In Case of an Emergency

Do you have a plan for when "life" happens. I don't think there is one among us who have not experienced some sort of unforseen event in our lives. We have all seen the car break down, the refrigerator dying, the air conditioning bust, or worst of all...the tv blow out. This stuff happens, it is GOING to happen again. There is no guess work involved; in your life you are going to have an unexpected event. Since this is GOING to happen, you might as well plan for it.

If you plan for a credit card to be your Emergency Fund I ask that you reconsider. If you use it for an emergency you are not taking care of that emergency at all, in fact you just made it even HARDER on yourself.

Imagine something serious happens like your car breaking down, a loved one is injured, or even worst a friend or family has died and the costs from the event are coming in. Life is hard enough to deal with trials. You don't need to pile on more crap (I think I can say crap, its my blog) in your life. You don't want to have a life problem AND a money problem.

If you don't remember why being in debt is bad, we talked about it a few weeks ago. Quick Recap: Proverbs 22:7 "The rich rule over the poor, and the borrower is servant to the lender." Another translation says "the borrower is slave to the lender." When you establish a lender/borrower relationship you are actually establishing a slave/master relationship. The sad thing is I know too many people whose master is Visa or American Express. I don't think that the people who named "MasterCard" were too far off.

Anyway, in order to hedge life I recommend that the FIRST thing you do is save/set aside $1,000 in an "Emergency Fund." This is a fund that is not a big earner, it's not an investment, it can't be tied up and not easy to get to, and you don't touch it. Put it in a money market account (see Money Market and leave it there. I have mine earning 5.10% in a Money Market through Bank of America. I just moved it there from ING Direct earning 4.50%. Regardless of the percentage points, the important thing is to do it because when life happens you need to have a plan.

The reason why I say it do it FIRST before paying off debt is this. Let's say you are throwing all your money and attacking your debt. Well, if life happens and you don't have any buffer you are going to put it back on the credit card and emotionally kill all the momentum you built. There is so much freedom in when an emergency happens you can just write a check and its over. When you draw out those expenses it builds an emotional burden that is very real. After all, personal finance is just as much personal as it is finance. That makes sense considering God created our hearts and money connected (see heart and money).

Challenge Step: $1,000 in an "Emergency Fund." After you pay off debt I recomend getting an "Emergency Fund" of AT LEAST 3 months expenses. That way if life happened and you lost your job. You would not have the unbearable stress of not knowing if your family can be taken care of while you look for another one.