It’s understandable. Chances are that no body ever told you you need one. Remember when your grandparents always said those weird things like having money put away “for a rainy day”? It’s not literal as so many of us thought when we were kids. Now that you’re older, have you ever stopped to actually think about what it means? No…..Thought so.
Saving money sucks I know. Why save it when you can die tomorrow? I want to play (awesome new$60.00 game) now dammit! Lets take a look at recent events for an all too real example.
Lets say you happened to live in Japan this week. Earthquake, tsunami, nuclear radiation and yeah snow too. Lets assume you weren’t totally screwed and your house was not washed out to sea but rather was damaged a bit and some of your stuff got wrecked. Were you expecting that? No. Now take a second and think about how much money you have in the bank. Liquid only, no credit, no assets, just cold hard cash. Not much right?
Lets add that the company you work for goes under…. literally…gone. You are now jobless and have a few extra expenses piled up on your front lawn. How are you going to pay the mortgage? How about car insurance, medical costs, Insurance premiums…how are you going to eat?
Extreme circumstance I know but how many people were caught unprepared and are suffering now because of it. Even in more run of the mill times, you can be kinda screwed by simple problems.
Let’s get back to your life. You’re doing ok, living paycheck to paycheck. Your bills are being paid on time and your credit cards aren’t all that bad, maybe even empty. Ask yourself this question now, What would it take to ruin me? A broken leg, a car accident, downsizing at work, there are dozens of things that happen every day and eventually one of them, big or small IS going to happen to you. I’m not saying this to be negative but rather to give you the chance to prepare and save your own ass before you lose it.
How to make an emergency fund:
Take that spread sheet we worked on a while ago and check some numbers out. Most important here is how much money it takes you to survive every month.
Now figure out how many months you are going to need to survive in case something changes your current circumstances. Most people are comfortable with 6 months, but it’s really a personal decision for you to make.
So if it costs you $2.000 a month to get by, you need a cushion of $12,000. A lot of money I know, but you can do it easier than you think. If you have the willpower to set aside $50.00 a paycheck and go deposit it then do it. If you feel like you won’t do it or won’t keep up after awhile, use some earlier tactics I taught you and use direct deposit. Change your deposits to automatically add That money for you so you can’t get off track.
“But I can’t afford that”
I call shenanigans on that my friend. Think of all the things you spend money on everyday. A pack of smokes, a latte, movies or even the little skull shaped air valve caps on your tires(creepy). You absolutely can find a few bucks here and there and if you can’t then your in over head and need to seek financial councilors.
Once you have the dollar amount figured out, you need to put the money somewhere. The key to an emergency fund is that you need to be able to access it in a pinch. With that said, I will type this next part in caps so you understand the importance of my words. DO NOT INVEST THE MONEY IN ANY WAY SHAPE OR FORM. I know it seems counter- intuitive to save money and not invest it in something, but trust me the whole point of an emergency fund is having LIQUID monies at your disposal. Investment vehicles add risk to your funds, tie them up for different lengths of time and defeat the purpose of the emergency fund.
Where to keep it:
Again this can be up for debate. Personally I say it should be kept in a Savings account. Don’t put it in checking because there are too many ways you can access the funds in a time of weakness. Best bet is savings because you can set it up so you can only get the money out by going to a teller and withdrawing in person. It also gives a better interest rate, though it’s still not much it’s better than nothing.
What ever you choose it needs to be accessible in a bind but pain in the butt enough that you won’t spend it on shoes or X box games. Now im tired, so good luck with all that.