Who has cash? It’s an emergency!
When I was six years old my parents helped me open my first savings account. It was their way to teach me the value of saving- when I started to receive a weekly allowance. Rather than keep all my money in a piggy bank in my room, where I had easy access to my stash of $1 and $5 bills, they were safe 10 minutes down the road in the bank. I’d have to organize time with my parents (like the little adult that I was) to take a trip to the bank to actually withdraw cash to buy the new toy or movie that I wanted. While I did not have the maturity to realize the full potential of saving 16 years ago, I did learn the value of the dollar early on.
Fast forward to several weeks ago, I was driving back from Brooklyn to Scranton and I came across a toll. (As I am still new to the area, I have yet to get myself an EZPass.) And the unthinkable happened; it was a cash-only toll for $1.00 and I literally had no cash. I held up the line for 5-10 minutes, counting pennies and nickels in my wallet to pull together $0.85 because the attendant had $0.15 to help me out. While I didn’t have the physical means at that moment, I had the assets (in my checking and savings accounts.) Plus, if they would have taken Venmo, an app that allows you to transfer money from your bank, I would have zoomed through the toll.
While I learned the value of the dollar when I was younger, I didn’t appreciate the value of the physical dollar until now. One thing I have learned through my discovery of how to budget is the importance of an emergency fund. Most people will discuss that when creating a budget that one part of savings and thinking about the future- is the anticipating of the What Ifs?
It’s actually the first question, Jacobi Capital Management asks their clients, “What if… then what?” For example, what if we have a recession like 2008 again and unemployment skyrockets and you’re unemployed for six months? How will you continue to pay rent or buy groceries?
Alexa Von Tobel and many others have addressed the importance of an emergency fund in association with creating a budget, typically when using the 50/30/20 rule (which I discussed in my last post.) Yes, you can have a budget and make room in your budget for little accidents- but what if an emergency happens? You should have money that isn’t tied up to pay loans or groceries that month, or even tied up in the bank, at times- like my example above.
I’d encourage you to take the time to sit down and examine if you have money for an emergency fund and if you do, what does that fund look like? Is it enough to cover you, say 3-6 months while you look for a new job? Or perhaps your car breaks down and have to pay for transportation until you can afford a new one or even have to go out right away and purchase a new car? These are the same questions I am addressing within my own budget right now. And have encouraged habitual changes in my budget to incorporate saving for an emergency fund into my monthly plan.