“A pile of emergency money is about preparing for the unexpected—and it’s about peace of mind.” – Jonathan Clements
The Washington Post had an article this week highlighting the struggles of some of the federal employees that are dealing with the fact that they aren’t getting paychecks while the government is in shutdown mode.
Here are a few of the stories shared by the Post:
Craig Granville, a Defense Department employee from Virginia Beach, said he is nearly out of money and concerned about paying for his spouse’s lupus medication. ”I just received a partial paycheck this payday, but I do not know what I will get on the 25th of October,” he said. “I have no support to help me through this shutdown.”
Elizabeth LaBlanc, a NASA employee living in Texas, said she planned to file for unemployment. “I may seek a second job soon,” she said.
Not to kick them while they’re down, but the situation that these people find themselves in is a good reminder of the need for an emergency fund and a financial contingency plan.
An NFCC study in 2011 found that 64% of Americans said they wouldn’t be able to come up with $1,000 for an emergency expense if they had to.
Of course there are those in need with low incomes, but most people simply don’t or won’t save for a rainy day. Delayed gratification is boring and spending makes you feel good.
According to the Self-Storage Association, since 1995, there has been a 65% increase in the number of US households that rent storage units. So people are not only buying way too much stuff, they are paying someone else to store it for them because they have more crap than they can fit in their homes.
This tells me that many households don’t make saving a priority. Spending wins the day.
Most personal finance experts say the rule of thumb is that you should keep 3 to 6 months in an emergency savings fund. It would be great if you could do this, but I’m afraid that for most people it’s unrealistic to pull this off.
A better plan for those in the 64% that can’t come up with $1,000 would be to make it a goal to come up with $500 in an emergency fund. Set up a plan and make it a priority.
Then take a stair-step approach to increase it from there ($750 to $1,000 to $1,500, etc.) until you reach a level you are comfortable with that can aid you in a pinch.
You can’t plan on things like the federal government shutting down for a number of weeks because of self-interested politicians. You can plan on there being unexpected life events that will come up every few months like clockwork.
Things brake, wear down, jobs get lost, firms go out of business, circumstances change, but life keeps on trucking. That’s why having a cushion in the form of a liquid emergency fund is so important.
Life is stressful enough as it is for most people. Having a backstop can make it so there is one less thing to worry about when an actual emergency hits.
Emergency savings vs. debt repayment