Are you prepared for an emergency?
Are you prepared to pay for an emergency situation?
Most books, articles, journals will tell you that you should have an emergency fund to cover 3-6 months of expenses. You should ask yourself, "what amount do I need to cover us if we were unable to work?" This should include your rent/mortgage, monthly bills and food. During this time, you would be on a strict budget and eat at home the entire time.
An emergency fund is there to cover emergencies only. All of our dollars are accounted for already, so when JP and I needed a plumber to come check out a leak in our wall, we used our emergency fund. That was a true emergency. Having to pay your credit card bill because you do not have enough in your checking account is not an emergency, it is poor planning and bad spending habits. Buying the latest new iPhone because yours broke is not an emergency. Last March we had a "bomb cyclone" tear down our fence. That was not an emergency. We already knew we needed to replace our fence, we were just hoping our fence would last longer. We were able to save up that money until the fence company could come replace our fence. Needing to replace your tires is also not an emergency. You should include that in your flywheel account. We had to replace two of our winter tires this past year and we had that money set aside. Recognize what is an emergency and what is not. Just like you should be able to tell the difference between a need and a want.
When you have a fully funded emergency fund, those emergency situations become more of a inconvenience than a freak out moment. Your stress levels are lowered and you just write the check and move on. When you do not have the money in your account, those emergencies result in heightened stress, lack of sleep from worrying and tension.
What amount should you have in your emergency fund? I would include your total monthly bills, gas and food. For JP and I, that would mean we need roughly $2,500 per month if we both lost our jobs. How many months do you need? That depends on what your job is. Are you a consultant that has to constantly find new work? You would need 6 months. Is your job more stable? Maybe you only need 3 months. You should also consider your own nerves. Do you sleep better at night knowing you have fully funded 6 month emergency fund even if you might only need a 3 month? Then fully fund the 6 month. JP and I have a 3 month emergency fund. Look at your own situation and determine how much you need.
While having an emergency fund is important, living within your means is more important. One thing that JP and I have always done is if one of us loses our job, we are ok, because we live within the lowest payers salary. This way, we don't have to touch our emergency fund unless we both lose our jobs and cannot find a new one. Your lifestyle does not have to increase with your raises. You can definitely treat yourself and we have our vices, but watch your money and see where it goes. Fully fund your emergency fund and keep a flywheel account too. You will sleep better and when those emergencies come up, you will react differently.
You have an emergency and had to use some of your funds, what now? Now you save up that amount over a period of time until it is fully funded again for the next emergency.
Do you have an emergency fund? How much do you keep? Be sure to comment and subscribe*.
An emergency fund is there to cover emergencies only. All of our dollars are accounted for already, so when JP and I needed a plumber to come check out a leak in our wall, we used our emergency fund. That was a true emergency. Having to pay your credit card bill because you do not have enough in your checking account is not an emergency, it is poor planning and bad spending habits. Buying the latest new iPhone because yours broke is not an emergency. Last March we had a "bomb cyclone" tear down our fence. That was not an emergency. We already knew we needed to replace our fence, we were just hoping our fence would last longer. We were able to save up that money until the fence company could come replace our fence. Needing to replace your tires is also not an emergency. You should include that in your flywheel account. We had to replace two of our winter tires this past year and we had that money set aside. Recognize what is an emergency and what is not. Just like you should be able to tell the difference between a need and a want.
When you have a fully funded emergency fund, those emergency situations become more of a inconvenience than a freak out moment. Your stress levels are lowered and you just write the check and move on. When you do not have the money in your account, those emergencies result in heightened stress, lack of sleep from worrying and tension.
What amount should you have in your emergency fund? I would include your total monthly bills, gas and food. For JP and I, that would mean we need roughly $2,500 per month if we both lost our jobs. How many months do you need? That depends on what your job is. Are you a consultant that has to constantly find new work? You would need 6 months. Is your job more stable? Maybe you only need 3 months. You should also consider your own nerves. Do you sleep better at night knowing you have fully funded 6 month emergency fund even if you might only need a 3 month? Then fully fund the 6 month. JP and I have a 3 month emergency fund. Look at your own situation and determine how much you need.
While having an emergency fund is important, living within your means is more important. One thing that JP and I have always done is if one of us loses our job, we are ok, because we live within the lowest payers salary. This way, we don't have to touch our emergency fund unless we both lose our jobs and cannot find a new one. Your lifestyle does not have to increase with your raises. You can definitely treat yourself and we have our vices, but watch your money and see where it goes. Fully fund your emergency fund and keep a flywheel account too. You will sleep better and when those emergencies come up, you will react differently.
You have an emergency and had to use some of your funds, what now? Now you save up that amount over a period of time until it is fully funded again for the next emergency.
Do you have an emergency fund? How much do you keep? Be sure to comment and subscribe*.
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