The Value of an Emergency fund and how to save for one
Recently I had to take some unforeseen amount of unpaid time off work, while some see it as a great vacation I saw it as a great amount of stress. You see, like many people, I didn’t have an emergency fund. I was living check to check and I thought I had great job security. I basically thought I was invincible. Hoping for the best is a common thing to do, but hoping isn’t going to get your bills paid if something happens to you or your job. You have to take action by preparing for the worst, you do this by saving up for an emergency fund.
What is an emergency fund? That’s simple, it’s 3 to 6 months worth of living expenses put into a secure place. Sure under the bed may seem like a secure place to you, but what happens if thieves strike or fire starts? I prefer the good old savings account for the simple fact that there’s a record of it and it’s easy to get to. You don’t want to tie this fund up in stocks or other risks at the chance of making more out of it, you want to keep it as secure as possible.
Thankfully my time off work was only about 3 weeks, but the damage had already been done. Living check to check and missing 3 weeks off meant that I was now behind 3 weeks worth of bills, which could have easily been avoided if I had just put a little bit of money away. I got through it, and used my experience as a lesson.
The art of saving
It’s never too late to start an emergency fund. I’m starting mine right now as I write this in fact. The first step I’m taking is looking at my spending habits, where I spend money where I shouldn’t be spending money. Should I really be eating fast food when there’s food at home that I can cook? Do I really need to be buying this new t-shirt? I’m not saying cut everything out of your life, you still need to enjoy your life. Maybe you like to eat fast food and all week you’ve packed yourself a lunch for work, why not take yourself to eat fast food on the Friday as a little treat to yourself. Hopefully you’re not spending that saved money elsewhere and putting it into your emergency fund account instead.
Another often overlooked form of savings is change. Assuming you don’t use plastic for everything and use cash, you will inevitably get change. Most people put it in their pockets and forget about it because who wants to go through the hassle of digging up change and counting it out to give the teller exact change, I know I fall into this category. I simply go home and dump the change somewhere and forget about it, until recently that is. I started to roll the change, yes as tedious as that task is, and I was surprised at what I found. All that forgotten change had equalled a couple hundred dollars, which was quickly put into my emergency fund. I eventually even bought a coin sorter and roller to automate the process. I simply put the change into the hopper and push a button and it separates it for me into the right amount, all I have to do is slide them into a roller tube after.
You don’t have to wait until you have a big deposit to be able to put it into your fund. There’s nothing wrong with depositing $5 a day instead of waiting for the end of the week to deposit $35. Aside from the convenience factor it’s all pretty much the same, except you’re more tempted to spend when you have larger amounts of money. The temptation to cheat comes up and say to yourself, “Oh I could buy this now for $35 and just make a deposit next week.” This is temptation and you have to fight the urges.
Emergency?
I can’t stress this enough, this emergency fund is not play money. Play money is money that you can invest with, buy stuff for your hobby with or gamble away, that should be a different fund. I’m planning on using my emergency fund only if something happens to my work again or if a medical emergency comes up. My friend just bought new shoes and now I have to buy better shoes is not an emergency but having a relative need money to pay medical bills is. There’s a difference and the urge for newer and better things makes it harder to differentiate between the two.
Yes saving for an emergency fund is an uphill battle but the piece of mind it offers is priceless. It gives you that extra time to get back on your feet and not have to worry about bills while you do so. I hope you learn from my mistakes and start saving for your if you don’t already have one.
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