Gods Money Matters – Articles
Do You Have a Fully Funded Emergency Fund?
What does the Bible say?
Proverbs 27:12 “A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.”
Or as granny would say, you need a ‘rainy day’ emergency fund – because it’s only a matter of time until we have a rainy day… an emergency.
What this means in practice is money in the bank. Money set aside to use only when things go wrong.
Now this presupposes that you have a budget and that you know how much you are spending each month.
How much should be in the emergency fund?
- If you are an employee, then 3 months of expenses is your target.
- If you are self-employed or single your target is 6 months of expenses – because your work might be less certain or you are relying on one income.
- If you are spending $3,000 per month and you are an employee, then you set aside $9,000. If you are self-employed then you set aside $18,000. If you are married and one of you is self-employed and the other an employee then save, say, $12,000.
Do you currently have a fully funded emergency fund?
My experience is most people don’t. Do you like the idea of having funds set aside for emergencies? Often I find that women find this very comforting. Now I know this is somewhat generalising but that’s my experience. Maybe the blokes just aren’t willing to express this as openly.
Lots of people I meet tell me that they have an emergency fund in the form of a credit card… or a mortgage redraw. Does that sound prudent to you? Going into more debt when an emergency happens?
How to develop an emergency fund
- What’s needed is a separate bank account – clearly identified and easy to access – but not too easy. An online saver account or a mortgage offset account is great.
- Getting this type of money together might take some time. I recommend that you initially get together $1,000 as fast as possible – sell something if you need to, just get the first $1,000 together fast!
- To be clear, an emergency fund is NOT for…The hand bag sale, or the new set of wheels for the car or even for Christmas presents… as these should be part of your budget.
- It is for genuine emergencies. Genuine emergencies are when something dies – a fridge, a car or a family member.
How do you know when you should access the emergency fund?
If you are a couple discuss the emergency, discuss what options you have, sleep on it and, if you both agree and only if you both agree – use the emergency fund.
When the emergency fund is accessed it is essential to get the fund back up to the right balance as soon as possible.
A well planned budget and an emergency fund can end dependency on credit cards.
In my experience this is an exciting time for people – getting off the credit card treadmill and having a safety net in place is another step towards financial peace and freedom.