I know what you’re thinking. Part II? What more can he possibly talk about? Part I was already too much for my brain to handle. The thing is we’ve only dipped our toe in the water. There is so much to talk about when it comes to handling money. I’ve learned so much about it over the past year, but even with all that knowledge, I still don’t know as much as I would like to. I’m still learning and I want to be able to share what I’m learning about. Let’s be honest, not everyone is gonna pick up a book with some old guy on it telling you how to be rich. Not everyone is gonna take a class or watch YouTube videos about it. The topic can be very boring and time consuming. It can also be intimidating. No one in your family has ever been good at handling money, so why would you be? No one in your family has ever been wealthy, so how in the world can you be? These things are very possible though. I’m far from wealthy right now myself, but I know by better managing my money that I will be. So....on to Part II.
So you made your budget for the month. You have categories for all your spending. You managed to plan out all of your bills and found out that you have $50 left to spare; which you have decided to be used towards Chick-fil-A (I mean what else would you use $50 of leftover money on? It’s only the greatest fast food restaurant around). You’re following your budget to a T and then when you least expect it, life happens. You get injured playing basketball, your car breaks down, you get a flat tire (this just happened to me last week), your toilet is running over, etc. A case of Murphy’s Law is bound to happen. Whatever can go wrong, will go wrong. So how do we prepare for moments like these when we’re trying to stick to a budget? You should start an emergency fund. What’s an emergency fund? I’m glad you asked.
An emergency fund is a savings account that you touch only for emergencies. Depending on how much you make a year and where you are at financially, will determine how much money should be placed in your emergency fund. In Dave Ramsey’s Complete Guide to Money, he states that you should start off with $1000. If you make less than $20,000 a year, you should start off with $500. These amounts should be enough to fund you for most emergencies while you are in the process of eliminating debt (which is another topic for a future blog). If you don’t have any debt you should build your emergency fund high enough to last you for 3-6 months. This will help fund small emergencies and also major emergencies like the loss of a job. Even though your income will be cut off for the time being, you will still be able to continue to live life normally for a few months.
You would think it would be easy to determine what an emergency is, but some people seem to not really know. An emergency is not when a formal event comes up out the blue and you need money to buy a new dress. It’s not when the latest iPhone comes out and you have to get it because your old iPhone doesn’t do the one new thing that Apple added. It’s not when your TV stops working before the Super Bowl and you have to go out and get a new 55 inch flatscreen. Those are all wants. While they might seem important, they aren’t nearly as important as actual emergencies. Anything that is preventing you from doing something that you “need” to do, is an actual emergency. To be more specific, these emergencies usually deal with: health, home repair, car repair, or job loss.
Saving $1000 can sound extremely difficult for some people. I know most of us have attempted to save money several times but ended up failing after a couple hundred dollars. I have done many transactions of transferring money from my savings account into my checking account. It’s always fulfilling to see my account go from $6 to $75 in a matter of seconds. It’s very convenient, but when a real emergency comes, you’re left to either use a credit card or get a loan from someone. Both of those options just put you in debt. You either have to tell yourself no when you feel tempted to make that transfer, or get a separate bank account just for saving. If you make more than $20,000 a year, you should be able to save $1000 within a year. And If you’re really serious about it you can do it in a matter of a few months. You can cut back on some of your expenses and put the extra money towards your emergency fund. If that is still a challenge, you can sell things you don’t use anymore or pick up a part-time job if you have to. The key is to come up with $1000 as fast as you can so you can have room to breathe when life hits you. You shouldn’t need to worry about paying for emergencies, especially when you know that they’re bound to happen. The thing you need to be concerned about with, is figuring out a way to get out of debt. This is something most people never get to do. Chew on that as you enjoy your weekend.
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