Emergencies
By Keith Bunn Jr.
Whether you have been following my blogs, Facebook, or Twitter pages, you have heard me mentioning about Emergency Funds. It is my opinion that the emergency fund is the most important part of a healthy financial plan and here’s why.
When life sneaks up and smacks us with an unplanned event like, the car needs repairs, your hot water heater needs to be replaced, someone gets sick, a job lose, etc… we get stressed and frustrated because you may not have the funds to cover these events. The thing is, these events, and others like them should not be considered unplanned events. Why? Because cars break, water heaters ware out, people get sick, and whether you’re in a good or bad economy, people lose their jobs. All these things happen; we just don’t know when they’re going to happen. And when we don’t plan for these events and we don’t have cash readily available to cover them, we go to other sources like credit cards, 401K’s/403B’s, your kids college funds, cash out investments, or borrow it from your family, friends or bank. All of which are not good choices.
Julie & I follow what is called “the Seven Baby Steps”. Developed by Dave Ramsey, baby steps 1 and 3 cover this topic. Baby step 1 is a starter emergency fund of $1000. ($500. if your income is under $20,000 per yr) and you should put it into a good money market account. There, it will get about CD (certificate of deposit) rates, but won’t penalize you for taking it out for emergencies. What this small fund will do is cover all those little emergencies that seem to be a big hairy deal when you don’t have the cash to cover them. Now here is the key. You need to sit down and make a list of what you (and your spouse, if married) would consider an emergency and you don’t touch that money unless one or more of those things on that list happen. Later, once you’re done with baby step 2 (paying off all debt except for your home), you move onto baby step 3, which you go back to the $1000. emergency fund and build it up to 3 to 6 months worth of your household expenses. For some of you, this could be anywhere of $10,000. to $20,000. Once that’s done, you can move onto other things like investing, saving for your kids college, paying off your home, and build unbelievable amounts of wealth and give.
Now I know your thinking, ‘This sounds good on paper, but real life doesn’t work that way.’ Well, the only thing I can say to that is, let’s work together on it and I’ll prove it will work for you. It’s not easy, but the peace of mind you’ll have, having an emergency fund is priceless!!
"The best and most beautiful things in the world cannot be seen or even touched - they must be felt with the heart." - Helen Keller –
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