We’ve all been there. Things are going along nicely with our goals of frugal living. We’re saving money and paying down debt. Then, when you least expect it, something changes. An emergency happens. Take my most recent story as evidence.
My husband and I paid off our Tahoe last month. We’re now officially debt free (except for our mortgage). Yay! Our emergency fund is (almost) where we want it. We have money in our retirement funds that is growing (even though we’re not adding to it right now). We have two paid-off cars (with lots of miles). We have (some) money set aside for (some of) the upcoming house projects we’re hoping to tackle. It’s a good feeling.
Then, we received our annual property tax notice in the mail. This was not a good feeling. I was shocked to see that our taxes went up almost $1400! I read through all the enclosed paperwork and saw that we lost our homestead deduction. I didn’t know why! We’re still living in the house as we have been for the past 5 years.
The next day, I made some phone calls of inquiry and found out that when we refinanced for a great interest rate in 2013, the homestead exemption did not transfer. Because it’s retroactive, there is nothing we can do for this year. I’ve refiled and we have already been approved for our homestead deduction next year and all future years. For this year? We have to pay an extra large tax bill.
Ugh. Taxes. I don’t like them in the first place and now it was more than expected!It’s frustrating, to say the least. I spent a day (or two) stewing over the issue before I realized it wasn’t doing me any good.We still have to pay the tax bill and there is nothing we can do to change that fact. We have an emergency fund that can cover emergencies just like these. I can choose to be thankful that we do have the money available to pay the bill. We’re still doing fine. It wasn’t how I wanted to spend our money but I have to move forward.
Yes, it’s a set-back, but it encouragedme to keep working hard at our financial goals. These up and down money moments are part of life. Sometimes, we can plan for them and sometimes, we can’t. It’s why we put money aside in an emergency fund. Emergencies happen!
Fast forward another two weeks. We received another tax bill in the mail. This time, it was for the amount we had anticipated – and the $1400 difference? Gone! The homestead deduction was added back onto our taxes for 2014! I was beyond surprised and immenselythankful for this change. (I said a very sincerethank you prayer that night!) I still don’t know why it happened. I want to think that the nice guy at the Auditor’s office heard my frustration and fixed it for us. My husband thinks it was just a glitch. Whatever happened, we are very thankful!
While we don’t have to pay the tax bill, this has reinforcedour desire to get our emergency fund to the full 3 to 6 months expenses (as recommended by countless financial experts) as soon as possible. Knowing that you have a financial cushion makes unexpected tax bills – and other money surprises – less of a stresser.
The purpose of this story is to show you that we all have emergencies. I don’t want anyone to feel bad about where they are with their budget. We can all make progress forward, although some days (and years) it seems slower than others. The lesson to be learned is that emergency funds are important.
Do you have an emergency fund? If not, I encourage you to set something – anything – aside. We lived with a $1000 emergency fund (Dave Ramsey’s Baby Step 1) for many years. Even having $1000 as a cushion helps me to sleep better at night.
If you do already have an emergency fund, is it funded where you would like it to be? Every family has a different set of needs so only you can determine what is right for you. Our goal is 3 months in our emergency fund, knowing that we have another 3 months in cash-value life insurance policies. What is your goal for your emergency fund?
An emergency fund is a cash reserve that's specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.
Remember, you don't need three to six months of all your expenses, just “must-haves” such as your mortgage or rent, utilities, taxes, and insurance bills.
Many of us are probably already familiar with the basics of an emergency fund – the who (everyone), what, why, where and how much (enough to cover at least 3-6 months of expenses).
Essentially, it's just like a savings account, only you specifically set it up in order to cover unexpected expenses as they come up. In general, you should strive to have around 3 months' worth of wages in your emergency fund, which can offer you a nice safety net in these tense moments.
What is an emergency fund? An emergency fund is a separate savings or bank account used to cover or offset the expense of an unforeseen situation. It shouldn't be considered a nest egg or calculated as part of a long-term savings plan for college tuition, a new car, or a vacation.
By adding money to an emergency fund, it reduces the option of allocating any additional funds to other programs, such as retirement savings or paying down a mortgage. Thus, emergency funds reduce the likelihood of achieving other financial goals.
Your emergency fund allows you to pay for something you need right away without paying extra in interest charges. DON'T include money you're using for a vacation in your emergency fund. This is strictly for unexpected necessities.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
The general rule of thumb is to keep three to six months' worth of basic essentials stashed in your emergency fund. But how much you need to feel financially secure may differ.
Those general saving targets are often called the “3-6-9 rule”: savings of 3, 6, or 9 months of take-home pay. Here are some guidelines to help you decide what total savings fits your needs.
And one crucial detail to note: Millionaire status doesn't equal a sky-high salary. “Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.”
How much emergency fund should I have? Sudden car repairs, medical emergencies or job loss can all lead to unexpected debt if you're not prepared. It's difficult to predict how much these or other emergencies could cost — but three to six months' worth of expenses is a good goal.
Key Takeaways. The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).
People have different estimates about the best amount to save in an emergency fund, and the answer will depend on your income and spending habits. Generally, your emergency fund should have somewhere between 3 and 6 months of living expenses.
Introduction: My name is Kerri Lueilwitz, I am a courageous, gentle, quaint, thankful, outstanding, brave, vast person who loves writing and wants to share my knowledge and understanding with you.
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