Here at Master the Simple, my goal is to help you become an expert of the small stuff so that the big stuff actually becomes manageable. Finances are somewhat of a bedrock for much of life. It’s not everything, but becoming proficient in finances will diminish plenty of unnecessary stress in the future. One way to start reducing stress financially is by creating an emergency fund!
In some research conducted in 2017 by Career Builder, 78% of Americans live paycheck to paycheck. Can you even believe that? That means well over the majority of Americans couldn’t cover an unexpected financial crisis if necessary!
An emergency fund will help diminish this problem (Grab my book Graduated and Clueless for a whole chapter on it).
Let’s get an emergency fund definition
But first, if you’ve known me very long, you should already expect a Dave Ramsey quote when I’m talking finances. So here is the definition of an emergency fund straight from him.
The emergency fund is your protection against life’s unexpected events, and you are going to have a lot of them through your lifetime. They’re not really “unexpected” if you think about it. You know they’re coming; you just don’t know when, what, or how much. But you can still be ready.-Dave Ramsey’s Complete Guide to Money (p. 11)
Predictability is the key when determining if something qualifies as an emergency. This is not for impulse purchases! Otherwise, our emergency fund might vanish while my collection of drones turns into a fleet.
No, your emergency fund is for things you know will happen — you just don’t know when. Like a car dying. Or a surprise visit to the emergency room! If it’s a predictable cost, plan for it but don’t use your emergency fund for it.
make some space between you and a tragedy
Based on the previous statistic, you’re pretty likely to be one of those Americans living paycheck to paycheck, which means you probably couldn’t cover a large emergency if you had to. By the Ramsey recommendation, pulling together a small emergency fund of even just $1000 will give you a bit of breathing room while you pay off debt.
After becoming debt free, however, the goal is to figure out what your absolute necessary costs are every month and save a 3-6 month emergency fund to cover those costs in the event of the loss of a job or another personal tragedy.
“$1000? How am I supposed to get that together? I can barely pay for my weekly chocolate milk from the grocery store!”
First of all, I feel for you. I am in love with chocolate milk. But it’s not absolutely necessary (ok, debatable) and that’s an extra $2.99 you can put toward your savings every week. Find places in your budget you can cut spending (Don’t have a budget? Check out my blog post on why you need one!). Start by packing lunch for work tomorrow.
We all have things we don’t need. Sell them. Sell anything you can to save that $1000! Find another job if you have to as well. Anything to get some space between you and an emergency. Here’s a great article about ways to save an emergency fund.
Do you have an emergency fund and have you ever had to use it?
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