It’s a rhetorical question. What if your paycheck for this month wasn’t just lost… it never came?
According to CNN Money, 25 Million Middle Class Americans (those making an average of $41,000 per household) are living paycheck to paycheck. That means they’re spending 100% of their paycheck, and putting ZERO into savings.
If you’re living paycheck to paycheck, I want you to think of the very real possibility that there could be a month where you don’t have an income. You could lose your job, you could get hurt and not able to work, you could have a family emergency that would cost the equivalent of an entire month’s pay…
If one of those things were to happen, you have just a few options, depending on where you are financially.
- You could live off credit cards for a month (although it’s difficult to pay ALL of your bills via credit card without some penalty).
- You could sell your living room furniture and TV.
- You could say “wow… that sucks” and then open up your banking app on your phone and transfer one month’s pay from your savings account into your personal checking, and then go out to dinner to celebrate having an emergency fund.
If you know me, you know I’m more than just a little anti-credit cards. They are NOT a blessing. If you run them up for a month… guess what? You now owe an entire months salary on a credit card that’s accruing interest! Think that’ll increase or decrease your stress?
What if you don’t have enough stuff to sell in order to get by? What if your lack of being paid lasted for two months? Do you sell your bed too? Now you have no where to sit OR sleep.
Having an emergency fund is one of the most important, and most stress-relieving things that you can do for your family. There are two different levels of emergency funds, depending on how much debt you have. If you have ANY debt other than a mortgage (credit cards, cars loans, student loans, etc) you’ll want to be ATTACKING those debts with all of the extra money you have, so building up a big emergency fund would be wrong. In Dave Ramsey’s “Babysteps”, the VERY FIRST STEP is saving $1,000. Just enough to do a major repair on a car, call a plumber in the middle of the night or buy you a week or two in case your normal stream of money didn’t come in.
I would also recommend putting this money somewhere where it’s a little hard to get to. I wouldn’t keep it in cash around the house, that’s just inviting yourself to buy pizza with it (been there, done that). Possibly a savings account at a different bank (if you’re really worried about spending it on “accident”).
Once you’re out of debt (everything but your mortgage), you should build up a significant emergency fund. It should be the equal to several months (or more) of your entire household’s expenses (mortgage payment, utilities, groceries, etc). That way if you were to lose your job, or something BIG happens (roof needs repairing, car REALLY breaks down, etc), you just grab some cash from your emergency fund and then go out for pizza to celebrate something bad happening and how it’s not going to stress you out.
How do you build an emergency fund when you’re already spending 100% of your paycheck? Well… that’s a different blog post on BUDGETING [Coming Soon].
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