The Missing Piece That Keeps You From Getting Rid of Debt

0:06Welcome to the Wealthy After 40 podcast, the show for Gen X women and couples who are ready to ditch financial stress and feel confident about retirement. I'm your host, Dailene Higgins, money coach and retirement strategist to help you gain clarity and confidence with your money by creating a spending plan that aligns with your financial goals and dreams so you can spend intentionally, save consistently, and feel at peace about your future. Join me every week to understand your money, simplify your decisions, and take intentional steps toward the life you want.

0:48Today's episode is all about emergency funds. Yep, it's not a glamorous subject. Most people cringe. A lot of people don't have an emergency fund, but I believe it is the number way to eliminate debt fast. By the end of the episode, I will have explained why, and hopefully you will have gained a better understanding of emergency funds. If this episode is an area of money that you struggle with, this is one of the things we cover in the Retirement Ready Workshop. The workshop is being held April 4th. There are also two more times this year it will be held, so if you are listening to this after.

1:33I hope you'll join me. You can learn more about the workshop at elevatefinances.us backslash workshop. Get all the details there, sign up, get yourself joined. It is a live workshop and we cover all of the financial foundations and how they help you be retirement ready. So what is an emergency fund? An emergency fund is a cash account that helps you when things are surprises, you know, expenses that are surprises happen, right? These are not just the trip to the hospital, the car accident, right? It doesn't have to be that great. Although those are emergencies, we have other things that are surprise expenses that number one, we can anticipate.

2:27They will happen. We just don't know when. Therefore, there is that emergency. Before I dive into that any further, I just want to talk about why is an emergency fund important? I'm not going to answer this question. This is one you need to answer for yourself. It is essential that you determine why it would be important to you. Understanding your importance for an emergency fund, how it will serve you and protect you. Once you have that inside of you and you have a full understanding of that, being able to accumulate that savings and then not just spend it because you see it there, right? You have crossed one main hurdle of having that reason, that importance, that desire, your own definition of why you need an emergency fund.

3:27As we discuss that, I want you to remember you are defining why is an emergency fund important to you. So next, what are the benefits of having an emergency fund? right this is where you're going to determine your benefits as well but number one I believe that you will experience less debt or no debt being prepared for that emergency you have cash you're not turning to a credit card to a loan or to family right you're not having that debt repayment after the emergency as well you have peace of mind You know that if something happens, right? And I didn't say if something happens, but when something happens, you have peace of mind that you are financially ready to take care of whatever has come up, right?

4:26Most people do not have an emergency fund. This makes them financially fragile, meaning that any one surprise expense can derail all of their efforts with their money. Another benefit of having an emergency fund is you won't have to put off repairs or surgeries. How many people have you heard say, I need to have this procedure done, but I can't afford it? If you had an emergency fund, right, medical savings fund, you would be prepared. We don't know what procedures we're going to need, right? But as we grow older, it's not an if, it's going to be when, and we don't know what. All right, so think about emergency you've had in the past, whether you were a child and your parent had the emergency, or you and your spouse or your partner.

5:33How did you feel during this emergency? emergency like i said an emergency does not have to be fire ambulance car wreck going to the er that's not just the emergencies i'm talking about i'm talking about your transmission seized up you're on the side of the road something happened you lost all of the oil in your engine your water heater went out your furnace died your air conditioner is not working and it's the middle of summer, 99 degrees. How did you feel? Now think about if you had the money to cover that emergency expense. The emergency still happened, the broken item, the repair still needs to happen, but you have the money.

6:26But think about what if you didn't have the money? Two different feelings there. One makes the emergency even greater, even larger. It, yeah, I was working with a client. We were one session into his long-term coaching. His engine, kaput, doesn't know exactly what happened. It's fully seized. And he's, I can't believe this happened. And I said, I'm really sorry. It's bad enough that a car repair or a car break happens when you do have money, but when you don't have money, it is that much greater. He was grateful he was working with me during this, and we're still working ourselves through it. So how do you define emergency fund?

7:20And so the most common is three to six months of your expenses just in case of job loss. While that is good, to me, I found it ambiguous. I didn't know when I was supposed to use it. If I'm saving this for job loss, but my heater goes out, can I use it? so I worked in a different way that I'm hoping will help you create your importance create your definition right we all need to make our own different definition but defining it helps us know when we can use it and what it's to be used for and how much we need to save in there For example, I created an emergency fund for my home. I keep my buckets separate.

8:19My emergency funds are all the same, but I have the buckets separate. You've probably heard about savings buckets. That's what I did with my emergency funds. So with my home, I thought about all of the repairs, all of the things that could be broken, right, and started working on a number there. So if you think about it, you have a roof that needs to be repaired, even if you just bought brand new. If you're planning to stay there for 20 to 30 years, you're going to need to replace your roof, right? Consuming the entire house, you've got a roof, you've got an air conditioner, you've got a furnace, a water heater, a stove, a refrigerator.

9:01You could have a flood, right? Covered by insurance, maybe not. But those are all of the things possibly with a home. Now, I didn't save for each one individually because I think, yes, emergencies happen. Yes, surprise expenses, breaks, breakdowns happen. But they're not going to happen all within a one month time period. Oh, poor soul, if that has happened to you, I'm very sorry. but what I did was I saved for my furnace that I had just had my roof done so my furnace that's the next most expensive appliance that I would need to replace right I might have repairs in the meantime those can keep going on but I saved that much my water heater broke I paid for it out of there I saved back up to that amount so keep replenishing you keep that amount and that way you're not creating this huge savings that is not working for you.

10:08And we're going to talk about that in a minute. So I did that for my home. I did that for my car. What would I anticipate? But also with my car, I created a quote car payment that at the time my car did not just have a repair need, that it was actually toast and I needed to move on from it. I would have either a down payment or enough for a brand new car. The third one is medical, right? So we have high deductibles. Most everybody does. Creating a savings to cover the deductible could be priceless, right? I am still working on mine. Believe me, that is a huge chunk of change. However, once I have that, I will have a complete peace of mind with that there if I needed to use my medical insurance to that full degree, right?

11:07I know what that cost is. And then also job loss. I think that's very important. If you work in an industry that experiences layoffs, downsizing, all of those things, you need to be prepared. So creating an emergency fund for that is very important. So I like to separate mine out. I like to create my total cost based on something realistic to me. Same with the home. If I needed to have insurance cover something, I have my deductible saved. Then I just work with the insurance company and that covers that amount. I hope that helps you be able to make your own definition of an emergency fund. And number one, how much you need in there and when you would use it, right?

12:06What you would use it for. So how do you build an emergency fund, right? How do you save for this? You're going to create it as a budget item. You're going to put money away towards it. you could prioritize these emergencies you're going to fill up one then the other in the order you believe something would happen again we don't have a crystal ball we just have to make a best guess but taking action with a best guess is better than nothing just work towards building that Shoot for$1 ,000 in the very beginning, right? I think that is great advice. Start there. That's typically what a deductible is.

12:52So anything happens as far as home, your insurance, you have the deductible. And then continue to build from there. Episode six talks about tracking your expenses and being able to refine and build up more savings. this would definitely be that something that you would work towards shifting more money into this. And lastly, where do you keep an emergency fund? As I said at the very beginning, this is typically a cash account. And what I mean by cash, as an accountant major, right, that means it is liquid. It means I have access to it very quickly. So I have$1 ,000 at my local bank. That is for my immediate need.

13:42If I had to pay something that's right there, the rest of it, I keep in a high yield saving. That takes a little bit of delay to make that transfer into my local bank, but not that long that I wouldn't be able to make a payment. Even if it's a medical, they're not going to need a payment date. So typically high yield saving, it's earning money. Again, I talked about saving too much money for emergency funds that you're not actually able to invest or achieve your other savings goals. So finding that balance, but then keeping it in a savings account where you are earning more money. So if it is earning money, that's less you actually have to take out of your income to save towards.

14:29So make sure you keep it local. It's cash. Probably not CDs, definitely not investments because there's a sell-off or it's contract or there's penalties, those types of things. Going back to the title, emergency funds help eliminate debt by not having to create debt. If you are prepared, if you are planned, and you don't have debt as your emergency fund, as your reliance, emergency funds can help eliminate debt. I hope you learned something. I hope I helped you get a different view of emergency funds. They are not a glamorous topic or a glamorous thing that we like to save for, but I think it is essential for our financial health.

15:23and being able to move forward. Thank you for listening to today's episode. Just another reminder, if this is one of the areas you're struggling with, you're not sure how to maintain your savings, join me in the Retirement Ready Workshop. You can find that at elevatefinances.us backslash workshop to learn more and get registered. Next workshop, as I said, is April 4th, So I hope you'll join me. But I want to also say next week, I'm going to share something that might surprise you. I'm going to talk about why I broke up with my emergency fund. So I hope you'll join me next week and have a wonderful time.

16:05Thanks for tuning in. I hope today's episode helped you feel a little clearer and more confident about your money and reminded you that progress doesn't have to feel overwhelming. If this episode was helpful, I'd love it if you followed the show, left a quick review, or shared it with another Gen Xer who could use this kind of support. And if you're ready to stop guessing and want clarity around what to focus on next, I invite you to book a free financial clarity call at elevatefinances.us backslash clarity. And remember, retirement isn't just a dream, it's a plan. Let's make it possible together.