Consider the following events:
- Your car needs repair
- You break your femur
- Your spouse loses his job
- A parent contracts cancer
- You have a house fire
- The economy craters
- Your community is hit by a 6.5 earthquake
- The Yellowstone supervolcano erupts
On this continuum of calamity, where do you draw the line that says, “Things above this line are emergencies and below this line are inconveniences?”
The fact is that any of these could constitute an emergency and trying to provide for all of these unfortunate events is overwhelming. But the good news is that some things cease to be an emergency once you have prepared for them.
The Emergency Fund
A few years ago, our family attended Dave Ramsey’s Financial Peace University, and while there was stuff I disagree with (we use credit cards for everything), we did start building an emergency fund. Last year we discovered that our car needed over $2000 in repairs and what would have been a freak-out moment quickly turned into a mere ‘ah, crap’ moment when we remembered that we had a emergency fund for that.
Not all emergencies disappear just because you have provided for them, of course. A major earthquake is going to be an emergency no matter what. But the point is, once you reach a certain level of preparation, you no longer have to worry about a whole class of problems.
So, what kind of provisions are best?
I believe in starting with money. There is a lot to be said for Jim Rohn’s assertion, “If money will fix it, it’s not a problem.” Money doesn’t solve all your problems, but it does solve all your money problems. So let’s look again at that list of possible emergencies:
- Your car needs repair — Solves with money
- You break your femur — Solves with money or insurance (assuming medical care is available)
- Your spouse loses his job — Solves with money (short term; long term requires skills and networking)
- A parent contracts cancer — Does not solve with money, but money removes a lot of distractions
- You have a house fire — Solves with money and insurance (long term; short term does not solve with money)
- The economy craters — Solves with money (recessions are temporary)
- Your community is hit by a 6.5 earthquake — Does not solve with money
- The Yellowstone supervolcano erupts — Does not solve with money
You can start an emergency fund right now. Take a five dollar bill out of your wallet right now and put it in an envelope marked, “Emergency.” Then celebrate the beginning of your emergency fund. Do it right now, then read the next paragraph.
Now that you have your emergency fund started, take it to the next level in just three days:
- Tomorrow (or today if you’re feeling really ambitious), open an account at a bank or credit union you don’t usually use. This is important, because you want this money to be out of sight and out of mind so it doesn’t get accidentally spent; an online bank is ideal for this, but don’t use Paypal (trust me on this).
- The day after that, change your direct deposit to send an amount you won’t miss (maybe $25 or $35) from every paycheck to that new account.
- When you do your taxes, have your refund deposited directly to the emergency fund account.
Once you have established your emergency fund and automated its increase, you can start looking at ways to increase it with a small side hustle. I’ll cover this in a future post, but for right now, consider the value of money in your provisions and, if you haven’t already, take steps to get started.