I know it's Saturday already and I apologize. This week just flew by, and the weekend is hurrying away as we speak too. I can't say whether this past week was especially frugal or not. In fact, it was quite ordinary. I didn't spend much because I didn't shop much, and I didn't find any deals worth mentioning because I didn't hunt for deals...
But I had a conversation with somebody about emergency funds recently and I thought that it would be interesting to talk about. We all know that bad, unexpected things happen. But it's different what each of us might consider an emergency. No, I don't mean those girls who think that a broken acrylic nail is the end of the world... But we all still have different needs. For some of us, having a reliable car is a must but others can do buses just fine... I could live without AC because that's how I lived most of my life but my husband will probably die from overheating...
The real emergency hit our family when my hubby lost a job last year. It was unexpected, it was scary, it was devastating... We didn't know what the future held and, honestly, we were a lot more optimistic and couldn't even imagine it would take my sweet man almost six months to find a job.
But before it happened, I never really had a plan to save for emergencies. We had a recommended $1000 in a bank and a variety of other accounts that we used to set money aside for many different things. I have to be honest with you, it's much easier to save for a particular item (like a minivan) than for some imaginable emergencies. When it hit us, we consolidated everything we had and created one big "emergency" account. We did not know how far we would have to stretch it but we promised ourselves that we will do our best not to use credit cards. And we didn't. We were lucky that my husband could find a nice job before we completely depleted that account....
And if anything I've learned from this lesson is that $1000 is not enough when the real emergency strikes! In reality, your emergency fund should cover all your needs for a certain period of time, preferably 3-6 months. Start by calculating your fixed expenses every month. These numbers can include mortgage/rent, insurance, car payments, child care and any other regular payments you need to make every month. I like to add to this list an approximate amount of your utilities because your life will become significantly harder if you lose heat, electricity or water. Then calculate the bare minimum you need for variable expenses. That will give you a base and an idea of what your emergency fund should be to cover one month's expenses.
Another important thing that, I think, everybody should know is their medical insurance out of pocket maximum. One of the most common and serious "emergencies" often has something to do with our health. You might not have the whole sum sitting in the bank all the time but at least you can be somewhat prepared.
Now that you have an idea of where you need to be, start saving. Create a plan and set some money aside regularly. It's a lot harder to reach your financial goals if you do it sporadically. Even $25 set aside every month is better than nothing.
Now, I don't think you need to be discouraged when you only have $1000 sitting in a bank. No, it's a perfect start. But don't stop there! Do what you can to bring it to where it can serve your family when a true emergency knocks on your door.
And to finish it up, another important emergency fund that, I believe, everybody needs to have on hand is some cash in a sock somewhere. Quite literally. The tiny earthquake we had a few weeks ago was a rude reminder that natural disasters can happen anywhere. And if they happen, more than likely you won't be able to access the money in your bank no matter how much you have there. You don't need thousands of dollars hidden under the mattress but a few hundreds that could buy you much needed water and other emergency supplies would do (yes, we all need to do some other emergency preparation too but it's a whole other topic on it's own...).
So what do you think? Do you have a satisfactory emergency fund or are you trying to build one?