How does your mind react to those words?
What emotions are sparked by those words?
Do you immediately sigh and say, “whew I am not gonna panic because my ESF (Emergency Spending Fund) will take care of me.” Or, do you feel like so many people we heard from during the recent Gov’t Shutdown – “oh, no … I live paycheck to paycheck… this is an emergency spending problem.”
Like all unintended consequences, the government shutdown has highlighted a guiding principle here at Financial Sisterhood. We repeatedly emphasize the theory of having money in reserve … call it an emergency fund, call it rainy day money, call it contingency funds, or any one of other terms … you MUST have a stash of cash that has no other purpose other than to fix entirely unexpected, unforeseen, serious, threats to your financial structure.
The 2019 shutdown has shined a light on issues of personal financial security, national security and fiscal health and preparedness. In the 2018-2019 Government shutdown, employees were not being paid for the duration of the shutdown, with far too many employees having a hard time making ends meet. Does that inconvenient word “unprepared” come to mind?
This circumstance just highlights a problem that thousands of other non-governmental, private sector employees have every month with any number of unexpected issues that challenge their financial foundation. We should all use this revealing example to gain greater financial literacy and fix our own future emergency days. Ladies, let’s not be naïve … it is when, not if!
This is a lesson to learn from and to secure your own financial future. It’s not just in the USA either … countless international examples show this necessity of action for women around the world.
Women are, arguably, the glue that holds families together. To keep your own family strong it is imperative that you have an emergency spending plan. Having exposure to such a risk without a thoughtful and disciplined solution is irresponsible in the adult world; it leaves you vulnerable, manipulated and open to poor or desperate choices. Often from those poor or desperate choices come outcomes that truly have even more devastating consequences. Think of an example of those consequences being things like a lower credit rating, higher future interest rates on borrowing occasions, lost personal and business opportunities that could make a career or personal life.
Rarely can one define an emergency in advance, and often things don’t really seem like an emergency until … suddenly … there is a problem. Try as we all might, it is fantasy and not reasonable to assume that we can consistently live a life that is never interrupted and always goes as we wish. Or, worse yet, that someone else is going to bail us out of our problem.
But let us all take heart and see the silver lining in an ugly situation … we can increase our financial learning and we can define an ESF (Emergency Spending Fund) for our own use.
How do we start?
Using the government shutdown as an example would be that those employees who receive their back-pay apply a portion to strengthening, or as it sounds many should start, an emergency fund.
What makes an emergency spending fund?
Most times an ESF (Emergency Spending Fund) is considered to be readily available money to cover 3 months to a 1-year timeframe of necessary expenses for a household. Certainly at a minimum it would mean having enough funds to carry a 14 day or 30-day paycheck, unlike what has been demonstrated in the government shutdown.
** Woman-to-woman TIP: Have tires, food, gas, hospital bills, water heaters, refrigerators, roofs, gone down in price in the last 3, 5 or 10 years? Certainly not. Be sure to have your ESF keep pace with inflation and your spending plan; which means once in a while you will have to increase your contribution to your ESF (Emergency Spending Fund) and not just sit without attention.
And, please, don’t get enamored with trying to figure out if your money sitting in a cash account is not earning enough interest, or isn’t getting you “points” etc. Put it aside for its’ intended purpose … be disciplined and only use it for emergency; the slight trade-off in interest will be returned many fold when you actually need, and can immediately, access your ESF.
How much should you have in your ESF?
Use our free worksheet to find out