PREPARE FOR A RAINY DAY
Nothing occurs more often that the unexpected! When it comes to money, you are bound to have unexpected expenses on a monthly basis. But let’s take that one step further, what about unexpected events?
Here is my question for you. If you lost your job tomorrow, how long could you maintain your living standards for without having to borrow or to rely on either Government or family support?
Sadly for the majority of people the answer is just a few short weeks. In 2013, ING Bank did a survey in Australia. The outcome was the was staggering, the average Australian would run out of money in just 47 days. I believe it is even less in the United States. This means that a significant portion of the so called wealthy nations are living month-to-month. How is it that with such unprecedented prosperity, the majority of us have so little to show for it?
The truth is God does not promise us an event free life. Sometimes bad things happen, we lose jobs, loved ones die and cars break down. These all require a stash of savings.
We have forgotten the art and discipline of saving. According to Australia’s Central Bank, in the 1970s, the average Australian saved 16% of their disposable income. In the 2000s it was -3%. Yes they were spending more than they were earning and funding the difference with debt.
So how long could you last? There is an easy solution!
Start an Emergency Fund – Today!
An emergency fund is simply a bank account with cash stashed away for a rainy day. Financial planners generally disagree on the exact amount. But given at the time of writing, it takes at least 35 weeks in the United States to get a job (St Louis Fed Reserve – duration of unemployment figures), it would make sense to have at least six months worth of living expenses set aside in a bank account.
The money should be highly liquid, that is it is accessible at short notice. The money should be kept in account that you can access within no more than 24 hours.
For some of us, saving for six months of living expenses may sound like a big ask. But start saving for it now. With your new budget, set aside 10% of your net income towards long-term planning. Keep this money in cash until you reach 6 months worth of expenses for your emergency fund, then once you start getting above that, use that money towards long-term goals.