The Importance of an Emergency Fund
Life Happens - Be Prepared
The car breaks down, and you have a car crisis. The furnace hiccups and you have a furnace crisis. You lose your phone and you have a phone crisis. Compounded, you now have a financial crisis on top of the car crisis, furnace crisis, and phone crisis, which can add stress to an already overworked and busy life. What do you do now? Short-term borrowing will add an additional expense (interest) to your already frayed budget, so that won’t work.
Let’s face it; Life is going to happen, and there are usually a few bumps along the way. One of the easiest ways to cushion the blow of financial crises is to establish an emergency fund. My parents used to call it a “rainy day fund,” meaning that someday it’s going to rain and you’ll need an umbrella for when it does. Your savings will make an effective umbrella when crisis hits.
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Set a Savings Goal and Create a Plan
What should you aim for? For most folks, a reachable goal is $500 to $1,000, put away in an account that is easily accessible and is dedicated to true emergencies – unexpected expenses that are not a part of your normal budgeting (spending plan). Rent or mortgage payments are not emergency expenses; they happen every month, so you should budget, (plan) for them.
What are some good ways to establish an emergency fund if you don’t yet have one? Begin by creating a budget (spending plan) that directs your dollars where to go, so you don’t have to wonder where they went. As a result of planning, you can free up some cash to put toward the emergency fund.
Find New Ways to Bring in Money
If times are tight, you can earn some extra cash by selling things you don’t use and tightening your budget in some places. Here are some examples: A yard sale is a great way to turn your stuff into cash. Take on some extra jobs, or work some overtime. eBay, Craigslist or selling gold jewelry also can contribute to the fund. Dare we suggest brown bagging your lunch instead of eating out and diverting your monies? Foregoing or delaying purchases will free up some cash. Using a tax refund, or shopping for better deals can also help.
Unexpected expenses will always pop up. Having a dedicated, do-not-touch, it’s-only-for-an-emergency, emergency fund puts some margin in your life, allows you to put out the fires that come your way, and reduces stress, and give you peace of mind. Start one today.
About Steve Lambert
Steve Lambert, our Burlington Branch Manager, has been banking for thirty (plus) years. He is well aware that the word “finances” makes people clam up. Having faced life in living color, Steve has hands-on experience and a cache of practical financial advice that can make a real difference in the day to day life of real people. The father of two adult sons, Steve lives in St. Albans with his wife and is a faithful follower of the Red Sox and UVM men’s basketball.