Whether it’s in the car or as a “bug out” bag at home, having an emergency kit on hand can pay of big time if or when the situation calls for it. And it’s really no different with our personal finances.
When the need calls for it, having a financial “emergency kit” available can help us through a tough time and keep us from potentially relying upon more costly alternatives. So if or when an emergency hits, it’s important to consider what we have on hand or readily available in our financial emergency kit to help keep us afloat.
A reserve fund
The first item in our financial emergency kit is of course our reserve or “emergency” fund. This fund has grown over time as our family and family expenses have grown.
Currently this fund sits at $5,000. While this might sound like a lot, many financial experts advise having 6-8 months or more in a reserve fund. And with a family of four like ours, monthly expenses can range anywhere from $2,000-$4,000 or more depending upon a variety of factors. Therefore, we’re currently working to expand this fund from a set amount, to one that covers a longer timeframe.
To help us avoid those smaller unforeseen financial events, we’ve built small reserves into our regular monthly budget. A budget line that we call “reserve”, typically ranges around $200 and helps us cover unexpected costs for home, vehicle, gifts, school expenses, and more; costs that we often just hadn’t counted upon or budgeted for.
We’ve been mortgage free for almost two years now, and it’s a wonderful feeling. Not only is it a load of financial stress lifted from our shoulders, but the equity in our home acts as a sort of financial reserve.
While we wouldn’t want to rely upon a home equity line of credit if it wasn’t necessary, it’s a nice item to have in our financial emergency kit nonetheless.
You just never know when a financial emergency might hit. It could strike suddenly and leave us without the ability to get to the bank, or financial institutions might not be open if we did get to them. Having some cash on hand to buy groceries, supplies, and other necessities could really come in handy should the situation call for it.
I like to have an emergency cash stash of several hundred dollars at home in the event that we aren’t able to access our bank accounts or use credit/debit cards at the grocery store. This amount isn’t too much that we would be financially impacted should a fire or home theft occur, but it’s enough that it could help pull us out of a short-term financial bind.
We don’t like to use our credit card. In fact, we rarely use it for anything other than filling up our vehicle with gas. And we pay off our balance every month. However, in a real financial bind, a credit card can be a useful tool to have in our financial emergency kit.
While high interest rates can be the true downside to such a tool, in the short-term, using a credit card can bail us out when making certain higher priced purchases or covering costs during a short-term cashflow crunch.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.