Tips on Budgeting – Why Emergency Funds
Tips on Budgeting - Why Emergency Funds
Tips on Budgeting – Why Emergency Funds
Written by: Brandon Schmid
Have you ever had an unexpected expense like a flat tire, broken window or, God forbid, the leaky roof and paid for it with debt? In my experience as a financial consultant, I’d say you’re not alone. The majority of people I come across pay for these expenses with a credit card or pulled money out of a retirement account. One of the first quick tips on budgeting in personal finance basics is to have an emergency fund. Here are three reasons you should have one too.
-
Stay out of Debt
Here’s the deal. There are no unexpected expenses in life. If you own a car you will have repairs. If you own a house, there will be maintenance such as a new roof, window or door. So, the simple rule in personal finance basics is to have an emergency fund to pay for those expenses as they come up so that you don’t have to put the charge on your card. Could you imagine having $2,000 or so sitting in a savings account that you could just ‘grab’ to pay for the new transmission instead of parking the car until you have room on your credit card?
-
Piece of Mind
I asked the question a moment ago. How would you feel if you had $2,000 or so in the bank. Do you have an answer? If not, here’s mine. While consulting with clients and teaching personal finance basics, I suggest that having an emergency fund of any size gives allows you to stop stressing over the “what ifs?” For example, I’m sure you wouldn’t worry about replacing a flat tire if you knew you had the cash in your savings account to take care of it. I know I wouldn’t, and many of my clients don’t either.
-
Financial Opportunities
Again, as a consultant teaching hundreds of people personal finance basics and tips on budgeting over the past few years, I find that there are those with emergency funds and those without. Because of this, there are those who can take advantage of opportunities and those who cannot. For example, if you had $2,000 or more in the bank, would you have taken advantage of the low prices in the stock market at it’s bottom in March 2009? If so, you’d have seen at least a 30% growth in a well balanced portfolio.
These three reasons to have an emergency fund are only a few of many. In your quest to master personal finance basics and to find money to put towards an emergency fund, free up money with a good budget. If you need help with tips on budgeting you can find budget tools with google, or the link provided in the resource section.
DID YOU LIKE THIS ARTICLE? SHARE IT WITH FRIENDS!
Tagged with: Budgeting Tips • personal budget planning • Personal Budgeting • Web Page Finance
Filed under: Budgeting Tips
Like this post? Subscribe to my RSS feed and get loads more!
Having an emergency fund is definitely a necessary, in fact the emergency fund , as much as possible, is separate from your bank savings. Having an emergency fund is also necessary in case you lose your job. This savings should equate to your 3 months full salary, enough to give you an extra budget while job hunting.
Emergency funds are definitely very important as well as it is very important to be sure that the emergency fund money is not spent on anything except emergencies. Thank you very much for this article. It’s very interesting.
Brandon,
This is my first time visiting your site and I absolutely love it. I think we are very much of the same mind when it comes to personal finance.
I don’t think you can overstate how important #2 Peace of Mind can be. Having money in the bank gives you freedom to do things that other people simply cannot do.
For instance, you can prepay for a year for something you’d normally pay monthly, and almost invariably you’ll get a discount.
You don’t have to worry about losing your job and then having your life ruined. You have savings to cover your expenses for a while, so mentally it’s much easier.