Expecting the UnexpectedDo you ever feel that financially it’s just one thing after another? Everything and everybody is aiming at you and you can’t seem to get out of the way. The Biddeford High School seniors hosted a dodge ball fundraiser last week and, as usual, I found myself looking for a financial take away while snapping photos of the kids. In reality, there is no such thing as an “unexpected emergency.” Your car breaks down, your furnace hiccups, your job is outsourced, your pet needs surgery –we all have everyday emergencies, so come to expect them. As he spoke about saving for emergencies, someone told personal financial guru David Ramsey, “You need to be more positive.” David responded, “I am positive. Just as I am positive that it is going to rain, I am As I watched the tourney play out, I realized that our financial life isn’t so unlike dodge ball. If you aren’t prepared and on the lookout for what’s coming, you’ll quickly be on the sideline watching others who are more successful at the game. While conducting financial money management seminars for both students and adults, attendees always tell me that one of their top goals is to build a financially stress free life. However, these same students tend not to meet a major requirement towards reaching this goal –creating an emergency fund to cover unexpected expenses that are guaranteed to occur. Money magazine states that 78% of us will have a major negative financial event in any given ten year period. The Wall Street Journal reported that the average 50 year old person has earned nearly one million dollars over the course of their working lives, yet has a mere $2,000 in liquid assets. Other studies have shown that the typical person is unable to cover a financial emergency of $5,000 without taking on debt, while 33% of us can’t even fund the emergency WITH debt because we can’t qualify for a loan. positive that you need a rainy-day fund.” He further commented, “An emergency fund makes you Murphy repellent. Murphy’s Law seems to be counteracted by an emergency fund. Murphy shows up on your doorstep, notices you have an emergency fund and moves on to the next household who doesn’t have one.” One of my clients visited me the other day and mentioned that he and his wife just couldn’t seem to find a way to build an emergency fund. Every time something comes up they have to put the expense on credit cards –now totaling in excess of $40,000 from the last few years. After chatting with him for a few minutes, he suddenly realized, “Can I just have a certain amount of money come out of my checking account and deposited into a savings account earmarked for things that come out of nowhere?” Bingo. He is on his way to solving the problem after all these years. Pay into your emergency fund first and live on what is left. Paying yourself first is the key to saving money for emergencies, saving money for future purchases, and saving money for investments. For emergencies the recommended amount to put aside is 3 to 6 months of current expenses. This money must be off limits to use for vacations, a new flat screen television, investing, etc. It is strictly your insurance policy for things that you know will rise out of nowhere. "Any views or opinions presented in this e-mail are solely those of the author and do not necessarily represent those of Saco & Biddeford Savings Institution“. Three to six months of expenses placed into savings is your personal umbrella protecting you from the financial stress of a storm so you can focus on living and enjoying day-to-day life. Your emergency fund will make a tough situation less stressful -it will allow you the peace of mind to know you can successfully juggle all those balls thrown at you and survive to play another round! |