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Save Your Way to
the Top 25 Percent
By Derick Gant, Smart Money Management, LLC
The Truth Contributor
The other day I witnessed an unfortunate traffic situation.
A car had broken down in the middle of an intersection. The
hood was up and smoke rose while two men hovered over the
engine in disbelief.
The hazards were frantically flashing as inconsiderate
people were honking, pointing and yelling, making the whole
thing worse. I can only imagine that the car stopped for the
light and once it began to move forward, it died on the
spot.
The first thing that came to mind is the fact that 76
percent of American households have less than $400 in
savings for emergencies. That means that this poor guy is
more likely than not worried about how he’s going to get his
car towed as well as fixed and running.
I know the stress that comes along with having an emergency
and not having the money or a solution. It is what most
Americans face over and over again but it’s time to break
that cycle.
Let’s face it, $400 is a lot of money or everyone would have
it in the bank or set aside for critical times. The first
step towards changing this void is to clearly recognize a
true emergency.
Many people consider their cable breakdown or the loss of
other entertainment items as emergencies. I’ve witnessed
families who struggle to meet their house payments while
paying for fancy sneakers or kids travel to basketball
activities. The fact is, an emergency is so much more
imperative.
I know it should be obvious but clearly many are confused
about when and where to spend their money. I define a true
emergency as anything that takes you away from your active
stream of income.
When you can’t go to work because your child needs medical
care, that is an emergency. A broken refrigerator is an
emergency.
You may ask how does a broken refrigerator interfere with my
active stream of income? When you are stressed out about
how your family is going to eat, how the family’s basic
nutritional needs will be met, that affects your ability to
perform well at work. Mess up at work too many times and you
will not have a job to go to.
Ever get so hungry that you get mad? It’s called being
hangry.
One of the most widely used mistakes is not having car
insurance. When you are stopped by law enforcement without
the proper insurance coverage, you are asking to have your
license suspended. No reliable way to get to work is a deal
breaker.
What should you do?
Every family needs a clear short list of unavoidable
emergencies and an estimate of what those could possibly
cost when it happens. My list of unavoidable emergencies
consist of:
1)
A Flat Tire $175.00
2)
Water Tank $400.00 (Home Appliance)
3)
Traffic Ticket $125.00
4)
Deductible $500.00 (Medical/Dental/Auto/Pet)
5)
Death Travel $750.00 (Loss of a Family Member)
Even though I can’t predict when one of these may happen, I
keep the single highest possible expense in my emergency
fund. I have a savings account labeled “Do not touch
Money.” This account has a few thousand dollars in it but
it took hard work and over a few years to get there. I never
touch this account unless I have one of the five emergencies
mentioned happen.
An unavoidable emergency comes from nowhere. There is no
hint that something is going wrong. These are difficult to
predict but it doesn’t mean that you shouldn’t have a
strategy to get over these hurdles.
Open a new account or use a current savings account to begin
to save for your unavoidable emergencies. Your emergency
goal should equal your largest potential expense. Label the
account EMERGENCY or some other motivating name. Try and
avoid using your checking or Christmas fund. It rarely works
and fails just when you need it.
What about avoidable emergencies? These are situations that
you know are coming but have yet to set aside the money you
will need. Your tires are bald and you are well aware that
you need new ones but you put it off. What about the
over-due electric bill that’s been growing out of control
and you pay just a few dollars towards the bill.
We all make bad decisions sometimes but to avoid crushing
emergencies, take care to address them as soon as possible.
Stop letting the things you want interfere with the things
you need. There may come a time that all extras have to get
put on hold for a month or two to handle tough situations.
Freeze your cable TV; reduce your mobile phone to a minimum
data plan; stop eating out until you get those new tires.
Drastic times call for drastic measures. Be vigilant about
where you spend your money and treat each dollar like it is
the one that will get you through a real emergency.
Banks love customers who open accounts. Go to your bank and
open another savings account. My second savings is called
“Short term Needs.” I save for expenses that I know are
going to happen within the next three to six months. This
is in addition to the “Do Not Touch Fund.”
Start your savings journey with any emergency you know is
coming that will interfere with you getting to work. This
means putting those dollars in the “Short Term Fund.” Once
you have taken care of those needs, begin to put any extra
money into the “Do Not Touch” account.
Create the habit of asking yourself if you are prepared for
basic emergencies. “Should I spend $65.00 at the movies with
the kids or save $50.00 and make popcorn and watch a movie
at home. This will drastically reduce the amount of
emergencies that occur and put you in the top 25 percent of
all American families.
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