Having an emergency cushion or fund has become more important than ever. Saving for the purchase of the house or the education of his children seems to be more crucial, but it’s not.
We have to stop believing that unforeseen events or bad luck only happen to others. The odds are stacked against us.
It can be tempting to believe that you are prepared for any eventuality because you have disability insurance, car insurance, house insurance, etc…
But there are many other situations for which you do not have coverage and which can weaken your finances.
What can be considered an emergency?
Sometimes people lie to themselves thinking some things can be an emergency but in reality, it is just a lack of planning.
Here are some of the things that can be considered bad luck:
- A car breakdown
- Unforeseen home maintenance cost: a plumbing issue, an extermination issue, a roof issue
- Layoff or dismissal
- And of course, I can’t go further without mentioning, a pandemic.
Now, the problems that are caused because of a lack of planning are Christmas gifts or birthday gifts, regular car maintenance costs, clothes, in other words, whatever is recurring.
From where to start?
You’ve probably heard of the rule that says you should have at least 3 to 6 months of expenses.
And oh just before we go any further, using your credit for bad luck doesn’t count as a buffer. It might save you for then, but it’ll catch up with you around the corner, and it might be harder to solve.
Moreover, who tells you that another problem might not arise right after. That’s why they are called unforeseen events because you can’t predict them.
Though it is a pretty legit rule of thumb, doing it all at once can be hard to swallow. So I will suggest that you set yourself the goal of a month of expense. Other than covering your ass for a whole month, it will be less daunting than spending 6 months.
Of course, if you have the discipline to do it why not but otherwise stick to a month.
Here is a table you can use to calculate your monthly expenses, to find out how much you need to save.
|Expenses||Per month ($)|
|Rent or Mortgage|
|Utilities (gas, electricity)|
We have a lot of financial goals we want to achieve and saving money for an emergency can seem like a drag. But it’s not, it should be part of your financial goals and not sidelined.
Finally, keep in mind that if you are using your emergency fund, you shouldn’t move on to another financial goal until you have replenished your emergency fund..