Friday, July 13, 2012

Financial Friday: Emergency funds

Financial Fridays: Emergency funds

What a response last week! I'm really excited that people are so interested in getting their finances in order. Just remember, it's not easy, but sooo worth it!

If your refrigerator was to die today, what would you do? Would you panic because you had no way to pay for it? Would you race to the store and buy the first one you see, and then use your credit card (or even open a new credit card account) to pay for it? Or would you be able to calmly go to the store, pick out a great fridge, and buy it in cash?

I'm sure many of us would either panic or use a credit card. This only leads to stress, buyer's remorse, and spending more money than you thought (due to interest on the credit card). But with an emergency fund in place, emergencies will seem a lot less stressful.

What is an emergency fund? Well, it is just that: money set aside for when emergencies happen, because I'm sure you all know that emergencies do happen!

Where do I keep an emergency fund? What we do (and Dave Ramsey recommends) is we have a money market account (ours is through Capital One). It makes more interest than a typical savings account, and we have a checkbook that goes with it, making emergencies much easier to deal with; there's no transferring of money or running to the bank involved. The interest we're getting right now is extremely low (less than 1%), but when we started, I think it was between 6 and 7%, and we were making quite a bit of money each month (and who doesn't love free money?).

How much should I have in an emergency fund? For right now, $1000, or $500 if your income is less than $20,000. Later, after all your debt (excluding mortgage) is paid off, it'll be increased to 3-6 months living expenses.

How am I supposed to find the money for an emergency fund? I can barely pay my bills! This is the hard part. Try saving a few dollars every month, even if it's only $5. Put any unexpected income into your fund, whether it be overtime you weren't expecting, a bonus from work, or that $20 you found in an old purse. Every little bit helps. It's not going to happen overnight (unless you have a fund already established or you have $1000 sitting around unused). But once it's there, you won't worry so much about a car breaking down or living without a stove as much.

A tool that will greatly help in saving, either for an emergency fund or for bigger purchases, is that dreaded B word we all love to hate: Budget. We'll talk about how to start setting one up next week!

And, as promised, some tips for saving money in unexpected places! I'm sure a lot of us know the usual tricks, like eat out less, make your own coffee in the mornings, and bring your own lunch to work. But what if you're already doing that, or it's not making a big difference in your budget? Here are some ways we save money on laundry:

Hang the clothes out to dry: I'm sure this is an obvious one! What's better than pulling bed sheets off the line and they smell all fresh from being outside? I love that smell! Granted, this is probably a seasonal thing for most of you, but even during the summer it can cut costs. And for a few dollars start up cost for line and clothes pins, it really pays for itself!

Use your machines at off peak times: Off peak times are apparently first thing in the morning and late at night. I've tried that and haven't seen a big enough change in my bill to warrant me only doing laundry at those times, but who knows, maybe it would work for you!

Make your own fabric softener: I was wary about trying this...but I'm soooo glad I did! My clothes are all softer and smell better. It's not as strong of a smell as fabric softener, but because I get to choose the scent I want it to be, I like it better. You could skip the conditioner and just use vinegar, but I like the smell of the conditioner added. I even used a little less than what was recommended and didn't notice enough of a difference to go back to adding more. We buy gallon jugs of vinegar (and they only cost .25 more than buying a quart jar!) and I use whatever cheap conditioner I find.

Make your own dryer sheets: I have yet to try this one; I had just bought a huge box of dryer sheets at BJ's when I discovered this. Instead of cutting up fabric like they suggest, I'm going to try some baby washcloths that have seen better days!

Make your own laundry detergent: I haven't tried this either as I tend to be a detergent snob. I've heard great things about those who have tried it, so it's something I may consider in the future......maybe.

All the principles regarding the emergency fund were based on Dave Ramsey's teachings from Financial Peace University. I only touched on the subject; for further information, you can check out his website! And as always, feel free to ask me questions about emergency funds or anything else :)

How would an emergency fund change your life? How do you save money when you do laundry?

1 comment:

  1. I cut my dryer sheets in half. Still controls static, but goes twice as far. The guys like that it's not as smelly as using the whole sheet.

    Wash full loads! Saves water and laundry detergent.

    Similar thought: When we had babies/toddlers in diapers, I always cut the wipes in half, also. I preferred the puffier wipes that came in the boxes, but their cost was much higher than the pull-up ones in cans. RV suggested that I cut them to be able to afford the ones I liked better. Usually I only needed one half. Sometimes I used two halves, so those times didn't change anything. Really messy diapers needed three halves, but I wasn't using two wholes, so it was still a savings. I don't remember using more than three halves, but that has been over 15-24 years ago, so I may not remember!