So, what does this have to do with your emergency fund?
Let’s start with an unsettling statistic. The current reported unemployment rate is 9.8%; however, many people have given up on the effort of looking. Those people are not in the statistic, thereby making it much higher, probably on the range of 18% to 20%. This is almost as unsettling as wearing no clothes in a crowd.
If there is any good news about this down economy, it’s that many people are beginning to see the importance of getting in touch with their personal finances. Perhaps it’s because they have the time to do it, but more than likely it’s because they realize they are exposed and vulnerable. People are beginning to realize how vulnerable they are; some are paying down credit card debt and many are beginning to understand the wisdom of having an emergency fund.
With our personal budgeting product, Liquid, an emergency fund is created automatically. This is done by taking your cash and amounts in your checking and money market accounts and netting that against your credit card balances and upcoming expenses. The result is what you would have left over at the end of the month if your income were suddenly cut off and all your upcoming expenses came due today.
Other budgeting software allows you to create an emergency fund, but it is purely optional. Emergency funds really aren’t an option; they are necessary. They are are important to have for several reasons: to be prepared for unexpected events, to keep from going (further) into debt, to have greater knowledge of your situation, and to foster responsibility.
What would you do if you lost your job tomorrow? What if you boss told you that you could keep your job, but you’re going to take a 20% cut in your pay? How would you continue your current lifestyle?
With your newly found emergency fund you will have more certainty in your life; you will be free from worry if something unexpected should happen. You will no longer be naked and vulnerable.