(This is re-posted from my previous blog. I rediscovered this post the other day, and wanted to add it to the financial posts on this blog.)
This is one of the best pieces of advice I ever received – set some money aside as an emergency fund for … well, emergencies.
It isn’t hard to do. OK, in theory it’s not hard to do. But let’s be realistic … this can be a tough one.
Here are a few guidelines to get you started:
- Set a target for the amount you want to have in your emergency fund. I like to have $1,000 set aside (ala Baby Step #1 – Dave Ramsey) – that way I know I am covered when the washer gives out/the roof starts to leak/the lawnmower needs to be fixed/the car needs new tires/etc. And you know those things don’t just happen one at a time, right?! We all know appliances gang up on you, and tend to quit in multiples. Having enough to feel comfortable with whatever the near future may hold goes a long way in making you feel a little more secure.
- Reserve this fund for emergencies. No, those darling shoes you saw on sale DO NOT count as an emergency! Keep this fund “hands off” until you really need it. If you’re always dipping into it, soon it will be gone – and that kinda defeats the purpose of an emergency fund, don’t ya think?!
- Yes, this comes straight from “Mr. Financial Peace” himself, Dave Ramsey. An emergency fund is key in taking control of your finances, instead of your finances controlling you. And the whole idea of putting together an emergency fund is predicated on the assumption that you are not using your credit cards, or limited their use dramatically. Don’t use credit cards as your emergency fund! This will only lead you further into debt – it’s just too easy to use those blasted things. And suddenly EVERYTHING looks like an emergency (see above.)
- Maybe you don’t have your entire desired amount for your emergency fund at the moment. Start saving it up -put a bit away each month into a savings account, money market, etc. Somewhere that it’s drawing interest (however little it may be) and that you can get at it quickly … in case of an emergency! Keep socking that money away until you reach your goal. Hint: try selling some items on Ebay or Craigslist to help you get your fund together faster.
Then smile at the future!
“She is clothed with strength and dignity;
she can laugh at the days to come.”
Proverbs 31:25 (NIV)
What is your favorite financial tip? Share it with us! 🙂