Saving for a rainy day seems old-fashioned and old-school. That’s because it is. Honestly, it goes all the way back to the Bible.
Today more than ever, having that emergency fund has saved countless people from diving back into debt. Still, more than 60 percent of Americans could not pay for a $1,000 emergency.
The so-called emergency fund — or savings for that matter — is found in several scripture references:
- “The wise store up choice food and olive oil, but fools gulp theirs down.” ~Proverbs 21:20.
- “Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.” ~Proverbs 6:6-8.
- “Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?” ~Luke 14:28-30
How much should you have in an emergency fund? Good question. The general rule of thumb is $1,000, but if your income doesn’t allow for that or you’re trying to put out other financial fires, start with $500. You can add to it later.
Where should you keep your emergency fund? Somewhere at arm’s length. In other words, you want to have ready access but not be tempted to use it for everyday expenditures. Here are a few suggestions:
- Savings account. Use your current bank where your checking account is located, or open a savings account at another bank to make it a little harder to access.
- Money market account. Sure, but remember that your emergency fund is insurance, not an investment tool.
- Cash under the mattress. Lots of people still do this. Cookie jar, shoebox in the closet, underneath the mattress. You can also put it in a safe in your home.
What do I use it for? This is exclusively for emergencies. A sudden car repair, the AC goes out in the house, an ER visit. Something completely unexpected. That means dinner out with friends, Christmas or birthday gifts, a trip to the Caymans, or a new pair of boots does not qualify.
Your emergency fund is your first step to getting your finances in order and living the life of your dreams. You say, “I need to get out of debt, right?” Yes, but remember, your emergency fund is insurance that will protect you while paying off that debt.
If you don’t have the $500 or $1,000, start with what you have. You can sell something; you probably have money laying around you weren’t aware of or simply don’t eat out or go to Starbucks this month.
The first choice is to make the decision. Start your emergency fund today.