Today, we’re looking at how to make the most of life’s emergencies, and how to better prepare yourself when those emergencies come.
Right now, we’re in the second section of Page 11 – 12 in Chapter 1 of Dave Ramsey’s Complete Guide to Money.
And here’s my lesson for the day:
Life’s emergencies will come to you – you just need to be ready for when they come.
Chapter 1, titled Super Saving: Common Sense for Your Dollars and Cents, continues on Page 11 with a little bit more in-depth post about saving for emergencies.
According to Dave, there are 3 basic reasons why we save money:
- We save for an emergency fund
- We save for big purchases
- We save to build wealth
Of these three reasons for saving money, the first one (saving for an emergency fund) is the most important at the early stages of building up your finances.
It’s all great and nice to want to get that new car (saving for big purchases) or start investing in stocks or real estate (saving to build wealth)…
… but until you have some solid money in your account to cover life’s emergencies, you’re only living on life’s edge and could get tilted over the edge at any point.
Which means, the best idea right now is to cover that first base – and have that $1,000 emergency fund in a safe and easily-accessible savings account.
When you save for your emergency fund, you’re saving to protect yourself and your family against life’s unexpected events.
You don’t expect these events, but, in a way, you know they are coming.
You just don’t know – what type of events, when they’re coming, or what it will cost to take care of those events?
By the fragile nature of life itself, life is full of surprises – either good or otherwise.
And what’s the best way to prepare for these surprises?
The best way to prepare is to expect that these surprises will come.
It’s not a matter of ‘if’ they will come, but only a matter of ‘when’. Once you’ve reframed your mindset that way, then it’s easier for you to start getting ready and taking active steps to be prepared.
Please understand: the purpose of this is not to get your scared, but to make sure you’re covering all your bases as much as you can.
So how do you prepare yourself for life’s emergencies:
1. Know that life’s emergencies are coming
The key word here is ‘know’. Don’t continue to live in a fantasy world.
It’s great to take action, and practice a lot of useful habits to prevent emergencies – for your health, finances, family, job, career, etc. And we pray we never experience anything bad.
Even so, it’s an excellent financial habit to frame your mind to know that you can control a lot of things, but some things are truly out of your control.
Life happens – natural acts like tornado, hurricanes, fire outbreaks, or storms; or societal occurrences like a virus outbreak or public unrest; or economic instability leading to loss of jobs are things we never pray for, but they sometimes happen anyway.
The best way to start preparing is to not live in denial, but to focus on taking action.
2. You don’t know what, when, or how much each emergency will cost you
Although you know life presents emergencies, you truly don’t know in what shape or form those emergencies will come.
You don’t know: the type of emergency to expect; when the emergency will happen; or how much it will cost you to handle the emergency.
Which goes to show that: the Baby Step No. 1 (the $1,000 emergency fund) is a beginner fund and a good place to start; but once you’re done paying off your debts, you’ll need to re-fill your emergency fund account with more money to take care of your monthly expenses.
3. Panic is bad, you simply need to start taking action today
So does this mean you should start panicking, getting anxious, or stress-eating? No, not at all.
It simply means you need to face the facts, be clear on what you can do, and start doing those things.
Panic has never solved any problem, and that fact won’t change now. The only thing that moves the needle: when you start taking concrete, useful action starting today.
For example, ask yourself:
- How can I better preserve your health?
- How can I tune up or get my car in perfect condition?
- What can I do to prevent home emergencies – for example, a flooded basement or a leaky roof?
- What can I do to preserve my sources of income?
So you see, rather than panic, you can start preventing and preserving what you have right now. That way, you’re giving yourself the best shot to minimize the emergencies that come your way.
4. Not everything qualifies as an emergency
Even though it seems like emergencies happen everyday, they don’t. For example, going on a fun trip or a birthday getaway does not count as an emergency.
Other examples that don’t count as emergencies are: buying Christmas gifts, restocking your wardrobe, upgrading your kitchen, or buying books.
These are purchases, and depending on your specific situation, you might want any of these for your personal or professional goals, but they all belong to the second reason for saving: purchases, not emergencies.
And until you have that beginner $1,000 emergency fund, you’ll need to put a hold on these purchases, and double down on getting that beginner emergency fund set up first.
5. Baby Step 1 (saving $1,000 for your beginner emergency fund) is a start, but don’t stop there
Emergencies, by their nature, are not limited by dollar amounts.
The fact that you’re setting aside $1,000 is excellent… but it doesn’t mean you’ll only be presented with emergencies that can be taken care of with less than $1,000.
You start with setting aside that $1,000 beginner emergency fund; go on to pay your debt; then come back to update your emergency fund with more money to prepare for more high-ticket emergencies that might happen.
So, as we conclude this section: remember, it’s not a question of ‘if’ you’ll experience life’s emergencies…
… no, the real question is: will you be ready when those life’s emergencies come?
Or stated differently: Life’s emergencies will come to you – you just need to be ready for when they come.
That’s all for today, my friend. We’ll be continuing in the first section of Page 12 of the book tomorrow.
See you then.