Creating an emergency fund is an incredibly important part of maintaining a healthy personal financial life. Without one you are setting yourself on a path to debt, stress, and money management problems. At Work It Women, we feel that financial comfort is a huge part of finding successful life balance.
A lot of people, especially younger people, don’t understand the importance or relevance of an emergency fund. For those who are just out of college with a new career in front of them, personal finance is the last thing on their minds. Without thinking about it, hard times will hit and you will not be prepared causing you to go into panic mode when you can’t afford to pay the bills you have accrued.
My senior year in college, I was involved in a car accident that totaled my car (not my fault!) and I was juggling 3 small jobs and full time school…due to the accident, I was out of work for a little bit and all I can remember is the panic in my mind that of not having enough to pay bills if I was out of work longer. Fortunately, I was only out for a short period of time, but it was enough to scare into thinking…what if?
For some reason, people do not like talking about money. Some people refuse to talk about it, whether its with your spouse, or children, much less with coworkers or friends. This means that some people grow up without the financial education required to succeed in the real world. Sometimes this is generational and bad habits are learned from pure circumstance and lack of direct guidance.
Not talking about money, in my mind, is a very unhealthy thing to do. How do you know if you are doing it right or wrong if you don’t find out how others handle the same situation? You don’t have to know the specifics of their accounts, just that they do it, when they started, how they started, and what are the mistakes they made. By learning from others, you get that much further ahead so you don’t have to waste time making the mistakes someone else has already made. When my husband and I first met, we were very open about our financial positions and thankfully (!) have the same outlook when it comes to future finances and saving (this is important to be on the same page!). We are not perfect, but we were able to save and pay for things that are important to us.
Most people, if they are happy with their financial position, will be more than happy to talk about how they got there and to answer any questions you might have about how to get there too. Make sure that you listen- you might pick up something that works for you.
But let’s get back to the topic, the most important building block to getting to a place where you are comfortable with your money is building an emergency fund.
An Emergency Fund is for All Ages…
A lot of younger people don’t understand the importance of the emergency fund. It is not just a 6-12 month savings account of liquid cash for when you lose your job. Eventually, absolutely it is. For now as a post college individual, with a brand new job, an emergency fund is what’s keeping you out of your parents house and allowing you to continue to afford living on your own.
Living on your own is not just about paying the bills as they come in and out. Sometimes things happen that force you to have unexpected bills that you didn’t plan for. What happens if your air conditioner breaks in the middle of summer, or your pet has to go to the vet, or, like me, you get into a car accident?
These bills can sometimes be up to an unexpected $500 expense a month. Without an emergency fund, a lot of people end up charging the expense and worrying about it later. When multiple expenses happen in the same month or back to back months, without an emergency fund, you end up maxing out your credit cards and quickly going into debt. What’s worse is when you can’t afford that debt, the first thing most people do is move back in with their parents to drop the living expenses to afford your new credit card debt.
A lot of people think emergency funds are just for people who own houses or are in unstable jobs. It’s just not true. Emergency funds are for any emergency and just because you don’t own a house doesn’t mean that a $400 car repair won’t ruin your monthly budget.
Everyone benefits from creating an emergency fund.
If you are interested in learning more about how to organize your financial life check out these resources:
What an Emergency Fund is Not…
An emergency fund is not excess money to pull from when you don’t make enough to cover what you’ve spent in a month. If you spend more than you make in the month, either learn to live more frugally, or you best get some side hustling on (start a blog!)
When you pull from the emergency fund because you spent extra on $200 dress, then when you get a flat tire and need money to pay for it, you won’t have the money and will definitely regret the dress. Just don’t do it.
A good way to avoid this? Set up two savings accounts and auto transfer a certain amount each month into both. One account is short term savings for fun things the other is the emergency fund you do not touch. Pick an amount to transfer into each account a month. When the short term gets to your goal amount, you can use it without feeling guilty and without jeopardizing the emergency fund.
How to Create Your Emergency Fund…
If you are happy with how your accounts are currently set up, set up a second account specifically for emergency fund savings. If you have to use the account, you have to actively transfer the money from the savings to your checking. When you don’t have a card associated with the account, you can’t use the wrong card by accident.
Once you have the account set up, making money and saving money is the name of the game.
The thing about emergency funds is that everyone always says don’t touch the emergency fund. It’s also important to know that it is okay to use it when you have to.
Many people save up emergency funds and then refuse to use it when faced with situations that warrant its use. If you need new brakes on your car or a family member has passed away and you need to fly across country last minute, it’s okay to have to use it. Just make sure that when you have to dip into the account you stop working towards your current goal and build it back up again for the next time an emergency comes along.
How has an emergency fund saved you in the past? Let me know in the comments!
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