One More Word About Emergency Funds...

OK, so I’ve spent the last several blog posts talking about emergency reserves.  Call it cash, a rainy day fund, or whatever you want, but I think at this point we can agree that it’s important.  I also know that the process of saving it isn’t easy.  We live in a consumer culture, with instant availability of just about everything with the literal click of a button.  It takes discipline and commitment to get to work on saving an emergency fund. 

I promise we’ll move on to another topic in the next blog post, but I just wanted to remind you of why it’s so important.  In a FINRA Investor Education Foundation National Capability Study done in 2012, they found that among the people surveyed:

26% had unpaid medical bills

22% had overdrawn their checking account

14% had taken a loan from their retirement account

13% had more than one late mortgage payment

3.5% had filed for bankruptcy

If you create and maintain a financial “safety net”, I think you’ll find you have a lot less stress, at least where money is concerned.  The process of creating the emergency fund also helps get you into the mode of being more deliberate about your spending and can help you make better financial decisions by thinking about a potential purchase and the trade-off of not having that money available for an emergency.

Finally, let me also encourage you if you have a “significant other” and especially if you are married – learn to talk about money and get agreement about the importance of not only an emergency fund but all of the steps in a financial plan that we’ll be going through in the months ahead.  Believe me – it’s hard to learn how to talk about money.  Maybe even harder with someone you love than a total stranger - but it’s important!  So:

  1. Determine how much you need (3-6 months of your expenses)

  2. Treat your emergency fund like a bill that you have to pay, and pay it first

  3. Determine where you will keep the money (savings account, money market, etc.)

  4. Decide what is an emergency and what would make you dip into the fund

  5. Realize that it takes time to get to your goal.Celebrate the small victories along the way

I’d love to hear about your successes or struggles.  Feel free to email me at gedwards@cfnmail.com