We have all been in the same situation where something happened and we needed money quick. No, not to pay off our gambling debt, but to pay for an unknown expense. Maybe you had a fridge, water heater, furnace, car repair or some big ticket item that broke and you needed to get it fixed asap. This is where you need to create an emergency finance account.
Perfect example, it’s 10° below zero and your furnace breaks. This is something we don’t have a choice to wait to fix. We need to fix it right now. We think to ourselves, where am I going to get money to make this repair? We think long and hard only to realize we really don’t have extra funds, so we go to the trusty old credit card and make the charge, well if there is room on the card we can do this. However, you’re going to pay more because of the interest charge. That is why we should all have an emergency fund, for our unexpected emergencies. You need to Create an Emergency Finance Account.
Create an Emergency Finance Account
Start an emergency account today and plan for tomorrow
Bottom line, not everyone has a bunch of money laying around, it would be nice, but most people don’t. That’s why we need to start planning today so when the unexpected emergencies arise, we are prepared. With that said we all need to create two different funds. You can have them in the same account, but make sure they are separated on paper so you know how much you have. Try to use an account that will pay you interest, but also allow for easy access such as a savings account or money market account. You will be giving up getting more interest from other places, but in return, you have an easier time getting your money quickly, which is what an emergency is.
These two different accounts tend to hold a fair amount of money, so it is necessary we plan and take action today. Even if you can only add $10 a month or whatever you can afford, it all helps. So what are the two emergency accounts we need?
We need one for big-ticket items such as a furnace, car repair or the other items I mentioned above. We also need an account in case we loose our job. So how do we do this and how do you figure out what should be in each account.
Let’s start off with an emergency account for the loss of employment. Realistically how long do you think it would take to find another job? Well, that’s a pretty hard question because a lot has to do with what area of the country you are located and also the state of the economy.
Obviously the more you can save the better, but a good rule of thumb is 3 months of bills. So you will have to figure out all the expenses such as mortgage, car payments, utilities, food and other monthly bills. Three months is plenty enough time to find something and if not, you can find some side work to stretch out the emergency saving. Now our ultimate goal is to get more than that, but we have other savings goals we want to hit first. We hope we never have to dip into this, but if you do, at least you have it. If we don’t, it is just a little closer to retirement.
So let’s tackle the subject of an emergency account for the big ticket items that break unexpectedly. How much should you save? Well unlike the lose of job account and having 3 months, this one is a little tougher. This is an account you will have to decide. We all have different taste and styles. Your brand new BMW is going to be a lot more expensive than my 79 Pinto to fix; therefore I need to have less money. Same goes with a fridge. You might like the stainless steel expensive fridge, while I might be old fashion and like the double stack.
The whole point to this is to get you to think about having an emergency account for the unforeseen, expensive fixes in our lives. If you are just worried about appliances, furnace or the household items, take a look in your paper and see what a new one would cost and use that as a figure. Obviously you will probably want to repair your appliance, but a repair cost less than buying new. If the maintenance guy says your appliance can’t be fixed and would be better to buy new, well there you have it, you have the money set a side.
The bottom line line is maybe you have these account all ready set up, but if not this article is just to get you thinking about the unexpected and hopefully you can start one today. It’s better to plan now then panic down the road. As always we love hearing your suggestions about how you save or what actions other could take in order to help them save.