Life does not go according to plan, and cannot be scripted. The unexpected will always create surprises. Unfortunately, less than 50% of Americans are prepared for a $1,000 emergency. Most Americans have to utilize a credit card or borrow money to satisfy a mere $1,000 emergency. This discussion will not even start with an emergency fund that includes three months of living expense, six months of living expenses, or even 12 months of living expenses.
Many individuals believe any surprising life event constitutes an emergency. I would like to share my differing opinion. An emergency is an event or circumstance that can or may impact a person’s health or livelihood. Certain people will say that it is difficult to maintain an emergency fund of any amount because something is always happening. While that may be true, what or who determines how the ‘happening’ gets addressed? For example, there is a car repair that is needed so an individual can commute to work. Instead of making the car repair an immediate need, explore other alternatives. These alternatives may include, but not be limited to, the possibility of working from home, participating in a carpool or rideshare to work, or staying with a family member or friend that lives near your work location. These and other alternatives can allow you time to accumulate the financial resources needed to repair your vehicle by receiving more paychecks to cover the automotive repairs. Emergencies that individuals create may not be emergencies at all. Rather, people have become so impatient and want quick fixes at any cost.
Prioritize your financial requirements and understand the requirements that move your toward and away from your financial goals. Once an emergency fund is established, identify what circumstances and matters will constitute an emergency for you. The qualifiers for an emergency fund usage may be health related or the loss of a job. Utilize surplus income, windfalls, or bonuses to supplement your emergency fund. At a minimum, an emergency fund should be at least three months of your living expenses. An emergency fund greater than 12 months could be considered excessive.
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Nicole Michelle
Finance and Money Wiz
December 31, 2022
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