Emergency Fund: Protect Your Family’s Future Without Using Debt
One of my main Manliness Traits is Protect Your Family At All Costs. When it comes to finances and managing your money, there isn’t a more important aspect of that protection than creating and controlling an emergency fund to ensure you cover all your bills when something unusual comes up. Some call this a rainy day fund. Some call it a relief fund. In short, an emergency fund is a cash reserve that you keep in a safe place and use only for emergencies.
It should contain at least $1,000 (at first) and eventually six to twelve months of your household’s take-home salary (eventually). Whether you have loved ones relying on your ability to provide for them or just yourself, having one makes staying out of debt possible when disaster hits. And fellas, be certain, financial disaster (albeit maybe a small one) will hit at some point in the near future. You will be happy, and so will your wife and children, that you started one up.
The only reason you ever tap the fund is in situations where your monthly budget is about to go into the red. Sometimes things happen like a dead transmission, a blown hot water heater or, like me, a newborn baby delivered to your doorstep in the form of an adoption. In those cases, we simply need more cash than our budget can afford. This is when we turn to the emergency fund; it should have enough cash there to fix the emergency and then be replenished during the calmer times.
How do I set one up?
You can do this any number of ways, but the one requirement is that it must be LIQUID. You must be able to get to it quickly. You can set up an online account with you bank of choice. Many of the personal finance bloggers I read love to suggest ING Direct. This bank is strictly an online bank. They don’t have any branches or ATMS (but let you use your local bank’s ATMs for free access to the account). They have a VERY flexible method of saving and I encourage everyone to check them out.
You can also use your local bank to set up an account for quick access. So long as you can get to ATM quickly or pay bills quickly – it qualifies. I do not suggest stowing the money under your proverbial “mattress” or in the often cited “coffee can” in the kitchen. Neither of these pay any interest and if you get jacked, then what?
Do NOT say you can’t afford one
Look, no matter how much money you make and how much you spend, there is always room to save something everyday. Use the ING Direct account to put $1 per day into your emergency fund. You can afford $1/day right? If you can’t, then you are lying to yourself, and as my Dad always told me (it’s also a core Manliness Trait) “Lie To Whoever Else You Want, But NEVER Lie To Yourself.”
If you could sock away just $1 per day, and you all can, then you would have $360 after one year. In 2 years, you could have $700. Not a ton of money, but when disaster hits just once, you will thank yourself many times over for having it. Your wife and your children will thank you as well. Going into debt to pay for something that is out of your control will be a thing of the past. And we all know that going into debt sucks.
I say to anyone who says they can’t afford one that if you want to provide and protect your family, you can NOT afford NOT having one. Your wife and your children rely on you to be the protector of the family unit. Having one of these gives you the piece of mind you will always play with a safety net.
An example of using the fund
Last month, the better half and I planned our budget. We are not in debt, but still live well within our means. We like to save and put away for the new guy (my son Jackson). Since we live in Vegas, we budgeted a huge chunk of change for our electricity bill since it gets to about 293,742,974,398 degrees Fahrenheit in the desert during the summer.
Little did we know where the price of electricity had gone in just a few short months. We were SHOCKED out of our gourdes to see the bill was twice what we had budgeted. Once I picked the wife up off the floor and calmed her down a bit, I encouraged her to have another glass of wine and not worry about it. I was on the case.
I dipped into that emergency fund, paid the bill in full, and never thought twice about it. I knew we had it covered and plenty left over for the next potential budget disaster. I now put nearly $10/day into that fund. Not a ton of money, but it adds up over time. It just grows and grows and so does my ability to handle any short-term situation that comes up financially.
One point of caution, if you get lucky and avoid financial snafu’s for awhile, that fund grows way too large. Don’t let it sit there. Manage it and make sure it does not turn into something else. Invest it somewhere you feel comfortable or even start another fund using ING Direct and call it the sunny-day fund. Use that money for a future vacation or expenditure that your entire family can splurge on.