The Rain Is Coming, Do You Have A Rainy Day Fund?
I just read an article from The Wall Street Journal describing how few people actually have a ‘rainy day’, or emergency fund, and that most of those people who do have some savings, don’t have enough.
Statistically speaking you are one of the 209 million people who don’t have sufficient savings. Of those, 82 million have NO savings. WOW!
I would wager, if I were a betting man, that very few of those surveyed even know how much is sufficient.
3-6 months of expenses is what the experts (myself included) recommend. For most people that’s $15-25,000, sitting untouched in a savings account.
“That’s a lot of money sitting around not making any interest to speak of, why not invest that money and just use a credit card or home equity line of credit (HELOC) when an emergency comes?” you might ask.
That might work for you to cover an auto repair, or your auto insurance deductible, but what happens when the boss comes to you on Friday, letting you know that you are part of the rumored layoffs? That ‘secure’ job you were going to use to pay back the credit cards is gone, and racking up debt while unemployed is never a good idea!
Lets also consider the intangible benefits of having a fully funded emergency fund. There is a sense of peace in your home when you know that you will be OK, no matter what happens. Think back to the last time you had an emergency (had to fly last-minute to a funeral, your car broke down, the furnace broke one cold and snowy weekend night); was there any panic in your mind, wondering where you would get the money to pay for it, or pay off the card, in addition to the actual thing that happened? When you have some cash sitting around for those kind of events, it turns them from emergencies to inconveniences. The stress level drops to near zero. Your spouse is relaxed, not having to worry about grocery or rent money being spend, and it becomes easier to focus on getting through the actual event. Think about that.
I can attest from personal experience how important it is to have an emergency fund. I’ll give you to recent examples from my own life:
1. On my honeymoon last year, while 2000 miles from home in the Black Hills, one of the tires on my car came close to having a blow out. Instead of having to cancel the rest of the trip, or any of the fun stuff we had planned (and stressing out my new wife), I simply put on the spare, dropped off the car with a local mechanic, bought 4 new tires (the rest were due to be replaced, too), went on our tour, and picked up the car afterward. We hardly skipped a beat in our day, and even were able to smile when we talked about it that evening over supper.
2. At the end of January of this year, after almost 5 years at a very stable engineering company, I was let go. I didn’t enjoy what I did (have you ever had a life-sucking J-O-B?) and would not wanted to go back to work as a cube-dwelling engineer for another company. Having a fully funded emergency fund has allowed me to start my own Financial Coaching business! This is something I’ve been preparing to do (school, training, reading, etc) for a long time, and now I can! My wife is not stressed out about the money situation, even as the company is slowly growing, because she knows that we can go many months w/o any income and be OK.
“Ok, ok, I get it; I need to start saving more. But I’m not sure I can.” The key to this is using a monthly budget, paying off your debts, then living on less than you make until you’ve saved enough. If you are still in debt, quickly save up $1,000 then attack your debt. $1,000 is enough to cover most emergencies, but low enough that you should feel the urgency to become debt free quickly so you can build that rainy day fund.
So, where do you stand? Fully funded? Almost there? Ready to start saving?