Tuesday, September 9, 2008

Emergency Fund

With all of the hurricanes lately, I've been thinking more about being prepared for life's emergencies. It usually only takes one emergency to teach you how to prepare but why not start preparing now. I once went nine days without power thanks to an ice storm. I thought I was prepared but I learned several lessons during that time and now I am much more prepared if something like that should ever happen again. Today, I'm going to talk about being prepared financially.

An emergency fund is simply that - a fund to be used for life's little (and sometimes big) emergencies. Dave Ramsey says to start with $1,000 and then build it up to 3-6 months of living expenses once debt is all paid off. He also states that once you begin living on a budget (more to come on that subject at a later date), many of life's emergency are no longer an emergency. They can simply be worked into the budget for that month. I totally agree with that theory. We have an emergency fund of about six months living expenses (not total expenses, simply what is needed to get by) and this is why I didn't totally panic when I found out my husband's hours had been cut. We immediately started working odd jobs to help out and calculated how long we could survive on the small salary and emergency fund. You know what? - we have only touched that fund twice since last fall. We calculated we had enough to make it until May, June at the latest. It is now September and the fund is still mostly there. It hasn't been easy, but we have changed our lifestyle to cover this emergency.

I also didn't panic when I woke up to a flooded house because I knew I had that emergency fund in place. Yes, insurance covered the damage but there was still a deductible and a few expenses that were not covered (i.e the refridgerator). I was upset and stressed for awhile, but I knew I could afford to put my house back together. Of course, it helped that Uncle Sam gave a little stimulus check this spring to help out my emergency fund and that went straight towards my deductible.

Does it seem overwhelming to come up with this money? Don't let it be. Start by putting back a little extra each month. To give the fund a little boost, sell something on eBay or Craigslist. Once you start working on the fund, it isn't as overwhelming as it seems.

Are you looking for a great place to keep this fund? My suggestion is ING DIRECT. I've had my emergency fund there for over a year now and I couldn't be happier. Remember, you want to have your money in a place where it is easily accessible, but not so easy that you can use it for non-emergency items. To sign up for ING DIRECT (which currently has a 3% interest rate), click on the banner in the right side of this blog.

My challenge today is to start that emergency fund so you will be more prepared when life's next emergency rolls around.


Amy said...

I just came across your blog. I would love to hear what tips you learned during your nine days without power.
I also have an emergency fund and can't imagine what my stress level would be if I didn't have it :)

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