A financial crisis, whether large or small, can strike at any moment. Perhaps you’re faced with an auto repair costing $2000 that you didn’t anticipate. Perhaps, even more is that you are laid off. You need to save for emergencies in order to be prepared for unexpected costs that may arise. We’ve been trying to build our savings over the past couple of years. Here’s what we’re doing.
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Use Sinking Assets
The first step was to develop a budget that accurately represented our costs. Financial save $138 each month to make home improvements. We then save $138 to pay for home maintenance. We’ll save $3588 annually for home improvement and $3588 to pay for home maintenance. It’s probably not enough however it’s what we can do at the moment.
We also have set aside each paycheck $92 to cover car maintenance and repairs, and give us $2,400 per year for this type of. If we need to make an auto repair and we have to pay for it out of the sinking fund.
The sinking funds let us to cover expenses without drawing from the emergency funds.
Plan a month’s budget in advance
Then, we focused to budget a month’s expenses in advance. Since we had more money than the budget then we applied it towards the expenses for next month. We have now enough funds to cover a whole month’s expenses. When we get the money in May, I don’t spend the money that was paid in May. Instead I make use of it in order to finance expenses for June. After we’ve achieved this goal, I’m now working to plan my budget for the next two months. (This could take another year to finish.)
Have a Emergency account
Beyond budgeting and sinking funds ahead, we have an emergency fund. I’d like to increase it to at least $10,000, however at the moment it’s at $3500. This will be used in the event of a major automobile or home repair that requires more than the amount of our sinking fund. Also, we could use it in the event that one of us loses our job.
Take into consideration Credit Cards
We don’t currently have credit card debt and would like to avoid any more in the future. But, we might make use of our credit cards in the event that there was a major emergency, like an injury to a person or a prolonged unemployment crisis. There are tens of thousands of dollars available, but we’d only utilize them in the event of a crisis.
We have additional protections in place to deal with financial emergencies.
- We both work, which means it is unlikely that we’ll be laid off simultaneously. So, we must always have a source of income.
- Then, my husband is covered by both long and short-term disability coverage as he’s the breadwinner in the family.
- Thirdly We have life insurance for us both.
Our plan to save to cover financial emergencies is a continuous one. The plan will be to continue saving, with a focus on budgeting for two months ahead rather than one month. We’ll also try to increase your emergency savings. If either of us receives an increase, we’ll make use of some of the rise in funds to build up our sinking funds, which means we’ll have to depend more on the emergency funds.