A “crisis plan” is a misleading name. It is not something you would use if your car broke down. That is what your emergency fund is for. I guess it should be called a “crisis aversion plan”. If you know that an event is likely to happen in the near future you would want to put one of these plans into action.
What kind of “events”? Really anything you are not already prepared for. This might include a possible lay off at work, the imminent death of a loved one, or hmmm I don’t know, a surprise pregnancy.
Who needs one? If you already have 3-8 months of your salary saved up then you are in pretty good shape. However, many people are just beginning to repay debt and may have as little as $500-$1000. This is great for an emergency fund but when big things are about to happen it isn’t going to cut it.
How do you implement a plan? This depends on what you are going through. If there is a close estimate of how much money you will need then it is pretty simple. Take the amount of money you need and divide it by the approximate number of months you have to save it. This will give you a rough estimate of how much money you are going to need to save each month. If you can’t possibly save that much it is time to start selling things you don’t use, getting a second job, or cutting back on extra services you may subscribe to. If you have no clue how much money you will need start saving as much as possible. Sounds a little simplistic but you will need it in the long run.
What should be stopped? No more chunks of cash to those credit cards!! It may seem like the best idea is to pay off the cards as quickly as you can instead of saving. This is a bad idea because when the layoff/death/birth happens you will not have any money and will need to use credit to pay for it all. Another no no- any unnecessary spending. Any money that you can put toward savings should go to savings- nothing else. If you are about to have a serious financial situation on your hands… sorry, but you don’t need a manicure. One way I am helping myself do this is by thinking of every dollar spent on something else as something that could have gone to the baby. For example, I got a survey in my email today, I was really tired and didn’t want to do it, but it was paying $2 and I thought, “hey that could buy a couple bottles or a pacifier” and I took the survey. It can be tough but it helps.
What if it turns out that you don’t need the money? Simple! Use it to pay down your debt!!
I hope none of you ever needs one of these plans. I sure never thought I would, but if you do here ya go! If you have any other tips or hints to add please share with us!!
**Curious about why I have a crisis plan? Read the Big News here.
Showing posts with label emergency fund. Show all posts
Showing posts with label emergency fund. Show all posts
Sunday, August 26, 2007
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