The next Baby Step in FPU’s program is to get out of debt, but we will tackle that topic next week. Today we move on to Baby Step 3 where we fully fund that Emergency Fund we talked about yesterday. Since most little emergencies will cost us on average up to $1000, it is a good start, and will keep us from adding to any debt, but it will not be sufficient for major emergencies. Serious medical issues, the loss of a job or having to move to a new location, all can add up really quick. This is why we must put aside 3 to 6 months worth of necessary monthly expenses so we can be prepared for more intense unexpected needs.
Please note this is not an investment for our future retirement, but it is certainly an investment for our peace! This Fund must be kept in a low risk, accessible account where the funds are secure and where we can easily retrieve the money to pay for these emergencies. I also want to emphasize 3 to 6 months of “necessary” expenses, because when we are in a crisis, we will not need all the bells and whistles of life. We will have to make those sacrifices we talked about last week, just so we can keep our head above water and get back to dry land. So for example, if your normal monthly working budget calls for $4000 per month, but you can cut out at least $1000 because they are not true necessities, that will lower our “necessary” budget to $3000 instead. So for a 6 months fully saved Emergency Fund, that would be 6 x $3000 = $18,000 put aside, versus $24,000 for the regular monthly working budget. This can be a bit more manageable, so comb through your average monthly working budget to figure out what the true minimum to keep living would be….and maybe even try to live by that??? Just a suggestion, of course. A fully funded Emergency Fund will help us have, and maintain, financial freedom.
<>< Peace, Diane
