Managing Money God’s Way

I am sure we have all heard that phrase “when it rains it pours” sometime in our lives.  But if you are like me, it seems to have happened more times than I would have liked.  Usually we say that because multiple things happen all at one time (car breaks down, dryer breaks down, etc) that cause us to have to use our credit cards to fix.  When I looked back at those times I realize it is because I did not have an emergency fund.

One of the questions I hear most often, and one I asked myself is “How much should my emergency fund be?”  The answer in just about every personal finance book you read or financial “guru” you listen to will tell you “Three to six months of expenses.”

But families do have a need for some savings behind them, whether they’re in debt or not.   As our Lord states in Proverbs 21:20 “The wise man saves for the future, but the foolish man spends whatever he gets.” If you’re going to break the cycle of credit-card dependence, after all, you will need to have some money available for Life’s little rainy day’s. Otherwise you’ll turn to that trusty credit card again and again. You’ll be just as dependent upon it as you ever were.

What you need is a “beginner” Emergency Fund.

The Beginner Emergency Fund

When it comes to “beginner” Emergency Funds, many people have found success with Dave Ramsey’s approach. I, too, am an advocate of his methodology.

In his “Baby Steps” plan, Ramsey advocates that folks start with an Emergency Fund of only $1,000. (Or $500 if you make $20,000 or less per year.) You should keep this amount in your Emergency Fund, and no more, until all your debts — other than your mortgage, if you have one — are paid off.  This is exactly what my wife and I have done.  If you want to read more about Dave Ramsey’s “Baby Steps” you can get the book here:

So How Large Should My Emergency Fund Be?

The bottom line is there is really no right or wrong answer to the question.  What we did was to put $1000 into our Emergency Fund and start paying off our debt.  Am I satisfied with that amount?  No, I will be adding to it after we have paid off all of our debts.  I will probably end up with around 3-6 months worth of expenses in the fund.  That is my comfort level.  Yours will probably be different.

Where Should I Keep My Emergency Fund?

This question is more important than you might imagine. If your Emergency Fund is too easy to access, you might be tempted to dip into it for things that are … well, not emergencies.

At the same time, though, it needs to be liquid (easily convertible to cash) and kept somewhere that allows fairly prompt access. After all, they call them “emergencies” for a reason.

So make an assessment of the banking and brokerage resources available to you. You’ll want the account to:

1. Pay decent interest,
2. Be devoid of fees,
3. Not be too easy to access, and
4. Not be too difficult to access.

A money-market account at a bank across town, or at a brokerage, might be the right fit. Perhaps a second savings account (usually not attached to a checking account) at your credit union or bank would work.

Or you could do what many, many savers are now doing: store your money at online-accessible banks like HSBC Direct, or ING DIRECT.  If you select ING DIRECT, please send me an email and I will email you back with a code that will get you an extra $25 dollars deposited into your account (Note:  I will also receive $10 for your referral).  Savings deposited in these institutions have historically paid much better interest than most other savings accounts, for one thing. Their minimum initial deposits are typically very low ($250), and there are no fees.

But most importantly: Access to your money is restricted … just a little. Once you make a transfer request, the funds generally can be wired into your current checking account and available within two working days.

Now, Just Fund it Already!

If you already have an Emergency Fund, how much is in it?  If you don’t want to share numbers, just tell us how many months of expenses you have saved up.