One of the most important, practical financial tools is the emergency fund. As huge believers in the emergency fund and its ability to help people get out and stay out of debt, here are some of the most frequently asked questions debunked.
WHAT is an Emergency Cushion?
An emergency cushion is essentially that: a cushion for emergencies.
This money is put away in a savings account where it is accessible, but with a reduced temptation to spend it on a groceries. An emergency fund gives you the margin you need to avoid returning to your credit card when there are emergencies.
WHY do I need an Emergency Cushion?
Emergency cushions prevent emergency use of the credit card. When creating a spending plan for the first time there are bound to be things we don’t account for.
Even with the best planning the world, there are bound to be expenses we don’t forsee. The emergency cushion allows us to remain debt free while dealing with unforeseen expenses.
WHY should I build my Emergency Cushion before paying down my debt?
Mathematically, building an emergency fund before paying down your debt may not make sense. After all, the interest on your loans are higher than the interest you make in a savings account, right?
BUT if money was only mathematical people wouldn’t be in debt.
Paying down your debt is important, but staying out of debt is equally important. Without an emergency cushion you will return to your credit card when there is an emergency. This is why creating an emergency fund is so important!
How much should my Emergency Cushion be?
It varies from situation to situation, family to family. Generally an emergency cushion should be between $500 and $2,000 dollars.
Families who own a home and two cars have more potential for emergency and their cushion should be $2,000. A single person who rents and takes public transportation has less potential for emergency and can make their cushion $500.
What can I do to build my Emergency Cushion?
Building your emergency cushion should take no more than three months. You can create the extra cash by canceling subscriptions for a few months, making only the minimum payments on your credit cards and looking for things to sell. There are no shortage of ways to make some short-term cash flow if you are determined.
Emergency cushions are a vital part of becoming and staying debt free. What other questions do you have? Comment below, we would love to hear from you!
More than Enough is a team of financial fitness coaches and trained mortgage agents working together to help you live free of debt, find joy in giving and experience a life of abundance. If you are looking for a Christian mortgage agent or financial advice, please visit our “Contact Us” page.