The difference Between An Emergency and A Surprise
Posted by Richard on January 15, 2019
Let’s talk emergency funds.
Most money management experts say one of the first things you have to do is build an emergency fund. Usually the number they come up with is astronomical. You might think if you really tried to save that much, everything else in your budget would be an emergency.
But, of course, there is a reason for an emergency fund: Life. It happens. One day you have a job, the next you don’t. That’s an emergency.
In that case, three to six months of your salary would really come in handy. That’s just about what experts say you should have on hand.
On the other hand, when American Express surveyed people about what expenses pressured their budgets, most of them were not talking catastrophe. Instead, they were talking about predictable expenses.
About 46 percent said car expenses stretched their budget. But you know you will have car expenses. You can plan for that special moment.
The other category for a big unexpected expense was health care. About 44 percent experienced this. A big deductible after a surgery is definitely a budget buster. And it can be an emergency and a surprise. But insurance payments shouldn’t be an emergency.
Your emergency fund may never be as large as the experts suggest, but the key is having a healthy amount to protect yourself against emergency.
Here’s how to do it:
– Put aside a regular amount for your emergency fund in a separate savings account. Let it build up.
– Put aside a regular amount for upcoming expenses. Let it build up. That car repair is going to happen. No surprises.
– Build a complete picture of your annual expenses so nothing comes as a surprise. Use an online calendar to note when insurance payments are due. Figure out what these payments would cost you if you had to make a payment every month. This is how much you have to save. No surprises.
– Rid your monthly expenses of unnecessary subscriptions, gifts, impulse buys. Build your funds with that money.
Now, when you have an expense that is a truly critical, urgent need, you have your fund to rely on — not a credit card to ruin your financial life.