job that’s great – but you must know that when you build something for yourself it will sustain you a lot longer than a job.
One of the best options I’ve encountered over the years is: www.CashflowMaven.com
This is not only a way to create passive and residual income but, its a way to educate yourself and your family on how to make your money work for you. The majority of American’s spend their time chasing money – this platform is designed for money to chase you!
There are people earning an extra $500 or more monthly in this business and their doing it working LESS than part-time hours. If you can create an additional $6,000 a year (or more), that can go towards an emergency fund and a savings account. It would take the pressure off of you financially and allow you to have some breathing room when it comes to your personal economic situation.
In Closing
The objective is to get you moving in the right direction when it comes to your money. To have a fiscal safety net in place should an emergency arise. As we close out 2018, let’s put some real plans in place to make 2019 a financial success.
One of my favorite Zig Ziglar quotes is:
“I’ve had problems when I had money & problems when I haven’t had money…I discovered that if you’re going to have problems, it’s better to have money!”
