If you don’t already have an emergency fund established for unexpected life events, you need to put one in place today.
According to a recent report from CareerBuilder seventy-eight percent of full-time working people say they live paycheck to paycheck. With about fifty-six percent of people saving $100 or less each month. It can be hard to save in today’s world with the rising costs of healthcare, day to day living expenses and the stagnant wages for many people. It has never been more important to save for a rainy day than it is today.
Unexpected things happen in life. Auto repairs, job loss, and health issues can arise at any time. Having an emergency fund in place not only allows you to take care of many sudden things that come up, but it can also keep you out of debt. The kind that can easily snowball into an avalanche.
What are the top reasons to have emergency money set aside?
We all like to think we are not expendable with an employer. The truth is that most people are not immune to losing their job. Employment is survival. Unless a person is in a position to have the income to never worry about getting fired or being laid off, this is just the way things work.
Statistics show that in this day most people can expect to change jobs about every three to five years. This is due to layoffs, downsizing, and even not liking to work in a particular position.
Gone are the days of getting a job and keeping the same one until retirement. It can still happen, but it is no longer the average for most people. Staying in the same position is not realistic. Companies today are working on obtaining the model of more with less. Outsourcing work to other countries, automated job tasks and technology are also eliminating positions. For most people, it is not a matter of losing your position, but when it will happen.
Due to the increased philosophy of more with less, this has also made many working environments increasingly stressful and toxic. As a result, many people are spending less time with their families and having the time to enjoy life. This has resulted in an increase in illnesses and depression. The good news is that there are still good employers in the world that see the positive production of a good work-life balance. In my opinion, these are becoming more difficult to find, but they are out there.
Having an emergency fund in place is an absolute need in today’s world to buy some time from an unexpected job loss. With many unhealthy work environments, it is also a necessity for our health should we end up in a toxic work environment. You should almost always have another job before quitting your current one. But there is the occasion where you just have to get out for your sanity and overall health. Having an emergency fund in place can make a difference and allows us choices.
Unexpected expenses are just that. Most of the time we do not know when they will happen. But some of them we can plan for.
Routine maintenance and car breakdowns are going to happen. Cars do not last a lifetime. They will break and eventually become a fixture in the junkyard or scrap metal. Even if you follow one of the best ways to remain debt free by not having a car payment, you should be saving for repairs and regular care. To me, this is one of the easiest to plan for. With a used car that is paid for get in the mindset that a payment is due. Make monthly payments into an emergency fund.
Illness or Injury
An illness or an injury can happen without any notice. There are people that have a job where there is no sick pay. Having money set aside can pay bills during an illness. This not only allows a person to rest easier during illness but also gives them the time to properly recover ensuring better health.
Injury can also occur without notice. Falling off a ladder while working on a home, riding a bike, or even just walking the dog all come with risk. Each day we wake up there is the possibility of injury. If you have a job where you can get disability insurance, you should. Having money set aside can also be extra peace of mind should an injury occur.
If you are like me and my family, planning for health-related items through the year is quite a challenge. Dental and vision insurance do not cover much and our high deductible health care makes out of pocket expenses inevitable. We do have a health savings account, which I highly recommend if you work for a company that has one. Money can be set aside to be used for health-related expenses. It is also tax advantaged. Meaning you put the money into an account before taxes. This can lower your income for tax purposes.
Even though a health savings account is good to contribute to there will be expenses that still come up. Putting money aside for health and injury is a requirement in an emergency fund.
If you own a home, you know something will come up that will cost something. Not only will it cost something it will probably be expensive. Roofs and air conditioners only last so long before they have to be replaced. They can also be expensive to repair. Major plumbing issues can also leave you feeling depressed and angry. This happened to me personally. If you ever buy an older home, make sure to pay for an extra thorough inspection of the plumbing. Cast iron is not meant to last.
It is probably not realistically the case, but it always seems there is a minimum three-hundred-dollar charge when something breaks on my home. I can usually save money by doing many repairs myself with YouTube being my teacher. But when something does call for the experience it always costs me.
If you own a home, plan for the unexpected by having an emergency fund. Something will come up and come up often.
Self-Employed, Contractor, Commission or Bonus Employment
If self-employed, a contractor or your salary relies heavily on commissions/bonuses then you should be especially planning for emergencies. It’s easy to think that the good times will keep rolling. However, the economy can change without much notice unless you are really paying attention.
I know people in occupations that do not have a consistent reliable income. Often, they will use credit to offset times of lower income. This can be a dangerous game to play. If it is certain an income check will be coming and credit can be paid off, this is not necessarily bad. It is part of working in a profession that usually has a lot of upside for increasing earnings. Having money set aside for down times can increase the odds of survival in a storm. Living on less than you earn in these types of careers is one of the best ways to put some money aside in an emergency fund. This should be the path that everyone should follow and it is particularly important for these types of careers.
Two Incomes Are Better Than One
Having more than one income in a household is always better than one. With only one income the risk of job loss and no money coming in is significantly increased. Unless two people or more work at the same place or possibly in the same industry the chance both of them would lose their job at the same time is not likely. In addition to having money set aside for many of the items previously mentioned, job loss is the sole purpose of an emergency fund in this situation. You should always save in an emergency fund for living expenses due to a possible job loss. This circumstance requires this money to be put away and used only in this situation. Mark an amount for this purpose only and the additional amount saved for the other items that may come up.
How can you save for an emergency fund?
Stop Eating Out
Food is a large expense each month for everyone. We all have to eat and it is nice to dine out. If you are a person that likes to eat out on a consistent basis, stop doing it. This is not to say you can never enjoy a meal out of your home. Just cut back on the number of times you are doing it and you will save some money.
I realize that schedules can be busy and it is not always possible to cook at home, but there are ways to make it much more possible. Cook more than needed so there will be leftovers. These can easily heat up for a meal. One of my favorite things to use is a crock pot. This enables me to put everything together in the morning and then a meal is ready at the end of the day.
Eating out is something we all do at some point. But limit the number of times you are doing it on a weekly or monthly basis. You will quickly find that you are able to save some money no matter how big or small amount it may be.
Things We Might Enjoy
I am not going to lecture anyone on how they live their life. But at least cutting back on some of the enjoyments you may like can save some money. I don’t mind having a beer once in a while, but do not make it a regular habit to order one out someplace on the occasion that I am not cooking at home. It is not that I never do it, but do not make a habit of ordering one out.
The cost of having an adult beverage while out can be outrageous to say the least and it is one of the biggest sources of revenue for many places. It’s not only the beverages that contain alcohol, but also just drinks in general. When you do eat out try ordering just water instead of a soda. This will also add up. At the very least order a soda with very little ice if it is coming out of a soda fountain. The drink is already cold. The ice is the money maker. Fill the glass top full with ice and a splash of soda is the way most places do it to save some money. I won’t continue on this pet peeve of mine.
It would be great to cut out some of the vices we all have, but it is not always realistic. At least cut back on some of these things and you can save some money. We all have things that get us through the day and to enjoy life. Don’t completely cut them off. Saving money should be fun. Just cut back.
If you haven’t noticed or don’t drink coffee, there are some places that charge outrageous prices for it. Is it gold or coffee? I myself like to have a cup in the morning. If you are paying three to five dollars for a cup each day, stop this immediately. Make coffee at home whenever possible. If you need to get it while you are out there are other places to get it that are less expensive. I am not saying to completely cut out that expensive overpriced coffee. Treat yourself once in a while, but discontinue the routine of overpaying for it on a continual basis. This can save you money and add up quickly.
Do Things Yourself or Earn Some Extra Money
One of the biggest ways to save money is doing anything you can yourself that you have the time to do. The savings in just a year’s time really start to add up. From learning simple home or auto repairs that you can do yourself to mowing your own lawn. The price we all pay for convenience or simple items that do not take a Ph.D. to figure out cost a lot of money.
You can also take on something that will earn some extra money. Sell items online or find a part-time work in addition to a day job. This can get an emergency fund setup in no time.
Just To Name A Few
These are just some of the ways to save some money to put into an emergency fund. The internet can be a great source for saving money as well and here is another article that may help 5 Ways the Internet Can Save You Money.
Put Emergency Money in an Interest-Bearing Account
When you put an emergency fund plan into action it is important to place the money aside for this purpose only. Open a separate account, such as a money market account or put it in an envelope for emergencies only.
Savings accounts, money markets or keeping money in cash only is essential to having access to it if the need should come. Yes, there is an issue with this. With inflation having money in just cash does become a little less over time with inflation, but that is just part of the cost of having it available. Some experts would argue that you should put your money in some type of investment that earns more than a traditional savings account. This can be done if chosen correctly. It needs to be something that money can easily be withdrawn from at any time without penalty or fees.
Many types of traditional investments can increase or decrease in value over time. They may also have surrender charges or fees if you take out money too early. It is best not to have money in an emergency fund tied up for a long period of time.
Once you have enough money set aside that you are comfortable with for emergencies, you can then put a little more away and stagger the maturity time as an option to earn a little more.
How much money should you put into an emergency fund?
There is really no right or wrong answer to the question of how much you should have in an emergency fund in my opinion. Most experts will tell you three to six months of living expenses should be sufficient. I would mostly agree with this. However, the true answers are whatever you are comfortable with and know you may need in the future. Everyone’s situation is different.
Different occupations, income and the place you may be in life can all be a purpose for why your emergency fund may be different from someone else. Although three to six months is typically the standard answer, it is not the one for everyone. My opinion is to save as much as you can that makes you sleep better at night. Once you get there, you will be less stressed and can take care of many unexpected things that come up.
Something is better than nothing. If you can only put a few dollars away each month to begin an emergency fund, this is always better than nothing. Through some time, it will build and become easier. A major benefit of having an emergency fund is that it will not only take care of many things that come up, but it will also help to keep you out of debt. Not having to put car repairs, home repairs or other items on credit ensures you the opportunity to save more and spend less.