What Is the "Savings: Emergency" Category in a Spending Plan?

Emergency savings is a much maligned Spending Plan category that is neglected by most at a personal financial level when attempting to plan monthly income and expenditures. There is irony here.  Never have I met or coached a person who did not believe that money should be saved “for a rainy day” but there are few who actually have real savings for such an event.
A few save for emergencies successfully, some save as a matter of routine but don’t develop significant balances because they have to take out the emergency money to cover over-spending, and most don’t save at all for emergencies for the same reason.  Many rationalize that in an emergency, they will use a credit card.
There are certain things in life that are bound to happen — financial emergencies are one of them. They will happen!  We just don’t know when, how often, or how much the cost will be.  Saving for emergencies is as important a spending category as is gas or groceries!
To successfully save for an emergency, a category must first be built  into your Spending Plan. That way, you know that you need to “pay yourself” this amount just as you must pay the grocer and the credit card company. Set aside each month into an accumulating balance, the amount dictated by your biggest exposure to emergencies, which is usually considered to be “loss of job.” If you don’t have a lot to start out with, begin with just 1 percent of your gross monthly income and work up from there. Taking action, even in this small way will ensure that you continue taking action until you have built up a sufficient amount to cover a serious emergency. How much is a sufficient amount?  The time is will take to find another job.  That time frame classically is one years’ worth of personal expenses; many feel that six months’ worth is fine; if you don’t have six, then start with three months — this is better than nothing and as it builds you will find it empowers you emotionally to continue building.
In any event, begin now to store up these dollars.  The process of saving for emergencies is more important to do than to invest in your 401(k), take a vacation, buy a house, or even make extra payments on debt.  This may seem a strange idea because of the amount of earnings on savings you get today from the bank.  Let not that fact deter you from the vital importance emergency savings plays in building financial security and wealth. There is much more to perfecting the Savings Emergency category in your Spending Plan. Among them is keeping the money safe, secure and liquid.  Suffice it to say that you can have it all, including a return on the saved dollars that will astound you!
For more information on how emergency savings can be optimized, call Alan:  801-292-1099, alan@moneymastery.com.