April is Financial Literacy Month – Expect The Unexpected

_financial_literacyIn previous articles we’ve covered, Committing to Change, Clearing Out The Financial Clutter, Reduced Debt, designated a Family CFO, and set goals and priorities.

Now we’re going to deal with the unexpected.

You know the stuff that always happens when you are low on cash or just made that big purchase. When your child has a medical bill, the car breaks down or a home repair. I really hate this stuff, so I made up my mind a long time ago to implement Step 14: Expect the Unexpected. I’ve had a cash reserve for years, and it really is handy.

Cash reserves or the “rainy day fund”, is one of my pet peeves. I’ve written about it a lot. Most planners, including me, would recommend having three to six months of living expenses saved for emergencies. As the financial literacy site says, this will keep a minor setback from turning into a major financial crisis. They even have a calculator to help you determine just how much to set aside.

As Americans, we are impatient and poor savers. That’s why this little fund never gets completely funded. Most people will just whip out a credit card for that car repair instead of paying cash. So every time you do this, it makes it harder to save for the unexpected because that savings is not earmarked for a debt payment. It’s a bad cycle.

Don’t be impatient and start saving today. Even small amounts add up. Use your tax refund, or a those unexpected checks that you get from time to time to add to it.

Use a separate account for this fund and pledge to not touch it unless it’s a major emergency. If you have an emergency, then replace the funds as quickly as possible.

The cash reserve will help you more than just about any strategy that I can think of.

Stay tuned…next up, how to Secure Your Future, Sharing Tips, Financial Check-Ups, and the Cost of Credit.