Its Going To Rain

A while ago our furnace was making a funny noise and our house wasn’t as warm as usual, so I called the repairman to come out and look at it. Our furnace was only a couple years old, so I assumed it was something minor. As it turns out, one of the fans needed to be replaced. Fortunately, it was still under warranty so we didn't have to pay for the part, but the labor cost was $600. This was an emergency, so we just put it on a credit card. No big deal. That’s what credit cards are for, right?

Murphy’s Law says, “Anything that can go wrong, will go wrong.” As we look back now and see that we addressed all of our emergencies – real or imagined – with the Plastic Protector of Life (AKA Visa) and his equally plastic sidekick MasterCard it’s no wonder that we ended up in debt. Credit cards are like screen protectors. If you put them on your phone or touch screen device you’re trying to protect the way your device looks, right? If you drop that phone or touch screen device, does that screen protector actually protect the screen? No. You needed something more durable than that little piece of plastic to protect your device.

Emergencies are like those drops, those accidents that just seem to happen. The storms of life swirl around us all the time; car accidents, car repairs, broken windows, job loss, or even your kids needing new clothes because they have grown. The only way to really protect yourself from those emergencies is to put something in between you and them. You do this in two ways. The first is to have adequate insurance to cover the big things like home replacement, devastating medical issues, and things like that. We’ll talk about insurance more at another time. The second way is to have an emergency savings built up.

Emergency savings is simply a savings account that you have set up to use only in case of an emergency. It’s not for rainy day trips to the mall; it’s for rainy days that cause leaks in the roof. Remember grandma used to say, “Save that for a rainy day”? Grandma’s roof leaked before too. So, before you do anything else, before you even start trying to get out of debt, set some money aside in case of emergencies. That way, when you’re a few months into your plan to reduce your debt, you can use your emergency savings to pay off that accident or address that emergency without incurring more debt. Set up something now, and set an achievable target.  Try to get $1,000 to $2,000 in an emergency savings account in the next 1 to 3 months. It will take some sacrifice to do that, to be sure, but you’ll be surprised how accidents happen a lot less frequently when you’re prepared for them.

~Kevin