Life is full of surprises, but what will you rely on if you encounter an unexpected financial crisis? It could be a job loss, illness, an accident, or a number of unexpected events that put a strain on your finances, but being prepared can mean the difference between getting through it and bankruptcy. It is impossible to predict every possible scenario that could occur, but just having an emergency fund in place can go a long way.
When something comes up that requires an unexpected use of money, where do you turn? Ideally, you want to turn to your emergency savings. This is money that you have set aside to cover any unplanned expenses. If you don't have emergency savings, you'll probably turn to credit cards or some sort of loan. While they can work in a pinch, you're really making the problem worse as you will be required to make monthly payments to repay the balance, plus pay some hefty interest.
With the current credit crisis that we're seeing, you can add another problem to the mix. Obtaining a loan or favorable terms on a credit card is becoming even harder to do. You may find that you don't have the easy access to immediate credit when the time comes, which can make your emergency even worse.Start Small
Having an emergency fund is one of the first things you should try to accomplish with any financial plan. There are many rules of thumb that say you should have 3-6 months of expenses saved, but if you're just getting started with your emergency fund, this can seem like an insurmountable goal. While that can provide a good cushion in the event of an emergency, realize that you can get there by starting small.
Create an automatic savings plan by saving even $20 per paycheck if you have to, and as you get used to having a little less money each month, you can slowly increase this amount. It won't happen overnight, but if you continue to save on a regular basis and don't have to think about it, you can watch your emergency fund begin to grow.
Often times people complain that they barely can pay their current bills, let alone put money away for the future. However, a great way to establish an emergency fund is to include the fund on one’s budget and list of debtors. Including one’s emergncy fund as a monthly expense is more commonly referred to as “paying one’ self first.” By moving one’s name to the top of the bills-to-be-paid, will insure a rainy day fund is established and funded each month. I have heard people say their emergency fund will not stop my services (or make collection calls) if the payments cease like an unpaid service/product provider…but the unexpectd debts of life’s surprises will arise and need to be paid. These “expected surprise” debts can sometimes devastate a budget and the potential damage alone should serve as motivation enough to keep emergency fund payments on time and regular.
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