Monday, March 21, 2011

Baby Step #3: Funding Your Emergency Fund

Over the past few weeks we have discussed preparing a Budget. Your Budget is your written plan to achieve Financial Freedom.
Today we are going to discuss the next very important step toward your financial freedom........
The Emergency Fund
The Emergency Fund is money set aside so that you do not have to take money from the designated areas in your budget, should some type of an emergency arise. Let's face it, life happens. You must be prepared for the unexpected expense.

Your Emergency Fund  is not vacation money. Hopefully if you are planning a vacation, you have prepared for that and have been setting money aside. However if you are up to your eyeballs in debt, you might consider allocating your vacation dollars to debt reduction. Once your debt is reduced or better yet eliminated, plan your dream vacation. Remember we are taking baby steps to BIG dreams. Once you set your goals on eliminating your debt, you will be amazed how quickly, your balances start to go down.The Emergency fund is just that. Cash put aside for unexpected emergency expenses. Some examples would be,  Car repairs, Furnace repairs, Emergency Travel.......
The first goal is to pay all your bills on time, and eliminate late fees and extra charges. Once you have achieved that goal, (and that should be your very first goal) you need to set some money aside so that you can stay on budget.

If an emergency should arise, furnace breaks, car breaks down and you do not have allocated funds, you will use the money set aside for your bills, to fix the emergent problem. Most of us need our vehicles. If you live anywhere it is cold, you definitely need your furnace. The emergency fund stops the cycle of
 "Robbing Peter to pay Paul"

It is unwise to start paying down credit card debit, if you have nothing put away for a rainy day. Most experts say $1000.00 emergency fund is a good place to start. Any extra monies you get go directly into your emergency fund, until it is fully funded at $1000.00 For some that could be Tax Time. Say you are expecting a big tax refund (lots of theories on that.. hopefully we will cover in the weeks to come). That is when the majority of us receive a lump sum of money. That would be an excellent use of your tax return! For some it might bet an extra hour or two of overtime every week, or in my family's case an extra shift a week for me at the hospital. My husband works overtime every week, with the exception of vacation time.  Maybe taking bottles back could be the $5.00 that starts your fund. The theme throughout this series:
Is just start somewhere and start today!

Let's recap the last few Weeks:

Start A Spending Log
Create A Budget
Pay Bills On Time
Fund An Emergency Fund

The Spending Log definitely is the number one tool to help you create a budget. First, it will show you areas where you can curb your spending.. Secondly, it will show you what you spend your money on, thus identifying categories in your budget.  Make your budget personal to fit the needs of your family.  Don't forget categories such as Birthdays, Christmas, Pets, Insurance Premiums, etc.,  anything you spend your money on needs to be in a category.

Once you have the above steps in place, start funding the Emergency Fund
Place the goal on your fridge, anywhere you are inspired to keep on track
Get your whole Family involved
Help them to see the vision of debt free living
Remember every step gets you one step your dreams!

Next Week
Paying Down Credit Cards



No comments: