Tuesday, June 23, 2009

Got Emergency Fund?

The wise man saves for the future, but the foolish man spends whatever he gets. (Proverbs 21:20, LB)

A few years ago, there was a contest on Moody Radio. The rule was to describe life in 6 words or less. The winner's phrase was "Not What I Had In Mind".

Life certainly is not predictable, and the uncertainty of life often entails unexpected expenses.

It is a well-known fact that in America, unexpected medical expenses is the the number one reason for people getting into debt. In today's economy, job loss is competing for the top spot with medical expenses. How about a major car repair that needs to be taken care of immediately?

An emergency fund is an amount of money that you can obtain quickly in case of immediate need such as: an illness, loss of job, or other interruption of income. This money should be set aside in a savings account which pays the highest available interest or in a money market mutual fund that provides immediate access to cash if needed.

During our pre-marital finance workshop at Willow Creek's Good Sense, we decided to save 6 months' living expenses as an emergency fund. However, right now, we are aiming for 12 months' living expenses.

Having an easily accessible fund does not mean losing opportunities to earn interest on the fund. C.J. and I have been using a 7-day CD to keep our emergency fund. It automatically gets renewed every 7 days, provides a relatively high interest, and it is easily accessible.

It is often said that when it rains, it pours. How about building a safety net which not only provides protection but also keeps growing?