We are continuing on in our series: 11 Things to Do to Get Your Money Right for Retirement. So far, we’ve talked about creating a budget and getting rid of debt. Unfortunately, our attempts to stick to a budget or faithfully pay off debt are often derailed by life’s little emergencies.
Maybe it’s an unexpected auto repair, a medical bill, getting laid off from a job or having your basement flood. It seems like every time your blink, there is something that pops up and requires money you hadn’t planned on spending. And therein lies our mistake. These expenses technically shouldn’t be unexpected because we all know at some point something is going to happen. You need a rainy day fund because one day it will rain.
Although you can’t predict when and what an emergency will be, you know one is going to happen at the most inopportune time. One of your budget items should be savings. Not retirement savings but just a simple savings account at your bank. This is money you need to be able to get access to when your car needs new tires. Also, this is money that you should only touch in the event of an emergency. A sale on flat screen TVs is not an emergency.
Experts recommend you should have 3 to 6 months of living expenses set aside. That is a big number…a little hard to swallow. Don’t get wrapped up in the size of that number, it’s a goal. Just make sure you are saving on a regular basis so that every emergency won’t force you to dip into your long terms savings like your retirement plan.
For example, I have a credit card with the shop that does my auto repairs. I live in an area where you must have a car (public transportation in my city stinks). Any unexpected auto expense gets put on that card and I immediately set the goal of paying off in 2 – 3 months (they always offer 6 months same as cash so interest is never an issue). I don’t have a regular credit card for this because I don’t want the temptation to use it for other things or get stuck paying interest.
Another consideration for emergency planning is insurance. Health insurance, life insurance, homeowners and auto insurance are necessary evils in this day and time. While they take money out of your pockets now, they can be real budget savers later. Be sure you’re setting up the right kind of insurance for your needs. Perhaps a high deductible is worth it if it means more money in your pocket later. On the other hand if a $1000 deductible is going to be painful, it may be smarter to pay the extra money for a plan with a lower deductible.
As the saying goes “Life is fairly unfair.” Invest a little bit now, on a regular basis so you can be ready when it’s your turn.