If you lost your job today, how long could you survive financially? Do you have emergency money tucked away?
It is hard enough to save money these days, with taxes, and expenses that seem to add up every month, to even think about having emergency money. But you do, have to face the real fact, that emergencies can and will happen, big or small. But how much should you have?
The next time you sit down and work on your monthly bills, just take some time and really think about your situation, and ask yourself some questions. Depending on the answers to these questions, will help you decide just how much emergency money you should put away.
1. Does your employer still pay you if you take a sick day?
2. Does your employer have a long term disability benefit?
3. Is your job secure?
4. Do you pay rent?
5. Do you have a mortgage?
6. Is your car on its last legs?
7. Is your health good?
8. Is your family's health good?
9. Do you have old appliances that you own?
10. Are you self employed?
11. Do you have pets?
As you can tell by the above list, there is always a chance at any time of an emergency. No one wants to spend hours thinking about the "what if's" but you should have something put away for a rainy day.
If you get sick and your employer still pays you, then you are very lucky. Many don't. So if you are one of the ones that don't see pay when you need to take a week off with the flu, you need to have some emergency money.
Many money gurus will tell you, that you should have 3 - 6 months of living expenses put away for your emergency money. That can be a lot of money for most people, and so many just don't bother. But even just a month's worth of living expenses can be a huge help, if you were off sick for a week. Or if your dog broke his leg, or you had to take time off for a sick child. The emergencies don't have to be huge ones to put you in the hole financially.
So, even if you can't have that 3-6 months of living expenses put away, you should have some emergency money for yourself. Something you can draw on, if you can't pay the rent for one month, or you have to make that car payment, and you were down a week of pay. We all know how everything can snowball, just by losing a weeks pay.
If you live paycheck to paycheck, then ANY emergency, big or small, could crush you financially. Even a weeks pay loss could cause trouble with your finances for months to come. You may end up being short on rent, or the mortgage or the car payment. Then you have to try and get ahead to make up this shortfall, whether it is overtime or an extra job. If you could figure out a way, to have a savings account with some emergency money in it, wouldn't it give you sound peace of mind?
Then this should be at the top of your list of bills. The best way to come up with emergency money, is a bit at a time. Unless you got a good refund from your income tax, or a windfall, you may just have to get this started on your own.
You need to sit down and really look at your bills. Is there anything you can shave? Take a notepad with you for a couple of weeks and see where cash spending goes. At least with credit cards, you have a record of your spending, but cash just disappears out of your wallet. Most people will forget what they spent a dollar on here or there. But it does add up.
Once you have seen where your cash has been going. See if you can use a little less. Take your own coffee in a traveler to work. Brown bag your lunch. Cut out that pizza takeout. Cut back a bit on packaged groceries and go for fresh foods. Even if you can shave 5% off your expenses, then do it for your emergency money.
Many people just don't bother, because they don't think it is enough to make a difference. But just like a snowball starts off small and rolls down the hill, it gets bigger and bigger. The first few deposits many not seem like much, but each dollar you put away for emergency money, is money you will have if you feel sick one day, or your car needs brakes.
Even if you can find $25.00 per week, that is $100.00 per month. Get it automatically put into a savings account. Get your bank to transfer it for you on payday. This way you don't have to touch it. You will also get used to living off of less. Once you get used to living off of less, see if you can shave some more for your emergency money fund.
But if after you look at your bills, and you feel you are living close to the line as it is, there is no more budgeting room, then you are an emergency waiting to happen. You need to look at either picking up some extra work, or living somewhere cheaper. You need to do something, but as humans, there will always be something that comes up.
The word emergency may mean something catastrophic to you, but in reality, if you are living close to the line with your paycheck, then ANY thing will be an emergency for you. This can snowball your money, as you try to play catch up with no money.
So without sounding to depressing, you need to do something about this right now about emergency money, while everything seems to be ticking along. The more you can allow the better.
Also really sit down and figure out just what you would need per month to live bare bones. Remember emergency money is not for takeout pizza! it is to help you survive while you are getting better, looking for a new job, or fix your car. Work out the minimum you would need. Then try and aim to save this amount. You will find that if the money is automatically transferred for you to a high interest savings account, then you will get used to living off what is left. But you can also add to this amount, with any overtime you make for example, or any bonuses you get, or tax return. The more you add to your emergency money fund, the better you will feel.
You will sleep better at night, as more and more money is added to this account. Every dollar that gets added, is money you will have to help you out.
Many people will say, "well that is what credit cards are for", as convenient as credit cards are, you will have to make payments on them. The money is not yours, you are still borrowing. Yes it would work for the moment, for such expenses as a broken car, but the bill will come in, and if you have no emergency money, now how are you going to make this payment?
If you are lucky enough to manage to save up the money you worked out as what you would need to pay your rent and survive, then keep saving. This is a great habit you are in now, and you might as well keep going. Once you have that emergency money, you can save money for other things, such as that vacation or a better car. Whatever your hopes and dreams are.
Don't let emergencies, big or small ruin your financial future. Take control and get something started today.