There are variations on definitions of
emergency fund. Some articles would recommend 20% of a person’s yearly
salary; others will enforce 6 -8 months worth of fund that will cover
you for any rainy day; and some will even highlight a specific amount
like $20,000 in addition to your savings account. Do we really need this? Probably not, if you have gazillions in your savings account. Big YES! If you are worrying that one day your job will be declared as redundant or just hates the thought of waking up empty handed when you need money the most.
For emergency fund neophyte like me, I find this to be a challenge as I have a fix allocation for savings, retirement, personal loan and investments on a monthly basis that when I review my left overs for play money (this girl still needs make up and shoes!), I literally have less than $200 to spare each month. So, last month, I came up with the big idea of my emergency fund..here's how
Start with a realistic goal in mind:
While I value the concept of emergency
fund (as a separate entity to savings),the goal of starting with at
least $10,000 dollars for emergency is ridiculous for me as I don’t
think I can afford it. Since I want to make this work, I stepped back
and set a lower target that is manageable. After all bills and
investment, this is the goal I set for 2009. By January 2010, I will revisit if this is working for me or not
- Set initial amount: $1,500
- Set Time Frame: May - December 2009 (7 months)
- Amount per pay check: $107
Learn the art of discipline and pay yourself first:
The concept here is to have access to cash. While online banking is convenient, for this start up amount I created a dummy piggy bank where I have placed my first $107 in cash. The rule is to discipline myself to feed the pig before I go out and play. By August, I will set up an online allocation.
Always count your pennies:
I have been tracking my expenses since January. If you have not done so, there are lots of online tracker you can use (MSN Money,www.mint.com, www.budgetpulse.com etc). Apply what works for you. For now, I still prefer my excel spreadsheets where I can sort by segment. This allows me to review which areas I have overspent at which merchant without logging online
MY EXCEL COLUMNS INCLUDE:
- Account: Cash / Credit
- Merchant: Name of Store
- Amount: Exact details
- Segment: Personal, Video, House, Food, Clothing, Gift etc
- Allocation: Kids/ Me/Family/Hubby and Me
- Notes: Personal grumbling about how I want the item badly
Cut on “feel good” expenses:
I used to pay myself for petty indulgences like a Grande Mocha every Friday, eye brow wax, movie every weekend and so much more. While the expenses may initially appear affordable to me ($40 -$70 a pop), when you place the value in excel, the total amount is horrifying. To combat this, we created family activities that are both entertaining and engaging. Not everyday is a good day….If I am bored or feeling depressed, we just head out to the gym for the adrenalin rush to bring me up again.
Engage support from friends/family:
As you enter into the "Expense Cut" mode, try to engage a friend/husband/daughter/sister to support your personal cause. This means agreeing on lessening trips to the mall, minimizing lunch sessions and scheduling activities that does not involve invasion to growing cash pile. The good thing about peer support is the value of keeping you focus on your goal, overcoming challenges, building confidence that you are doing the right thing for a cause.
For what its worth, creative a positive outlook that this as a new fun hobby and not a burden.
NEXT : AVOID CREDIT CARD DEBT: Do not join the growing bandwagon of people that are unable to pay credit card debts. Eliminate card debt if you can.
