Ahh, emergency funds.
Many times have I sat down with a client and asked how much they had in an emergency fund with no response but blank stares.
You see, emergency funds are not just a popular thing to talk about, they have a real impact on your financial security.
“A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.“ – Proverbs 27:12
Why do Christians Need an Emergency Fund?
Why should I put money away in something that earns little to no interest?
Wouldn’t I be better off just putting it in a Roth IRA or something similar?
These are typical responses I receive from people who have never thought about the idea of setting money aside in case of emergencies.
One reason I think people are unsure as to whether they need an emergency fund or not is because they either currently live paycheck to paycheck, or grew up doing so.
Let me be the first person to tell you, THERE’S ANOTHER WAY.
One of the ways to help you free yourself from the vicious cycle of living hand to mouth is to start an emergency fund, something I lovingly call, a
Here’s the thing, believe it or not, you will have OSIIOMH (Oh-Shoot-I’m-In-Over-My-Head) moments whether you like them or not.
Nobody wants to face those moments, and most people do whatever they can to avoid them. But, regardless of your preference towards those situations, you will face them.
AND, that’s exactly why the fund is there.
But Cooper, doesn’t an emergency fund mean I’m no longer relying on God?
Anytime I write, I like to answer questions before they happen. This is certainly going to be a concern for some, and although I think it has its legitimacy, I don’t believe an emergency fund is replacing your reliance upon God.
Give a portion to seven, or even to eight, for you know not what disaster may happen on earth. – Ecclesiastes 11:2
Nobody knows what is going to occur in the future. You have no idea when your car could break down, when your heart could stop, or when your boss no longer needs you.
Preventative measures can help reduce your risk of negative things happening in your life, but they certainly don’t eliminate them. Because of this, it’s essential to be precautious. Ecclesiastes 11:2 is often used to describe why you should diversify, (the verse is Solomon talking about diversifying agriculture being sent on ships) it also applies to being cautious.
We should take precautions because we don’t know what will happen in the future or when disaster could strike.
An emergency fund is an appropriate precaution against possible financial difficulties that could arise in the future.
But if anyone doesn’t provide for his own, and especially his own household, he has denied the faith, and is worse than an unbeliever. – 1 Timothy 5:8
One of the largest burdens on families is their finances. In fact, it’s likely the most argued about subject in any marriage.
A big reason families struggle with finances is because too often they don’t plan ahead. There’s no budget, no plan, and no goals. The family is living paycheck to paycheck and doing so wains not only on the breadwinner of the household but also everybody else.
Without proper savings, financial troubles are much more likely to happen–and without the adequate savings, you are pinning yourself in a corner on making difficult choices between expenses that are probably necessary.
In 1 Timothy 5:8, Paul warns Christians to take care of their families.
Christians show an excellent example of Christ by taking care of their families through hard work and sound judgment. We have a responsibility to provide for our families and make sure their needs are met.
An emergency fund helps protect your family, and in doing so, you put yourself in a better position to give generously when the occasion arises.
Three Quick Reasons YOU (not your friend) Need an Emergency Fund
1. Emergency Funds protect you from income loss
Income loss can come in all different forms.
For entrepreneurs such as myself, it could simply be a slower month or even a situation completely out of your control.
For employees, although you may feel you are safer than if you were self-employed, there’s also risks with you too. What happens if for whatever reason your employer no longer thinks your performance is up to snuff, or what if the company you work for goes out of business.
Nobody wants this to happen, but it’s possible.
This is where the emergency fund comes in. It’s also the reason I will later recommend a certain amount to be saved.
2. Emergency Funds help you cover unexpected expenses
Ever had a car break down? It’s not a fun thing to have happened, it’s even worse when you don’t have the money to pay for it.
Not only do situations like that surprise you, but imagine having an unexpected medical expense. What would you do if suddenly you had to pay for an emergency surgery? Would you go into debt for it? You may not have to if you build up an emergency fund.
3. Peace of mind
Living like Christ should, in reality, be free from anxiety.
However, since I’ve never met someone who could live up to Christ’s example, I will assume you face stress just like the rest of us. (I’d quickly like to say though that just because you face stress, it doesn’t mean you should wear it like a badge. Let Christ carry that weight, he died on the cross for it.)
There are many ways to free yourself from stress, but one of them is to feel secure in your finances.
Feeling secure in your finances and knowing that should an unexpected occurrence arise, you can cover it, can allow you to sleep better at night. Sleeping better at night and being as worry free as you can is an excellent way to focus on other efforts. Like, building the kingdom!
All of this being said, don’t forget that real peace, that passes all understanding comes from Christ and Christ alone.
Okay, Okay, I Need an Emergency Fund. But How Much do I Put in it?
Now, I don’t want to scare you by saying how much your really need in your emergency fund, but I’ll try to give you a basic idea.
The goal for those reading who currently have nothing in the way of an emergency fund should be to accumulate $1,000.
$1,000, that’s not so bad, right?
But, try to remember that this is merely a starting point. The $1,000 should be thought of as a small win that will ultimately help you accumulate larger wins. Like making your bed in the morning; it sets you up for success the rest of the day.
The $1,000 you’re setting aside should be done as soon as you can make it happen. Seriously, do not delay in getting that first $1,000 set aside. What happens is your motivation will start to waver, and it just won’t get done. If I’ve seen once, I’ve seen it a thousand times.
You should do absolutely everything you can think of to build the fund.
Here are some creative ways to grow your emergency fund QUICK:
- Hold a garage sale
- Sell the trading cards that have been collecting dust in your basement for decades
- Take extra hours at work.
- Ask your neighbors if they need any manual labor done.
- Use Air BnB and allow people to stay in your home until the fund is complete
- Become a Uber driver in the evening
- Pay for everything with cash only. This forces you to be aware of your spending and often leads people to spend way less, and save much more.
- Go to auctions and scan Craigslist for items you can buy and resell for profit.
Alright, so you’ve reached the $1,000 mark–hopefully sooner rather than later. Now, what?
Well, I hate to break it to you, but the $1,000 is just a starting point. Don’t let that get you down, though, it’s a great accomplishment.
Now that the $1,000 is saved, it’s time to increase your emergency fund. There are a few other things I would suggest you do however before building your emergency fund all the way up. Things such as paying down all high-interest rate debt and contributing up to the employer match in your company’s 401(k).
The ideal amount to have in your emergency fund is 3 to 6 months worth of expenses, and the account should be highly liquid.
The next question that inevitably comes up is, “Cooper, I understand I should have an emergency fund, but I can’t earn anything in an account with high liquidity. Can’t I just put it in my IRA or something?”
Well, you can’t have your cake and eat it too so the answer is no.
Your money will technically earn some interest, but not much.
The problem most people have with the emergency fund is that they think it’s for growth. It’s not, though. It’s so if your family runs into trouble, you’ll have something to keep you afloat.
Look what Proverbs says:
In the house of the wise are stores of choice food and oil, but a foolish man devours all he has. – Proverbs 21:20
Where do I Put it and When Can I Use it?
Deciding where to put your emergency fund is rather simple.
You want an account that combines the highest amount of liquidity with the highest amount of interest.
With this said, don’t expect more than around 1%. Look for a money market or savings account at your local bank. You could also leave it in a checking account, but do not, I repeat DO NOT just keep it in your standard checking account. It will be spent.
As far as when to use it, I would say this is very personal. But, it should without a doubt only be used for emergencies.
What’s an emergency?
That’s up to you to define, but I would sit down and decide what constitutes an emergency and write down your criteria. If you’re married, make sure your wife is there to help as well.
Needing new clothes, going on a vacation, or wanting a faster vehicle. Just use your head.
This said I would definitely say helping a friend in need or supporting a mission would definitely be a very legitimate purpose for your emergency fund. The money there is not just for you, but also for your brothers and sisters in Christ as well.
There will always be poor people in the land. Therefore I command you to be open-handed toward your fellow Israelites who are poor and needy in your land. – Deuteronomy 15:11
Too often people overlook the foundational items like an emergency fund and are way too focused on the complex.
Creating a complicated investing strategy to maximize your returns (hopefully) is fun to do, but ultimately creating an emergency fund is more important.
Focus on the BIG things and the little things will come.
Yours in Ambition,