Your financial first aid kit.
It might be the refrigerator that suddenly quits cooling . Or stitches for your youngest son. It could be the transmission in your car or a leaky roof. There are endless examples of “emergencies” that can occur in life. Some of these emergencies are the equivalent of a small cut that requires some peroxide and a band-aid. Other emergencies are much more serious - painful, debilitating, tragic even.
We all know that events such as the loss of a job, a bad car accident, or the unexpected loss of a loved one are going to cause unparalleled amounts of stress. We know that. And when loss is involved, no amount of money can take away all of the hurt and stress.
But over the course of our lifetimes, we are going to face situations in which it would be really handy to have some extra money stashed away. So, let’s talk about the importance of having a financial first aid kit.
Two years ago, our dog Scout was badly hurt in a freak accident involving her eye. It was traumatic for her and for us - scary beyond words. We raced her to an emergency clinic where we were told that it was very likely that she would lose her eye - less than a 25% chance that she would be able to see out of that eye again. Our hearts sunk. They did surgery, stitched her eyelids together, and kept her overnight to monitor her condition… such a long night for us. Thankfully, the next day we were able to bring her home. From there, all we could do was wait for her little body to heal and pray for the best possible outcome.
Several days later we took her back for her stitches to be removed and to be evaluated by a veterinary ophthalmologist.
Miraculously she beat the odds; when the stitches were removed she could still see out of her injured eye!! The ophthalmologist said that her vision may not be exactly the same as it was before the injury but that it seemed to have healed very well and she could definitely see. Words cannot express the relief I felt in that moment! I know dogs are highly adaptable when injured, but I was so worried that she wouldn’t be able to live her life as before (she loooves to play frisbee and fetch) and now she was going to be okay, and we could take her home!
Don’t misunderstand what I have to say next. The cost didn’t matter to us at all - money is just money in the end. But we all know that vet bills can be expensive - especially when requiring surgery and an overnight stay. Her bill was expensive, and it had to be paid.
It wasn’t long before the accident occurred that we started to get a little more serious about saving money. Still not as serious as we should have been at that point - something I regret. There were times early on in our marriage that we’d go through spurts of not saving at all - sometimes because we felt we didn’t have enough to save (more on that later) but lots of times because we just wanted to go out to eat and buy things. However, several months before the accident we got on a better track.
And it was in that moment standing at the counter getting the vet bill for Scout’s care that I was glad we had done better in the months leading up to this. I felt this sense of peace over the whole situation. I know most of that peace came from knowing that Scout was going to be okay. But that peace also came from simply knowing that we had the money in an emergency fund to cover the full cost of her vet bill. We didn’t have to worry about money in that situation. We didn’t have to borrow from a family member. We didn’t have to put it on a credit card or payment plan to pay back with interest. We didn’t have to do anything but pay the bill, get our baby, and go home to finish nursing her back to full health.
I would’ve paid all of the money to my name in that situation for Scout to be better - the total dollar amount isn’t really the point here. The point is that when the unexpected happens, there is a way to avoid adding more stress to already difficult circumstances. Have a solid emergency fund - a financial first aid kit.
When the washing machine stops washing - okay. Not the end of the world. Why? Because you’ve got an emergency fund that will cover the cost of a replacement. No need to go into panic mode. No reason to fall asleep worrying about the extra expense. No reason for the added stress to cause tension between you and your spouse. It can be covered by money in your emergency fund.
This is an EMERGENCY fund though - to be used ONLY in emergency situations. Make sure you have it set aside as such. This is not a part of your savings account. It is a completely separate account. There is no rule that says you can only have one checking account and one savings account. We have several savings accounts - each labeled for a specific purpose (and a few checking accounts). And we never pull money out of a fund unless it’s to be used for what the fund says it’s to be used for. We are very intentional when it comes to setting money aside for those funds and selective when it comes time to take money out of those funds. Money for vacation, new shoes, or a salon visit is not to be pulled out of an emergency fund. If it isn’t a true emergency, do NOT touch that fund. Discipline is required. (Not always easy, I know!)
How much? Dave Ramsey and several other financial gurus recommend starting with $1,000. I love this! $1,000 is a nice chunk of change that can cover minor emergencies. I tell my students to focus on this goal and be diligent in putting money in a savings account EVERY. SINGLE. TIME. they get paid. It won’t be long and they’ll have their first $1,000 saved up! Then once that goal has been reached, it becomes easier for them to see that if they can save $1,000, they can save $2,000...then $5,000 and so on. Some might think - ‘well they’re just kids making a little here and there working odd jobs or minimum wage jobs. How much can they really contribute to a savings account?’ My response: putting in something is WAY better than putting in nothing! AND putting money into a savings account EVERY time they have “income” develops a habit - a VERY important habit for their future!
After paying off debt, Dave Ramsey recommends saving 3-6 months worth of expenses. So take the amount you NEED to get by in a month (money to pay your basic bills, put a roof over your head, and eat) and multiply it by 3. That’s the minimum amount you should have in a solid emergency fund.
Think about this: you or your spouse loses a job suddenly. That’s missing income, and that can really put a crunch on a family financially. But what if you had 3-6 months worth of expenses saved up? That would buy you time - time to go out and find another job. Yes, there would still be some stress involved but not nearly as much if you didn’t have that solid fund in place. It also buys you the time and freedom to take the RIGHT job, not just the first one to come along. Now we all know that saving 3-6 months worth of expenses isn’t an easy task… but it can be done.
Dave Ramsey refers to the Baby Steps - the $1000 emergency fund is his Baby Step ONE and the 3-6 months of expenses fund is his Baby Step 3. If you’ve never checked out any of his stuff, I strongly recommend that you do (free podcasts, free material online, etc.).
And I’ll leave you with this. Think back to your childhood. Were there times when you felt unsafe or worried simply because you knew your parents/guardians didn’t have funds to cover an emergency - even one that you would now consider a minor emergency? For many of us, the answer is a resounding YES! That feeling is a strong one and sticks with a person even if the situation gets handled and things improve over time. Do you have those same feelings now when life throws something unexpected your way?
Here’s to avoiding that feeling as an adult and doing your very best to keep your children from those worries. Here’s to an emergency fund and one of the first steps you can take to being in control of your money! For many it doesn’t feel possible to save up $1,000, but trust me when I say IT IS possible - just start saving as much as you can squeeze out of your current financial situation, and you’ll be there before you know it. And for those that have already conquered that step, consider paying down debt and then shoring up your emergency fund to the tune of 3-6 months worth of expenses!
Feel free to comment, ask a question, or share your emergency fund stories below or in the forum!