Emergency fund - want vs. need
What do you do when that unexpected emergency comes up out of nowhere? What if your car breaks down, or your washing machine gives out on you? Will you have the money in the bank to fix it or will you have to run up more debt to take care of the problem? What if you suddenly got laid off from your job?
Having an emergency fund can eliminate the need for using credit cards and loans to take care of those unexpected things.
Having an emergency fund does not mean having money to pay for that HDTV large flat screen TV that you have been wanting, or to pay for that great pair of shoes you saw in the mall. It means having the money for things that you really need, and not things that you want. This can be a true test of your will power, but can end up saving your money and grief in your time of need.
Try not to make the money easily accessible, maybe put a hold on the account until you make a call to have it unfrozen.
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I have been putting money into 12 month savings certificates every month for years now. If I ever do need a bit of cash, I just don’t renew as at least one a month comes up to renew.
Comment by Natron — July 3, 2007 @ 1:52 pm
The importance of saving up for the rainy days was always instilled in me growing up. I find that this has been very helpful in my adult years.
Whenever I have extra money, my first instinct is to always set it aside. So whenever there’s some emergency, I have a little extra to cover my expenses.
Comment by Augel — July 3, 2007 @ 3:09 pm
That’s great Natron, and Augel. It’s a very important strategy for staying out of debt and keeping yourself on track. Having an emergency fund makes you stronger and more secure.
Comment by Aimee — July 3, 2007 @ 11:13 pm
This is probably the most boring part of a personal financial plan (save money you shouldn’t use is is like hurrying up to wait). But, it is an important step to protect all your other actions. Without it one simple emergency (say some repair for your car) can force you into debt and then you haev to pay off high interest charges…
Comment by John Hunter — July 4, 2007 @ 7:55 am