If anything can break a budget, it is that unknown financial emergency that sooner or later is going to arrive at your doorstep. It’s a fact of life. The unexpected happens. Sometimes it happens all at once. What do you do when an emergency comes knocking on your door? Will you be prepared?
Two Elements of Every Emergency
There are two factors in every financial emergency: timing and amount. The trick is a gauge and predict to the best of your ability when the emergency might strike and how big of a hit you’ll take. It’s all about calculating risk. Do you feel your livelihood is to be impacted in the next year, three years, etc.? How much money might you have to spend if this emergency were to take place?
The essence of the word “emergency” is that you won’t know when it will occur. However, I’m convinced that it is possible to gauge the likelihood of some emergencies to a certain degree. For example, let’s say that your wife gets unexpectedly pregnant. You know that you’ll have a new baby 9 months from now, so why not put everything on hold and pile up cash? If there is a medical emergency, you’ll want to be prepared. Don’t assume your health insurance will cover everything. It may not! It’s better to be over-prepared than drowning in panic when you can’t pay the bills.
The “Catch All” Suggestion
As previously mentioned, many financial experts suggest an emergency fund of 3 to 6 months of expenses. I’ve found this to be an excellent suggestion, as it usually scales easily to how many assets a family has. The more you own, the more risk you incur of having an emergency.
We have personally chosen a 6 month emergency fund in order to comfortably take on unexpected financial impacts. Some people may feel comfortable with more or less. Others might have a different range that they are comfortable with. For example, we set our initial emergency fund at 6 months of expenses, and are willing to use it until we reach only 3 months of expenses in the bank. The only point at which we would spend more than that from our emergency fund is if something sudden and catastrophic were to take place. If we expect medical bills to come soon, we’ll adjust our budget to meet that need instead of fully depleting our fund.
Cash + Insurance = Ultimate Financial Security
We’ve discussed how piling up cash in an emergency fund can help you weather financial storms. But if you want the ultimate security, you’re going to need key pieces of insurance as additional protection. You might not be able to get all of these elements in place at one time, but schedule them to be done. Some of the most important are renters/home insurance, car insurance, life insurance, and health insurance.
By adding smart insurance to the mix, you’ll stand firm when the bills start flooding your inbox. You’ll turn panic into an inconvenience.
Take Faith With You
During troubling times, it’s important to remember that God invites us to cast our concerns on him. Meditate on encouraging Bible verses like these…
Cast your cares on the LORD and he will sustain you; he will never let the righteous fall. -Psalm 55:22 NIV
Why does God tell us to cast our burdens on him? It’s because he cares deeply for us.
Cast all your anxiety on him because he cares for you. – 1st Peter 5:7 NIV
Does all this mean that we shouldn’t store up money for times of trouble? Does it mean that we don’t need to prepare for emergencies? Of course not! Look at the story of Joseph in the Bible. He, under the direction and guidance of God, stored up food to last Egypt through a long drought. There are times that we too should save up in case of emergency-type situations.
Whatever the emergency, God is willing to walk through it with us. He loves us so much, and is there to comfort us when we’re in need. He has also given us the resources to prepare for life’s emergencies. Trust in God, and take your faith with you on the journey through life. You’ll be glad you did.
Photo by fauxto_digit
{ 4 comments… read them below or add one }
i tell you what every time i read a post on your blog i am so refreshed to see how you can really bring to life the love of god. it truly makes me happy to read your posts and i always walk away in higher spirits.
I agree with the idea of insurance and a cash emergency fund being the best combination to safeguard against financial catastrophe. However, in the financial books that I have read, many recommend 6 months of expenses as the minimum amount to have in your cash emergency fund. Therefore, I tend to keep 6-9 months of my expenses in an account for this purpose.
John, your suggestion of combining insurance with the cash is a very good suggestion. Have you found any beyond the basics or auto, health, and house? Are you suggesting something like the credit cards sometimes offer that make payments if you become unemployed? Are there others? Also thought it very funny that you called pregnancy an emergency. Though unplanned I’m not sure it would fall into that catagory
Would make a funny birth announcement though.
I do believe that insurance and cash is key to make sure you are prepared for an emergency however the problem tend to be that many don’t keep enough. Most either don’t have enough cash on hand or the right amount of insurance. I hear so many people say I have cash for an emergency put when you ask how much its really nothing to cover anything. Nice post!