An Emergency Fund. What is it and why do you need one?

An emergency fund is a liquid savings account in which you can easily access in the event of an emergency.  An emergency is something that happens such as losing a job, the dishwasher breaks, or you get an unexpected medical bill. An emergency fund is not "Oh look at the car, I need to buy a new car." or "That's a cute purse, I want that." It is for EMERGENCIES!!

Recently, my 2012 Jeep broke down.  The transmission went out and I was stuck on the side of the highway.  Luckily, it was covered by warranty. That didn't prevent me from dipping into my emergency fund.  I had to get my Jeep towed to the repair shop.  I paid $150 to tow my Jeep.  I didn't even break a sweat.  That is exactly what my emergency fund was for.  The best part is, my insurance company repaid me for the towing, so it was back up to its normal amount within two weeks.

Why do you need an emergency fund?
1.  An emergency fund will give you a sense of comfort.  It is comforting to know that in the event of an emergency I have some cash that I can use in my bank account to cover the cost.  I don't have to worry about my credit card limit or going further into debt.

2. It gives you a source to fund an emergency.  A majority of people that I talk to don't have any type of emergency fund.  They say that their credit card is their emergency fund.  To be honest...Three years ago, my credit card was my emergency fund.  And I used it as an emergency fund.  At the time I was a broke college student and bartending at a Golf Resort. I was driving to work and I rolled over something and got two flat tires.  I had no cash to pay for it and my credit card only have a $500 limit.  I had to go out and find two new tires for under $500, which wasn't too difficult but I just about maxed it out.  It was at that point where I decided I needed an emergency fund.  A credit card will only worsen your financial situation in an emergency.  How do you plan on

How much should be in my emergency fund?
Dave Ramsey suggests building a $1000 emergency fund until you get out of debt.  I personally did not feel comfortable with having only $1000 in my emergency fund.  Even though I have a steady job in the military, my wife and I felt more comfortable having a $3000 emergency fund.  This will allow us to fix our car if it breaks down.

After getting out of debt, Ramsey suggests building your emergency fund up to 3-6 months of expenses.  For us, that would be about $4,000- $7,000. We'll build up to about $7,000 once we get out of debt. But for now, we're comfortable with the $3,000.  It's enough to cover two months of expenses, or an emergency with our car.

How to save and buy a car for $30,000 CASH

I’ll tell you right now, this article will not teach you a quick way to get the money you need to buy your dream $30,000 car.  This will take time and commitment.  If you follow this method, you will be able to afford the car you want.  Let’s start off with the basics:

Why is it stupid to take out a loan to buy a car?

1. You’ll be a slave to the lender.  Proverbs 22:7 states, “The rich rule over the poor, and the borrower is slave to the lender.”  Taking out any type of debt automatically makes you a slave to whoever owns your debt.  Once you take out a loan there is only two ways you can get out of it: you pay off the loan or you go bankrupt.  Either way you are losing.

2.  You are spending way more than the car is worth.  If you purchase a $30,000 vehicle with a 3% interest rate over 60 months, you’re looking at car payments of $539.06 per month.  If you take out a loan, you will be paying $32,343.60.  That’s $2,343.60 lost over a 5 year period, which equals about $450 a year that you could have used on something else, or saving for your next vehicle.

3. Your brand new $30,000 car will lose about $3,000 the minute you drive it off the lot.  Once you drive it, it’s considered “used”.  So, if you read point #2 on why car loans are stupid, you’d actually be throwing away $5,343.60.  A loss of about $1,000 per year.

Why buy a car with cash?

1.  You have leverage. If you walk into a car dealership with nothing in hand, the dealership will squeeze out as much money from you as they can.  Show them the cash.  If you show them that you are serious and have $30,000 in cash with you. They will take a knee and get you into the vehicle you want.  You have the ability to say, “I have $30,000 and not a penny more.” That $34,000 vehicle that you wouldn’t be able to get with a $30,000 loan just became available to you for $30,000 on the nose.

2. You won’t be a slave to the lender.  You own your car, nobody else does.  You won’t have to worry about making monthly payments on something that is losing value every mile you drive it or every day it gets older.

The strategy

This strategy takes about four or five years to get you to that $30,000 car, so plan ahead.  If you can, keep driving the car you have now.  If you can’t continue driving your current car (if it is completely broken with no chance of a reasonable repair) then take your savings and purchase a car that you can afford with cash. Now, let’s say you take that $539.06 per month and you start putting it into savings instead of towards a car payment.  In one year, your current car breaks down. You can afford a $6468.72 car.  You keep on saving that $539.06 per month for another two years, and that car breaks down.  Your used car probably lost about $1,000 in value since then, but you saved $12,937.44.  You can add the extra $5,000, making that $17,937.44 in cash to purchase another used vehicle.  This will get you a very reliable vehicle that should take you to the end of your $30,000 car journey.  Chances are, in the last 3 years, you earned a pay raise.  You bump up your monthly savings to $600 per month.  After two more years, you saved another $14,440 towards a car.  You current vehicle is now worth $15,500.

After 5 years and two different cars, you have $14,440 in cash and a $15,500 vehicle.  That $30,000 vehicle is now only $100 dollars away, but the good news is, you have CASH! Cash is king when it comes to purchasing a new vehicle from a dealership.  They will, in most cases take your $29,900 for your new vehicle.

Conclusion:

By saving your money and stepping up vehicles in small increments, you have saved yourself about $3,000 over five years.  Not a bad savings for purchasing a piece of equipment that is guaranteed to lose value.

Is money the root of all evil?

     Having a lot of money isn’t a bad thing.  In most cases, money represents hard work that you put in to earn it.  You shouldn’t feel bad about having a lot of money.  A common misconception of money is that “Money is the root of evil”.  There is no spot in the Bible that specifically states that money is evil.  It is simply a green sheet of paper with fancy designs and a picture on it.  1 Timothy 6:10 is the bible verse where people get the idea that money is the root of evil.

“For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.” (1Timothy 6:10)

      As you can see in the verse, you can see where people can miss the true meaning of the passage.  “For the love of money is a root of all kinds of evil.” It’s not the money itself, but the idea of a idolizing money.  The love of money can change a person and doesn't allow them to focus on the important things in life such as God, family, and service to the community.

    Some people will do crazy things to get fast money.  They'll steal from people, they'll kill people, they'll gamble to try to get some quick cash.  These are all dishonest ways to get cash.  If someone is willing to sin to get money, they have a love for money.  This is where the idea of "the love of money is the root of all kinds of evil."

     Proverbs 13:11 states that “Dishonest money dwindles away, but whoever gathers money little by little makes it grow.”  The dishonest ways people get money isn't sustainable.  The money will be gone within a matter of a short time.  People need to get jobs and earn their stead with an honest day's work.