Life can certainly throw you curve balls now and again. Right? Who would have thought that our country would be shut down for weeks on end. Did you?

Let me ask you this – were you prepared? I mean, were you prepared financially? Did you (do you) have money saved to get you through it all? Or, were you totally stressed out because you did not know how you were going to pay your bills and feed your family?

I have been shouting the praises of an emergency fund for years.

And, I have found that my shouts fell mostly on deaf ears because no one really wants to save…because spending is much more fun.

• This is what I hear ALL the time: ‘What? You want me to save how much?  NO WAY! That means I can’t go on a vacation for another year. That is NOT happening – I work hard and deserve a vacation’

• Or, ‘What about that dress that I want to buy – when in the heck will that happen if I have to save my money?!’

• Or, ‘My job is pretty fail safe.  The chances of me losing my job are pretty slim’.

• Or, ‘I own my own business and I am rocking it – there is no way my services won’t be needed. Everyone needs a wedding photographer (hairdresser, manicure) – right?’

Is that you?  Is that how you feel about saving? Let me ask you – how did that all work out for you when the store or restaurant you worked for closed? Or when all the venues were closed and weddings were being rescheduled….indefinitely. Or the salon closed for 3 months? Or, your kiddos were all home and you couldn’t work from home at all?

A few months ago my 2 youngest children and their spouses were talking about when would be the right time to buy a house.  And since the apple doesn’t fall far from the tree, the subject of an emergency fund arose. How much should be saved and what is that based on? Is it a full month of bills, partial month or what? Everyone had a different idea and thought process.

Now, I used to be a budget counselor.

I helped women budget for the unexpected. I helped women get back on track after a divorce or when they got themselves into financial hot water. Personally, I have lived without a job for 2+ years. We used to get paid 4 times a year. I know what I am talking about and I would LOVE to help you out too.

So, let’s dig in. Do you even know what an emergency fund is?

An emergency fund is money that you use….only in the case of an emergency.  I know that sounds fairly stupid and simple but it is a totally different mindset.

There are different types of emergency funds. The 2 most common, and the ones I will explain further are:

• Repair Fund – What if your refrigerator is broken, you need new tires, or your air conditioner needs replaced?  This is your ‘Repair fund.’

• Emergency Fund – What if you lost your job, got sick and can’t work, or there is, as we just witnessed, a national emergency. This is your ‘Emergency Fund’. Money to be used when there is NO income or your income is cut back.

What does that mean exactly? How much money should you set aside for your emergency fund?

What does budgeting for unexpected expenses really mean?

Let’s talk about the ‘Repair Fund’ first. I am a firm believer in baby steps and crossing one threshold so you can feel confident that you are making progress. With that said, the 1st emergency fund that needs funding is your Repair Fund. This fund is ONLY to be used for repairs. Maybe you need new tires or the air conditioner just broke, or your refrigerator is on the fritz. How much should you set aside?

While 1%-3% of your total home value is suggested for your Repair Fund don't let those numbers scare you. Planning for the unexpected should be viewed as a marathon, not as a sprint. Also, depending your homeowners insurance policy, you may get some, if not all of the money back if you do need a new roof or hot water heater. Your repair fund needs to be large enough to pay for those essential items in case your insurance does not cover it.

I would like to suggest that you start with $1000. Once you have that $1000 set aside then move to the true Emergency Fund.

What is the ‘Emergency Fund'?

This is a fund for you to use to pay your bills when you can’t work, get laid off, your hours are cut back or your store closes.  I.e. – no or limited income. It is an emergency fund. This is how you put it together:

• Make a list of all your monthly expenses that must happen each month. I.e. Rent or mortgage, utilities, credit card payments, student loan payments, medical co-pays, medical premiums, etc.

• Make a list of items that you need like food, clothes, and hair cuts. And then eliminate the non necessary and cut back on the necessary. (Clothes and hair cuts are non necessary items when there is no income).

• In your list of musts and needs (food), include the amounts allocated to each item.  Add it all up – that is your Emergency Fund for 1 month.  Money you need to pay ALL of your bills for one month

• Multiply that number x 6. This is the minimum number of months that you should save. Some people (like my financial planner) recommend 9 months because it might take that long to find a job or get back on your feet again.

  • Some people will advise that you have a FULL Emergency Fund. This would be the monthly money that you budgeted to spend if you had an income. You would save a full month’s spending x 6/9 months. Personally I advise against this train of thought. In my humble opinion, not working does not equal status quo. Sacrifices need to happen and they need to happen fast. Would you rather have a new dress or dinner for your family?

So, let’s begin. Here are a few things you can do:

1. Cut back on your every day spending.  You will surprised how much money you spend on a regular basis.  Money that does not need spent. Need some help? Check out ‘40 Ways to Save Money NOW’ and a few other budget/money posts.

2. Take your savings from #1 above and pile it into your Repair Fund. Save that $1000 as fast as you can. Set the money aside and it is ONLY used for emergencies.  Buying a pack of cigarettes, going out to dinner, or buying a new dress are NOT emergencies. If you don’t think you can have all that cash in the house without spending it give it to a trustworthy friend,

3. Save for your Emergency Fund. If you have debt (credit cards, car payments, or furniture payments, etc), continue to pay those off. And at the same time save for your Emergency Fund. If you can, make it a 50/50 split. Debt is a soul sucker and the interest rates are sky high.

   Paying off debt is very important but not at the risk of not being able to pay bills. I am a HUGE believer in being debt free. On the other hand, having no debt is not helpful if you can’t pay your rent. Hence, the emergency fund.

4. If you happen to have ‘extra’ at the end of each month – save ALL of it for your Emergency Fund. Keep the 50/50 split if you have debt. Vacations and new furniture can wait.

5. And, if you happen to not have any debt (kudos to you) – 100% of that extra goes into your Emergency Fund. Once it is saved then vacations and a new dress are a given!

Musts vs Wants

Do you have any idea what a must vs a want is?

The following are wants….NOT musts:

• Cable TV or Direct TV

• Child care (you aren’t working)

• Eating out

• Buying prepared food

• New clothes

• Getting your hair or nails done

• Vacations (short term or long term)

• Birthday or Christmas gifts

• Lawn care

• House cleaners

• Flowers in the garden

• I could go on and on but I think you get the picture.

And if things are really tough, eliminate: unlimited text and phone calls, high speed internet (slower package is best to save money), prepackaged food, name brand food. etc. You might want to consider couponing too.

If you are a parent, this is a complete and total learning experience for your children. When we were without out a job my kids observed us making a budget, sticking to a budget and managing our money well. I have a few articles about Kids and Money too. Beginning with ‘Why You Should Give Your Kids an Allowance (part 1 of 3)’. My kids still budget – and probably always will!

One more thing – if you do need to dip into your ‘Repair fund’ or your ‘Emergency Fund’ you MUST pay it back before you continue with any other spending. It is very important that this step is not skipped.

I sure hope this helps you think a bit differently about your money. Me? I love bossing my money around. I do NOT like my money telling me what to do!

Questions? Let me know – I am here to help. And, do your friend and family a great service – forward this post onto them too. EVERYONE needs an emergency fund.

And, everyone needs to budget for unexpected expenses, right?

One last thing – there is a GREAT online budgeting program that I just LOVE. It is a true budget….not a record keeping system. It will hold you accountable for your over spending. Check it out for sure. It is called ‘You Need a Budget’ or YNAB for short. 30 day free trial and great responsive customer service.