Why We Are Saving For An Emergency
As most of you know, we follow the Dave Ramsey plan for personal finances. We haven’t followed his plan exactly the entire time but we are for the most part. We are consumer debt free (everything but the mortgage) and are currently working on saving our 3-6 month emergency fund.
Since we don’t have any debt besides the mortgage, it makes it easier to save for emergencies. It would have taken us a lot longer to save if we still had payments. If you have something that you know is coming up in the near future, like; a job loss, a baby, a move, or home or vehicle repairs, then save for that now before putting all extra money toward debt. You would still need to pay the minimums but you wouldn’t put any extra money towards your debt until the those things are meets first.
Saving 6 Months Worth of Expenses
We are choosing to save a full 6 months of expenses minus a few items that we wouldn’t pay if we were out of work. I created a spreadsheet and figured out what our expenses would be at a bare minimum and multiplied it by 6. I also figured out what we would need if only one of us was out of work at a time. We decided to go ahead and do a full 6 months of expenses because we know that we have some home maintenance that is coming up and possibly vehicle maintenance in the near future as well. My ultimate goal would be to separate out the separate funds but I find that I get overwhelmed easily when I try to worry about whats in each fund. I hope to get there in the next year but it is less stressful for me to focus on one major thing at a time. I have been better about small sinking funds, like gifts and clothes but having a larger vehicle fund right now is not a priority. Once we get our general emergency fund filled, that will be my next focus. I find it easier for me to focus on one thing at a time.
That may not be doable for you so you would want to separate it out more than I do if you wish. I find that I have to budget for items right when I need them. Otherwise, I forget why I saved the money and end up spending it on something else. I usually spend it on something related, since it’s in the certain envelope but not what I really needed it for if that makes sense. For example, this weekend I bought things for my daughter’s birthday this week. I knew I had x amount to spend but forgot that I still needed to get her a certain expensive gift. I ended up spending the money on getting her ears pierced instead because I knew I had money in the envelope. She is okay with that being her gift now but I completely forgot I needed to keep some money for something else related to her birthday.
So, for now our main focus is saving an emergency fund. When we have this funded, we should be able to cash flow any emergencies and not go further into debt. Once this is done, we move on to saving for retirement, kids college, and paying down the mortgage. We do this before moving on to those things so that if something comes up, we don’t go further into debt. It also helps us save much faster. If our money was being split between all those things and saving, it would take us three times as long to do save the full amount. Which means we would be exposed for a longer period of time if an emergency popped up, we may have to go back into debt to pay for it.
Peace of Mind
Having money saved for an emergency gives me peace of mind. When and yes I mean when an emergency comes up, I know that we can handle it. It won’t set us back and we won’t go further into debt. Now, I know that there could still be things like, a job loss on top of my HVAC unit going out all at once that could set us back. However, I know that if that happens, we still won’t be as far in debt as we would have and there are some things you just can’t control in life.
Another reason we are saving a full 6 months of expenses is because my husband has been laid off before. The industry that he works in has seen a lot of job loss in the past several years. If you have a job that is relatively secure, you could save 3 months of expenses. I am more comfortable with 6 months before moving on to the next step. I also know that we will need a new HVAC unit in the next year or so and my husband’s truck is getting really old. Ideally these things would be saved separately but just in case, they need replaced before we get there, we would use the emergency fund.
Almost all emergencies should really be expected and planned for. You should expect your vehicle will get a flat tire at some point or break down on the side of the road. Your house will need a new HVAC unit, a new roof, or a new water heater at some point in time. If you plan for these “emergencies” they really don’t turn into emergencies. They are just a little bump in the road. They are merely an inconvenience not a true emergency. Even major events like a disability or death can be buffered with the right insurance policy. It will still be a life changing event don’t get me wrong but hopefully with the right planning, your entire financial plan won’t be completely disrailed.
Intensity and Accountability
We should be saving as intensely as we paid off our debt but for some reason, we lost steam. Once we made our last debt payment, we had one emergency after another pop up for several weeks straight. We were able to cash flow everything but we lost momentum. We also have been treating our selfs more and buying things we did without for so long. I have also spent money starting this blog and taking courses trying to learn everything I can. We are viewing this as a business and investment but it is still causing us to be slightly behind on our saving goal. We will still get to our goal, just may take a little longer than expected. However, this blog is also helping keep us accountable in our journey. If I tell everyone what our goal is, I have more motivation to achieve it.
Why You Should Save Too
I share everything we are doing to help inspire others to improve their personal finances also. I know that finances are a major stress for a lot of people in our society. If you were debt free and had an emergency fund, would you still be stressed about your finances? Would your marriage be better? Would you be able to focus more and be more productive at work? Would you have more patience with your kids? A lot of these things would be improved with just a plan and a budget.