If You Have Experienced an Emergency, This Will Help Next Time

During my early twenties, I was not aware of the term emergency fund.  I did understand the concept of having enough money saved for a rainy day.  However, after graduating from college, I spent too much money on my unrealistic standard of living and started living pay check to pay check.  If this sounds familiar or like a disaster waiting to happen, keep reading it gets worse, before it gets better.

Next, the 2009 recession hit and I was out of work with no emergency fund.  This was a tough time and a real life lesson.  After that experience, I worked on gaining better employment and at least having $1,000 cash saved in a separate checking account until my student loans were paid off.

Over a decade later, I can say with confidence, that the $1,000 emergency fund, along with living from a budget, saved me from further exposing myself to more debt or falling into worse trouble.  The emergency fund provided a safety net and a platform to excel financially.  Since starting my first emergency fund, I have paid off all of my student loans, we paid cash for our used cars, bought a house with a 20% down payment, started investing and saving for our children’s college. 

Our emergency fund is now fully funded to six months’ worth of living expenses.  We still have other future goals, but we are proud of our journey so far.  Yes, we have used our emergency fund for certain major life situations and opportunities, but that is a calculated risk we were prepared to take as a family.

If you are looking for a way to beat the rat race, then stay away from consumer debt, pay cash and always have an emergency fund.  Here are three ways to start and keep your emergency fund for life.

1. Start small.  I would quickly save $1,000 as soon as possible and take no longer than a month.  Cut your expenses, work an extra job, sell your stuff and get the emergency fund setup now.  If you have a family, I recommend a $1,000 for each family member.  A family of four would then have a $4,000 emergency fund.  Place your emergency fund in a separate checking or savings account where you can access the money immediately.
2. What happens during and after an emergency?  If there are expenses related to your emergency, always try to negotiate your total payments down and then pay them off with cash.  Once you have paid off your emergency with your emergency fund, start the saving process again until you at least hit $1,000.
3. The end goal.  Everyone is different.  My recommendation is to not have an emergency fund larger than $1,000 per member in your household until all your debts are paid off.  Once your debts are paid off, save no more than six months’ worth of living expenses.  Invest the rest of your cash.

You will be surprised at how well you sleep at night, knowing you can handle the next emergency like car repairs, medical expenses, house maintenance, etc.  What are some different ways you can start your emergency fund today?