Emergency Cash vs. Goal Cash: What do you need? - By Chris Cushman
Let’s first look at an example of an emergency, then let’s tackle some quick takeaways.
Recently my wife and I were surprised by a hospital. She was set to deliver a baby that night and we were informed that our health plan had been dropped just two days earlier. We had to front the money for a C-section. We’re getting everything figured out and now we’re set to get reimbursed, but this was a surprise that required some liquidity!
What shouldn't be an emergency? Any expense you can see coming! The timing can throw you off if a repair comes years before it’s projected, but everyone should have an expectation for home repairs and car repairs if they own those. Dwell on this fact: Every item you own needs to be repaired or replaced eventually! Are you preparing for that now???
1. Savings for repairs and replacing items should be above and beyond emergency. Save for an emergency goal like the goal of saving for your next car.
2. Save for every goal in a separate account or keep an accurate record of how your cash needs to be subdivided so that one goal doesn't hinder another goal. Don’t spend 90% of your cash on a car if 25% is for emergencies, 25% is for your home repairs, and another 25% is for a trip.
3. Make sure your monthly savings rate will accomplish all the goals you’re aiming for. Otherwise you need to change your goals or lower your lifestyle to save more. Be honest with yourself about the path you’re on. “Your path (not your intentions) determines your destination” ~Andy Stanley
4. Before big expenses come, you might wonder if you’re saving too much. After a big expense hits, you’ll wonder if you have saved enough. Emotions waver. What’s the path created by your math???
5. To calculate the emergency portion ask yourself; What if I lose my job and need cash till I find another?? What if something breaks before I’m ready?What if I get hit with a medical bill??
You can’t plan for everything and no plan will ever be perfect, but working on these principles could lower your stress in the future and put you in a more stable situation.
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