What would you do if you lost your job tomorrow? Would you be able to take a step back, assess your situation and start looking for a job that would suit your needs, knowing that the search may take several months? Or, if you’re like most people, would you slip into panic mode, try to find any job within your skill set as soon as possible because, let’s face it, bills need to be paid? How about if a fire swept through your home? Would you be able to tough it out in a rental for several weeks until you found permanent living arrangements? Or could you be at risk of becoming homeless? Questions like these are important to ask yourself because the answers determine whether or not you are prepared to meet the minimum monetary requirements to survive an emergency.
While a certain amount of anxiety is normal in the face of sudden and drastic change, you can decrease the intensity and amount of stress experienced during non-life-threatening emergencies by having a source of emergency savings. In this case, the value of a dollar saved increases when you think of the emotional and mental duress that is avoided. No matter what your current living or financial situation is, if you don’t have a source of funds that is reserved solely for emergencies, then NOW is the time to start.
Guidelines provided by personal finance resources recommend that you save enough money to cover at least three months of expenses in case of emergencies. The key word in the previous sentence is EXPENSES. If you haven’t already drafted a budget for yourself, then take an hour or two of your time to sit down and write down absolutely everything you spend money on, including bills, rent, entertainment, food, clothing and discretionary expenses. Once you have a complete picture of how much you really spend in one month, you should multiply that number by three – the total is the minimum amount of money you should have in your “rainy day fund”.
One important thing to remember is that multiplying your expenses by three is just a rule of thumb that should be adjusted according to your fiscal responsibilities and familial obligations. If person A has kids and person B is single, and both have otherwise comparable debt obligations and equal expenses, person A may want to save at least six months of expenses in order to have a secure cushion for his or her family and any unexpected medical costs.
Remember, if you have no money saved yet for emergencies, start today. All it takes is opening a separate savings account and making regular deposits (as mentioned in last month’s article, you can visit www.dcsaves.org for information on DC Saves’ starter savings accounts with no monthly minimum balance or monthly maintenance fees). If you put away $5 each day and deposit it on a weekly basis, you’ll have $840 saved in six months. Ideally, you’ll want to save more money than that, at a much quicker pace, but even if you can’t start big, the important thing is to START—you can always increase the amount a little later. The end result is the same—you are paying yourself to ensure that you’ll be ready for that rainy day!
