We’ve talked before about the importance of being prepared in case of a disaster. That’s why you should always keep an emergency kit in your home (and another in your car) with basic supplies you’ll need, including flashlights, batteries, water, and a first-aid kit.
But there are other types of disasters to be prepared for besides just ones where the power goes out. What if a financial disaster comes along? Your car breaks down, and unless you pay for some very expensive repairs, you won’t be able to get to work anymore. You get sick and need a prescription medication that’s not covered by your insurance. Someone stole your identity, emptied your bank account, and maxed out all your credit cards. When things like this come up, it’s important to have a different kind of emergency kit on hand—a cash emergency kit.
How to Start a Cash Emergency Kit
A lot of people just live paycheck to paycheck. Then, when an emergency comes along, they don’t know what to do. They may even end up putting themselves deeply in debt in order to cover the expenses. It’s important not to keep budgets.
Many banks recommend setting aside at least three months’ salary, as a cushion in case of disaster. Your mileage may vary according to your household’s current situation and needs, but set a precise amount and work towards building up that much in savings.
There are a number of things you can do to cut costs and save money. Find a few luxuries to eliminate every month, and put that extra money into a secure account. Keep the account separate from all of your other holdings and don’t attach it to a debit card. That will remove the temptation to dip into it at will, for day to day expenses.
It’s also important to maintain a balance between saving money and paying off your debts. One of the best ways to save in the long run is to eliminate several years of interest payments on your credit cards, mortgage, etc.
A Stash of Cash
An extra bank account for emergencies is great, but what about actual cash? Should you keep a supply of bills on hand as well—say, a few hundred or even a few thousand—in case you’re ever unable to access what you have in the bank?
It can be useful, under certain circumstances, but there are also some problems. Physical cash doesn’t earn interest, and inflation makes it worth less the longer you have it sitting around. Also, if someone breaks into your home, it could be stolen. And unlike the money in your bank account, cash is untraceable, and thus much less likely to be recovered. Plus, knowing it’s there, especially if you keep it in the house, will make you more likely to use it before you actually need it.
If you do decide to set aside a supply of hard cash, be smart about it. Keep it to a relatively low amount—maybe a couple of hundred. Put the rest of the money you save in your emergency bank account. Find a place to hide it that will be difficult for a thief to find, as well as being hard for you to access. This will cut down the chances of your losing it, and reduce the temptation to dip into it for something trivial.
It’s important to be prepared for any eventuality. When an emergency arises, you need to be able to deal with it, without worrying about how you’re going to pay for it, or putting yourself into a mountain of debt. That’s why a cash emergency kit is so important. It’s like a bandage you can apply to the wound of whatever’s wrong, to patch it up and prevent yourself from bleeding out. If you don’t have a cash emergency kit on hand, you’re just flirting with disaster.