The Importance of an Emergency Fund
The Importance of an Emergency Fund
Finances can be tricky. My husband and I would often pay down a credit card, only to have it balloon up again due to unforeseen home repair, family vacations, appliance purchases, etc. What we have found works best for our family was to set up individual accounts for things like vacation, home maintenance and repair, and Christmas. We put a set amount into each account each pay period during the year, that way if the furnace unexpectedly breaks down, we already have money set aside to fix it, and don’t have to charge it. Being able to relax and truly enjoy Christmas without the threat of a huge credit card bill arriving in January has been a blessing!
Your future self will thank you when you have a healthy retirement fund and aren’t stressing out about finances when you’re older.
MilSpouse Money
Mission Response:
You’re right Beth, managing your finances can be a challenge. It is worth the effort to be prepared for emergencies and near-term goals while keeping your eye on the ball and saving for longer-term goals like retirement. Knowing where your money is going now can help you fund the things that are important to you and cover unplanned expenses without having to rely on expensive credit card debt. Who hasn’t had the experience of an unexpected bill for a vehicle repair, appliance breakdown, or an unforeseen trip? The truth is that everyone experiences these events in daily life. The good news is that you can be prepared to financially handle these events. The first step is setting up a realistic spending plan. Check out our Create a Budget section and Spending Plan Worksheet if you need some help.
The next step is to have an emergency fund set aside. Your car or refrigerator could break down or you could experience a job loss or reduced pay. Financial experts recommend you keep three to six months of living expenses saved in a separate, easily accessible account, such as a savings account. If this seems like a lot, start with a goal of $1,000 and add a bit more each pay period until you reach your goal. The purpose of an emergency fund is not to pay for your next vacation or holiday gifts; its purpose is to be a safety net for the unexpected. When you must tap into your emergency fund, make it a priority to replenish it as soon as possible. Consider setting up separate accounts, like Beth, to fund your other goals like vacation and shopping. Put a little in each pay period so when the vacation arrives or shopping occurs, you won’t have to take on consumer debt with interest charges!
