I’ve had this post rambling around in my empty flu infested head for quite a while. As most of my friends near 30, I’ve noticed a trend emerging that worries me, almost all are preparing to purchase a house within the next 2-3 years yet NONE feel they have the capability of saving an emergency fund. Some feel it is simply impossible to save 15, 20, 25 or 30K, other’s feel the money would be better put into retirement accounts they can’t touch, other’s believe they don’t need one as they could always find more work. For me, this is just ridiculous thinking!
Firstly, if you can save a down-payment for a home or a significant amount into your retirement savings, you can save for an emergency fund. Secondly, if you can’t touch the money it is no use to you in an emergency, so while retirement savings are very important (and compound interest is fabulous) you need money you can get your hands on in an emergency asap! Finally, if there is a recession, a significant number of people are chasing the same jobs and while you may think you could work at a grocery store, I would bet it wouldn’t pay all your bills!
I am in a season of unemployment, as are many people. I have a variety of fields I can work in, I am relatively flexible on location as I don’t own a home and yet I would warn everyone without a good emergency fund in place, debt, losing your car or home are a real possibility. Thankfully due to not owning a home and a good emergency fund I’ve been able to cope, only just.
A friend recently shared with me that she has just purchased a home, with a 5% deposit and she has less than 1k in an emergency fund. I know her work is highly specialized and if she was unemployed the nearest other employer is 2.5 hrs away. When we discussed what she would do she said she would sell her home and car. I really don’t think people realize in a bad market home values drop aka negative equity and there are thousands of people in the same boat trying to sell their homes and cars, in short it becomes a buyers market!
My financial tip to every single person who reads this blog is to look realistically at what you would need to survive a minimum of 6 months with no income and make it happen. Instead of selling things to pay for a weekend away, or new clothes, sell them to put money into that emergency fund, make it your number 1 goal for 2010 to get an emergency fund together. The peace you will feel knowing you can cope with what if, is priceless!
The emergency issue that you pointed out is what drives me to keep some money in the bank. Like you said, expecting that you can make more money “anytime” if you need some help doesn’t cut it in an emergency…you need that money right then, not in 2 weeks when you get another paycheck. And there are so many seemingly small emergencies that can balloon so quickly, using up your cash reserves a lot faster than you thought possible.
So true! It provides so much peace of mind knowin that I don’t have to to worry about expenses if I lose my job or if our business doesn’t do well for a year. Since we’re self-employed we also have an emergency fund for our business so we can keep things running for a year without any income.
I also keep small emergency funds in the house, some cash on hand (in case the electric is out and the ATM doesn’t work), I also keep a small amount of emergency cash in each car, just in case you forget your wallet and are out and about and need gas or something.
I don’t see how people live without emergency funds, I’d be a mess!
Too right, I’m of the very same mindset because it’s well worth squirreling away the money before you need it.