Always make sure that you have an emergency savings fund.
You never know when you might need some extra money.
No matter how well you plan, unexpected surprises can derail your budget. While it’s a good idea to have an emergency fund, if you have one, how do you decide when to dip into the fund? Is replacing a broken microwave an emergency?
There are a set amount of expenses that aren’t emergencies, but they regularly occur – replacing car tires, a child’s lost knapsack, etc. Even a relatively minor expense can derail a sensitive budget. An anti-emergency fund helps save for variable expenses (both expected and unexpected) that inevitably take place. Insurance premiums, birthdays, higher heating costs in the winter, all fall into the category of inevitable expenses.
Planning for the “it’s bound to happen” events can help eliminate much financial stress. In all my time creating financial plans, only one client wanted to include a line in his budget for the eventual replacement of large appliances. How will you pay for new appliances if you don’t have disposable income? If you’re forced to dip into pension savings to afford a new refrigerator or withdraw from retirement accounts, you may be faced with penalties, taxes, and the inevitable decline in your account’s value.
Often I hear, “Oh, you’re the money guy, you must know better than I do.” Or, “I never learned about how to manage money and suppose I never will.” Like any other skill, personal finance and money management doesn’t come overnight. It takes education and practice. Once upon a time, schools taught home economics and auto repair, under the assumption that everyone should learn how to cook scrambled eggs and repair a car. But it seems as if today’s schools don’t teach such basic life skills, let alone money management. If you feel fiscally savvy, sit down with your children, both young and young adult, and explain to them how to properly manage money. If you don’t feel capable of teaching, meet with a budget counselor or come to a financial seminar to learn the basics.
Making poor decisions early on can set the stage for future disaster and the snowballing effects of bad debt. Having both an emergency fund and an anti-emergency fund may prevent a surprise from turning into fiscal catastrophe.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.