I recently talked to a friend about an unexpected car repair he was facing for $900, and he was going to tap his savings account or home equity line of credit for the bill. My friend is a great saver and does live a very frugal lifestyle, but life happens, and this car repair caught him by surprise. Many great finance and budget coaches talk about an emergency savings account that is used for unexpected expenses. A flat tire, cracked radiator, broken dishwasher or temporary loss of job, are all examples where an emergency savings account would be helpful. If you are one of the few who have a savings account in the U.S. or even an emergency savings account, you are way ahead of the curve. Most Americans carry over $9,000 in debt and have very little in savings. I would think that if you dug a little into the data, you would find the $9,000 in debt paid for many emergency repairs.
My wife and I had no savings for the first few years of our marriage; and spent every dime on debt repayment and living expenses. I had always read that the goal for each person, should be 3-6 months of living expenses in an emergency account. That’s a ton of money for the average family. If you make $40,000 a year, you should have saved between $10,000 and $20,000 in emergency savings. Who can do this? Well, if you are like many Americans, you can’t yet.
Many experts recommend that you start somewhere. My wife and I started putting aside $50-$100 a month until we reached $5,000 for an emergency account. We were living in an apartment in San Francisco and only had one car. Not a lot of emergency expenses then. Now, we have many. With a house, two kids, two dogs, and two vehicles, comes a lot of emergency expenses. Start with a few dollars and build something, anything. If you can’t save $50-$100 a month, cut something out of your budget. This may take some work, but you can do it. I’ve cut out lot’s of things from our families budget in the past. Starbucks, dry cleaning, movies, dvd rentals, and hair cuts. Have your wife cut your hair, and you could save $200-$300 a year.
If you are just starting out, set a goal of $1,000 for your emergency savings account. You will be excited the next time you can use your cash, rather than a credit card for life’s emergencies.