Whether you are a small business owner or just the average housewife in Ks. trying to budget a household, this post may help get you motivated towards living a more frugal lifestyle. In either situation, you will face unexpected expenses from time to time and the better you prepare yourself for these things from a financial point, the faster you will be able to recover from them.
This starts with your emergency fund or as I like to call it the cushion of comfort as it is what you will rely on to catch you when life tries to knock you down. The emergency fund is often the hardest thing to set up when budgeting as many questions often accompany the very act of starting it. I am going to answer some of these questions to the best of my ability right now.
How much should you set aside?
It doesn't matter if you set aside $10 a week or $100 a week as long as you continue doing so until you have at least 3 months salary.
When is your emergency fund large enough?
As mentioned above, you will want at least 3 months salary, more is better, it all depends on how large a cushion of comfort you want.
What constitutes an emergency?
An emergency is a situation in which you or your family would suffer. It can be a health issue, vehicle problems, natural disaster, anything that is both unplanned and at the same time something you just can not live without. It should not be confused with everyday wants and desires.
What do I do if I have a genuine emergency and simply must go into my emergency fund?
As soon as is feasible, you should treat the emergency as you would any other bill, turn it into a loan that has to be paid back. Make your payments both realistic as well as timely while continuing to contribute however much you normally would have. I would never suggest robbing Peter to pay Paul so do not let other bills slide to do this. Instead I suggest looking for things around you that you can eliminate that are not needed. If you rent movies every Friday, cut back to every other Friday. If you have Starbucks every morning, buy a coffee pot and make your own coffee. Who needs to spend $8 on a coffee anyway?