Welcome to the Faith Beyond Finance Bootcamp – Day 3!
So today I want to discuss emergency funds and how they can impact your family.
What would you do if you were to lose your job tomorrow and had no other financial means of assistance?
Would you be ok whilst you searched for another job or would you find that you would quickly sink into the hole of debt?
If you know that you would end up in debt quite quickly then it means that you don’t have a safeguard in place.
You need to change that.
Did you know according to CNBC that in America alone 65% of people have little to no savings at all?
That is VERY scary indeed.
What that means is that 65% of people could quickly slip into poverty if they were to lose their income tomorrow.
Are you a part of that statistic?
This is where your emergency fund comes in.
What is an emergency fund?
An emergency fund is your safety net in finance.
It’s the thing that will stop you from falling into debt.
Your emergency fund will basically be there to catch you when things go upside down.
Having an emergency fund will mean that should you lose your job or in the event that anything should happen where it could shake your financial situation you would still be able to pay your bills for a certain period of time before it could have any real financial impact on you.
Do you have that security in place?
The truth is that most people don’t.
We are so busy trying to live hand to mouth that we think we can’t afford to build an emergency fund.
You can’t afford NOT to have an emergency fund.
Your emergency fund should only be used for emergencies and not for anything else.
It’s not to be used to help you go on holiday or to pay for last minute bits and pieces. It’s basically your financial lifeline.
What can you use your emergency fund for?
It can be hard to say exactly what you should use your emergency fund for but I like to use a general rule of thumb that says “If I don’t pay for this thing now, will I suffer as a direct result of it?”
There are many things that your emergency fund could be for.
If you have a house, your roof falls in and the insurance won’t cover it
If you or your children get sick and need to pay for hospital or medication
If you lose your job and need to cover basic expenses
If there is a death in the family
You just have to exercise a bit of wisdom when it comes to what to use your emergency fund for.
Should I build an emergency fund if I have debts?
Yep! You should.
Nothing changes in this situation because you will still befall the same fate if you had the debts or not.
What you should do though is to only have a starter emergency fund until you have cleared off your debt.
You kind of have to have both things running simultaneously.
Pay your debts whilst building an emergency fund.
How much should your emergency fund be?
Your starter fund should be roughly $1000 or £1000 until the point that you have paid off your debt.
At that point, it is advised that you should have roughly 4-6 months worth of expenses saved up.
That will ensure that should you lose an income you would be able to keep on living for roughly another 4- 6 months.
Doesn’t that just seem so much more safe to you?
Where to keep your emergency fund
Now if we are being honest here it can be really tempting to dip into that fund when things get a little bit tough.
You have to resist that temptation.
The best way to do this is to make it really hard for you to get your hands on the money on a whim.
The last thing you want to do here is to leave your emergency fund in the same bank account that you would normally get paid into.
If you do this your emergency fund will disappear in the blink of an eye.
You should have a completely separate account for your emergency fund.
You should also consider leaving the debit card with a friend or a family member if you know that the temptation will be too much for you to resist taking out the money when you feel you need it.
My challenge for you today
Today I challenge you if you don’t yet have an emergency fund yet, start planning towards getting one set up.
Make a plan to put a bit of money away each month until you have your emergency fund goal.
To make it easy on yourself make the saving automated so you don’t even have to think about it each month.
Let me know how you get on!
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