So you have a business. You have all kinds of money coming in. You can use your money to put down for a new house or to pay off the house you live in faster. You can even use that money to buy a new car and all kinds of other flash.
So Why do you need an Emergency Fund again?
An Emergency fund is there for:
- Providing a solid foundation
- Giving you a sense of security
Sure. You can pay off the house and buy all that bling. What does that get you when you are FINE (Freaked Out, In Debt, Neurotic, and Exhausted)? That is how you’re going to be when you’re trying to keep up with the Jones’s… FINE.
Then what happens when you have a rainy day? The economy could go sideways and most of your income dries up. You have been throwing your money away on all these payments and have nothing to show for it.
Well, enter the emergency fund. This fund should be built up to at least a years worth of expenses.
The emergency fund will allow you to just shelter in place for up to one year while you recalibrate your business or look for a job. There is no change in your life from when the money was rolling to when the money slowed to a trickle.
As I said, you should have at least one year of money in the bank or Money Market Accounts at all times. After you have the year in the bank, you should be putting 10% of your revenue per month in the emergency fund. That keeps the fund up with inflation and continues to add value to the fund as well.
Sense of Security
When you have a year or more in the bank, it provides you and your family a sense of security. You know that you and your family are protected financially. You know that your family won’t be thrown out on your bums because of foreclosure or eviction.
Your family will be well-fed and in a comfortably lit house.
To know that you can provide that security and comfort to your family is priceless. That feeling is much better than the one you get from the siren’s song of keeping up with the Jonse’s.
Having an emergency fund is the best thing you can do for your family. The security that an emergency fund can provide is something that keeping up with the Jones’s never will.
There is work that has to be done before you can start working on the emergency fund, though.
You must first get yourself out of debt. You have to bring your Medical bills, credit cards (consumer debt), and car/motorcycle/boat debt to $0.00.
You can leave a house debt. Just consider it your housing cost.
Only after you get to this point should you consider an emergency fund.
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