You are well on your way to creating a plan that will help you reach your financial destination. Now that you have a zero based budget, it’s time to concentrate on WayPoint 3. We call this WayPoint the “Buffer Zone”. A Buffer Zone in nautical terms means; “An area that is protected from assault and invasion.” When you have an Emergency Fund established, you are protected from having to use credit in case of a crisis event. Depending on your situation, we recommend your Initial Emergency Fund investment be between $1,000 and $2,500. This fund should be set aside but accessible in case of an actual emergency. It should not be used for household purchases, social events, entertainment or purchases that you want. It is to be reserved for those actual unexpected events like a roof repair, car accident, appliance breakdown or other crisis that may occur. Once again, we encourage you to review every purchase and expense and start to minimize or eliminate those expenses that lean toward your “Want Appetite” and not your “Need Requirement”. Once that money is freed up, it will help you build that emergency fund quicker. The goal is to have this account fully funded within 4 to 6 weeks.
Having this buffer zone is so important and it’s tough to explain just how important it is until you use it. Recently my wife and I had something unexpected come up and we had to dip into the emergency fund. It was so easy, the money was just there and the problem was solved. I didn’t have to worry about a credit card or taking away from our grocery fund to cover the expense. It was just gone and we moved on with life. The feeling is indescribable.
I installed a new furnace yesterday. If it wasn’t for an emergency fund, I would have fallen into the debt trap. This system works!