Ahhhh Life. That wonderful thing that we all have in common. The funny thing about life, sometimes it just happens to us. It can happen to us in a myriad of ways, and sometimes there is nothing we can do about it. That is why it is important to have a “Life Happens Fund”, or as it is more commonly referred to, an “Emergency Fund”.
What is a Life Happens Fund?
A Life Happens Fund is money that is set aside in a separate place (a checking account, savings account, money market account, shoebox under your bed, etc.) and it is only to be used in certain situations that were not budgeted in for.
How much money should I have set aside for my Life Happens Fund?
If you are just starting out, it is okay to have between $500 – $2,000 set aside for your Life Happens Fund, depending on your income. This will help for the first few months in case of any quick emergencies. A fully funded fund should have at least 6 months of expenses.
What situations should I NOT use it for?
It is easier to first note that you should not use this fund for a few items before we get into areas where it can be properly used. The first big one that comes to mind is that this fund should not be used to supplement your regular budget. You should stick to your budget, and not allow yourself to go over unless you are pulling money out of another portion of your budget. Other areas that it is not okay to use the fund for: new furniture, clothes, toys (either for adults such as an ATV or boat, or children), car repairs (your car will need routine repairs that can be budgeted in, and the older it gets, the more likely it is you will repair it so budget accordingly), “fun money” better known as going out money, and anything else that is not seen as an actual emergency.
What CAN I use the funds for?
Great question. Here are a few guidelines and situations that these funds are accurately used for. Please note that these are just a few suggestions, and you may define an emergency a little differently than I. That is fine, but being out of chips and salsa is not an emergency, not even on Cinco de Mayo. Common emergencies are unscheduled hospital and ER visits, car breakdown such as a dropped transmission, natural disasters, job loss, quick permanent health change, or any other unforeseen happenings. In these situations you can use your Life Happens Fund, but it is important to be extremely frugal and make sure you are stretching every single dollar as far as possible until you are able to right your ship, and restock your fund.
I have used up part or all of my Life Happens Fund. What now?
Guess what? Life happens. From time to time, we WILL have to use our Life Happens Fund for an emergency. I do not have any kids, but I can only imagine how much more a proper budget an emergency fund comes into play with all of life’s little happenings. It is alright to use these funds when you determine what you need them for. However, once you have used part of your Life Happens Fund, it is necessary now to rebuild that fund back to its glory days of at least 6 months expenses. This may only take a week, or it may take a few months depending on how much you had saved and how much was used. Keep with it the whole way through until it is fully funded, and you’ll be amazed at how much soundly you sleep at night.
Question: When have you had to use your Life Happens Fund?