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The Emergency Budget- It's An Emergency!

For people that are just scraping by each month, the onset of an emergency can cause financial ruin. You’ve paid your mortgage, car, utilities, and still have just enough to get through the month and then the dog needs surgery or an accident isn’t covered by insurance or your child breaks his arm.

It’s so easy to say “that will never happen to me” but unfortunately, unexpected expenses rear their ugly little heads all the time. Making a plan to create an emergency budget by saving a little each month can be a lifesaver in a situation like this.

An emergency budget is money that you save specifically as a bailout for the unexpected situations that you wouldn’t be able to cover on your monthly income alone. It seems daunting to try and put away that much money all at once, but if you break down your daily life, you will see places where you can cut corners.

The first thing to do is open a separate savings account. The money you put in here is only for use in an emergency and will earn a little interest in the meantime. Try to find an account with the lowest fees possible. Now step back and look at where your spending money really goes.

If you are in the habit of eating out several times a month, cut it back to once or twice. The money you save could be more than $100 a month! That’s a nice sum to have go into the emergency budget account! It could add up to over $1000 per year!

Speaking of food, if you aren’t eating out, it means your grocery shopping. Coupon clippers may be stereotyped as frugal, little old ladies but a penny saved really is a penny earned, so get those scissors out, sit down to your favorite TV program and clip away!

It is estimated that Americans throw out between 10 and 20 percent of the groceries they buy. Buying less food at a time and going to the shop more frequently will help avoid this. Also, don’t be afraid of generic brands. They are very similar to name brand products and a lot less costly. A great step to lowering expenses. Paying bills is something we have to do, but do we always get what we pay for? Really look at all of your bills. Have you had the same car insurance for 5 years? Maybe there is a better rate out there.

Do you really use all those cell phone minutes? Is a more suitable plan cheaper? If you installed energy saving bulbs in your home, would your electricity bill be lower? Could you ride-share to work with a friend to save on gas?

These are all questions to ask yourself. A lot of times, people get into the habit of just paying the bill without analyzing what was really used or if there are better deals out there. In the recession, companies are dying for business, making a lot of options available to consumers. Take what you’re saving each month and stick it in the emergency budget account.

Pay raises or tax refunds are always a welcome surprise. It’s nature’s way of balancing out all those ugly emergencies we sometimes get dealt. At first, getting that bonus may seem like a nice vacation or a new appliance but maybe that money could be more useful in the emergency budget account? Yes, Bali is lovely this time of year, but when your home is burgled while you’re on holiday, you’ll wish you had that extra cash to replace your belongings.

This isn’t to say that you shouldn’t reward yourself when you do well and earn a bonus, just make it a small reward. Go to dinner at a nice restaurant or attend a play or concert. Saving that money will bring more happiness in the long run when it’s there when you need it.

Credit cards and store cards are another money pit. If you have any credit card debt, stop using the card until it is paid off. Then, use the card, but make it a habit to pay it off monthly. The interest you save can be a lifesaver in an emergency.

A lot of people say not to use a credit card at all, but you build a great credit score by using it and paying it off each month. Store cards are another matter entirely. They often have huge APR’s and it’s very easy to create a huge bill that you can’t afford at the end of the month. Just get rid of them altogether.

Sure, you might have to pay that extra 10% on your purchase that you wouldn’t have to if you used the card, but in the long run, they create interest you can do without. Interest in general is bad and detracts from your emergency budget. The less interest you can carry, the more you can save.

Involve the whole family in the emergency budget. Two heads are better than one and a whole family coming together to see where each member can cut back is sure to make progress. Even if you have small children, explain saving to them.

For example, if you give them an allowance of five dollars a week, give them $4.50 and explain that the other $.50 is going into savings. Use a saving jar or even open an account for the child. Explain that the savings are only to be used in an emergency and relate that to the budgeting you are trying to do for the whole family.

Creating an emergency budget will save you a lot of headache in the long run. It will provide a stronger financial foundation for your family, and keep things afloat when something bad happens. Of course, no one wants to think of any tragedy or problem befalling their family, but unfortunately, it happens all the time and a good rule of thumb is to always be prepared.

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