Be Prepared

The Boy Scout Motto is: Be Prepared.

This motto is simple, yet extremely important.  The Scouts train to be ready for almost any situation in the wilderness, from injuries and bug bites to knowing where and how to best establish temporary shelter in crisis.

Likewise, as you move to get out of debt and take control of your financial life, you too need to Be Prepared.

Life has a tendency to throw us a curve ball when we least expect it and most likely when we are not prepared for it.  The washing machine breaks. The water heater goes out. The car needs a new transmission. Unexpected medical costs.

These things happen to everyone, but when you’re not prepared, it hurts and for someone who is trying desperately to get out of debt, it hurts even more when you find that one credit card you keep “for emergencies” and pay for the repairs with that.

Now that you have a *gasp* BUDGET, and you’re seeing where all of your money is going, it’s time to work on your first savings goal.

Preparing For Emergencies

A good financial advisor will tell you that you need to have three to six months of your living expenses set aside to cover emergencies.  A REALLY good financial advisor might even tell you to have six to nine months of savings for emergencies.

You want to prepare yourself for the emergencies listed above, but also for more severe situations such as: an unexpected illness or injury that keeps you from working, loss of a job or loss of a family member.

When preparing for emergencies, here are a few of things to remember:

1) Living Expenses does not necessarily equal your income.

2) You need to be responsible to realize when it is appropriate to use your emergency funds.

3) As you get control of your money, and you start to eliminate debts – your living expenses will drop because you don’t need to have extra savings to pay those credit card minimums anymore.



I know some of you are sitting there adding up your living expenses and trying to figure out exactly how much you need in your emergency fund.  Often that figure is somewhere between $12,000 and $20,000.  THAT’S A LOT OF MONEY!

I completely understand that and I also understand that most people don’t have that just sitting around under their mattress and you don’t need to have that much set aside to start taking control of your money.

Have you ever heard the question: “How do you eat an elephant?” Well, the answer to that is: “One bite at a time.”

Your emergency fund is your elephant right now. You need to conquer it in bite-sized pieces.

So here’s how we’re going to do it:


We’re going to break your  Emergency Funding into phases. We’ll start at Phase 1.

Phase 1 is simply a small amount of money in the bank to cover those minor emergencies that will sneak up on you.

This money needs to go someplace that it is accessible but not too easily accessible.  For example: If you bank with “Bank A”, maybe you should put your emergency fund with “Bank B” or a credit union across town. I also recommend an account without a debit or ATM card, so you have to go into the branch to get your money.

It’s vital that this money is not the easiest to access – sometimes what you think is an emergency, is really just an inconvenience and a little bit of a “cooling off” period can allow you to see the difference.

DO NOT KEEP THIS MONEY AT YOUR HOME – It’s too easy to access and will cause you to spend your Phase 1 Fund on things other than emergencies.

The first time I set up my Phase 1 fund, I made the money so easy to get to that somehow it supported my Taco Bell habit and when my A/C went out in the dead of summer, I had nothing left to pay for repairs.


Phase 1 is based on your income level:

If you make less than $20,000 per year, your first Emergency goal is $500.

If you make between $20,000 and $70,000 your goal is $1,000.

If you make more than $70,000 your goal is $2,500.

Why these amounts? Based on those income levels, you should easily be able to find that amount of money quickly and without too much of a challenge. The goal is to find a cushion in case something goes wrong.

Great ways to find this “extra money” is to: work a little overtime, have a garage sale, find ways to squeeze just a little bit more out of your budget.  Typically, you should be able to reach this goal within a matter of two to four weeks.

Once you hit this goal, I bet you’ll want to celebrate. Go ahead, but Be Prepared because I bet something is on the horizon, you will probably need to get into your Phase 1 Fund to cover an unexpected expense. The difference is, you were ready for it!

When you take money out of your Phase 1 Fund, any future steps that we talk about here, will be put on hold until you bring that back up to your Phase 1 Fund amount.

When Phase 1 is complete, it’s going to be time to focus on other things for a while. We’ll come back to building your emergency fund up, but you’ve got a small amount wrangled up for now, let’s let that sit and wait.

Defining “An Emergency

As you work toward Phase 1 of your Emergency Fund, it’s important that you take the time to define what an emergency is and what an emergency isn’t.

If you are married, sit down with your spouse and write up a list.  If you’re single, define it for yourself, but I recommend getting a friend who can hold you accountable to leaving this money alone unless your situation matches what you have defined as an EMERGENCY.

Some Items that may be on your Emergency List:

Unexpected Car Repairs, Urgent House Repairs (like the roof leaking or water heater needing to be replaced), Car Insurance Deductibles, Unexpected Medical Costs.

Some Items that really shouldn’t be on your Emergency List:

Aunt Doreen’s birthday, Christmas (it happens EVERY year on the same day!), Taco Bell, Regular Vehicle Maintenance, Regular Household Maintenance, Home Improvement Projects.

YOU get to decide what an emergency is to you – but stick to your guns. If it’s not an emergency, then don’t touch your Phase 1 Fund.

What if I didn’t list it as an emergency, but it really is one?

Great question! If you happen to have an emergency that you didn’t put on your list, but after a brief “cooling off” period, you’ve determined that it really does qualify as an “emergency” – do the following:

  • If you’re married, sit down with your spouse and discuss why you believe it’s an emergency and both spouses need to be able to voice their thoughts and concerns on this issue and come to an agreement regarding what needs to happen next.
  • If you’re single, run your situation passed a friend who is holding you accountable. If your friend agrees that it is an emergency, add it to your list and fix the problem.

Phase 2 of your Emergency Fund will come at a much later point – when most, if not all, of your Consumer Debt is paid off.  Keep in mind those income limits, if your situation changes, you may need to step your Phase 1 Fund up a little bit.

The Takeaway: We’re all going to have times in our lives when stress levels increase, unexpected things will happen, the best thing you can do is, as the Boy Scouts say: Be Prepared.


I want to make this blog interactive. I would love to hear your stories of financial successes, financial challenges, budgeting questions, etc. Please feel free to share these stories at:

Your questions/stories may be used in a future post. If you wish remain anonymous, please tell me.

Thanks for reading.

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