Life loves to surprise us, and not always in a good way. Your car breaks down, and the washing machine, oven, and dishwasher all die in the same month. Or you lose your job, and now you need to find a way to cover your bills. Or suddenly you face an unexpected bill. Any of this sound familiar?
What if you could handle these surprises without losing sleep? What if there were small, practical steps you could take every month to give you this peace of mind?
Whether you are married with kids or living on your own, being prepared for the unexpected is not just smart, it’s liberating. In this post, we’ll show you exactly how to set yourself up so that when life throws you a curveball, you can face it calmly and confidently.
Just like a helmet protects you on a bike, or an airbag protects you in a car, you need a cushion to protect you from financial risk – to keep you from going into debt. This is why it is important to put aside money every month as part of your budget.
On this blog, we talk a lot about controlling your money, so it doesn’t control you. We are huge fans of being proactive – actively planning for the future, instead of reactive – responding to things as they occur.
By saving for expenses before they occur, you will be ready to meet life’s emergencies – and greatest joys! – head on. And you’ll save all of that interest you’d have had to pay had you taken a loan.
You’ll need two types of funds:
- Emergency Fund
This fund is only for real emergencies. Not for things you knew were coming or covering overspending from previous months. This is your immediate safety net. If you lose your job and lose your income, this fund is there to keep your household running without panic. An emergency fund should cover 3–6 months of your monthly living expenses. - Sinking Fund
This is where you save for one-time expenses that you know will happen – either at an expected time (like summer camp) or at some point in the future (like replacing a car). This fund is designed to provide you with sufficient resources to cover all or nearly all of these expenses. By doing so, you can avoid taking out loans or going into overdraft, where you can be paying double-digit interest.
How much should you have in it?
Every household is different. But you can look online on how much some of these items cost and then save that amount and then add an extra 10-20% to be on the safe side. Like the emergency fund, build these up over time as part of your budget.
| Fund Name | Purpose | Target Amount |
|---|---|---|
| Emergency Fund | True financial disasters (e.g. job loss, medical emergency, etc.). | 3-6 months of expenses |
| Sinking fund | Expected big expenses (e.g. appliance replacement, summer camp, family vacation, bar/bat mitzvah) | The full cost of the items you are saving for |
This sounds overwhelming. How do I go about this?
The most important thing to fund first is an emergency fund. Don’t worry about starting small if that is all you can manage right now. The most important part is keeping at it, saving month after month, making it a habit and building your savings muscle. When and if unexpected money comes your way, toss it into the fund. 💪When an emergency hits, you’ll be ready.
Next, make a list of all expenses that you anticipate having in the next year, five years, ten years, etc. Estimate how much each thing will cost you and calculate how much you’ll need to save each month to reach your goals. Adjust your budget to free up more money to save.
Keep going month after month and keep your eye on the prize. These funds aren’t built overnight. By the time you reach that trip, bat mitzvah, or your car breaks down, you’ll be ready and will have the funds ready.
Where should I keep these funds?
A keren kaspit works great for emergency funds – unless you are an American citizen, like we are (Grrr. PFIC…). We keep ours in a pakam in our bank. Longer term funds (to be used in 5+ years) can be invested. Whatever you choose, these funds should definitely not be sitting around in your checking account (עו”ש) where they can easily get spent.
Teamwork makes the dream work. 🤝
As with everything in a household, if you are in a relationship, you cannot do this alone. A partnership means working together and not working against each other. Both partners need to be all in to make this work.
Start today. Set aside a small amount this month. Every step brings you closer to peace of mind.
Like what you see here? Subscribe so you never miss a post.
Chasing the Fionist Dream 
Leave a comment