ADOPTING THE BABY STEPS: THE EMERGENCY FUND

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The first thing to consider before working to financial freedom is to secure oneself financially. This is when you would have to prepare for emergencies. Because emergencies would also occur at an untimely, it is best that you are always prepared. 

Before you can tackle your first baby step, you should identify your possible emergencies in order to know just how much emergency fund you should set aside. Make a comprehensive study about your lifestyle and create an inventory of everything you need and those you have. It is clear that "want" is out of the question here. There is no emergencies for things we want.

What are those circumstances that most of us consider as emergency?

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• Health emergencies. Top priority is to stay alive and well. Anything wrong with our body or to anybody in the family, surely this should be given prompt attention and care immediately.
• Weather or environment influences. It is the rainy season, so it would be best to keep a big amount of the emergency fund ready just in case a cyclone comes visiting your area. This is true to all other disasters which are no doubt always categorized as emergencies.
• School fees and projects. A school activity came up, you have to have some fund for this or else your children will feel you have deserted them.
• Broken appliances. This depends on how important that home device is. If one can still live without it, then don't consider making a fuzz when it broke. For example, the microwave doesn't want to work anymore, think if it is a critical situation for the family, if you can still prepare meals without it, then consider buying a new microwave when truly there would be extra from your budget. Another is the computer, there are some people who work using the laptops or computers, then having this device broken should be considered an emergency or else, there would also be no income without it.
• Car maintenance. Just like home appliances, setting the emergency fund also depends on people who have cars or not (and if cars are vital for living or not that much).

How to plan for Baby Step 1?

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Now that you identified what kind of emergencies you might most likely encounter, you can arrange how much you should keep. 

• Check out how much hospitalization fees are in your place. Imagine the worst scenario and get the most probable billing for that. There is no need for you to go and interview hospital personnel. You can gather information from people around you who have had hospital emergencies. Knowing the amount they spent, add at least a fraction of that amount just in case bills and services will inflate.
• For natural disasters, if you are able to complete all your supplies before the season of disasters arrive, then that's absolutely great. The only thing you have to consider for your emergency fund will be emergencies that might happen to your house. For example, flooded basement, cut electricity, no communication or transportation services, etc.
• Have a talk with your children's adviser to know just how much they might need for projects and other activities besides their tuition fees. Among all the emergency categories, this is the least amount.
• If your home appliance is a vital part of your living, then keep the purchase amount as part of your emergency fund.
• Similar with any vital home appliance, if the car is considered a necessity, make sure that you have enough funds to maintain it.

Starting with Baby Step 1

Now that you got an estimate on just how much you should keep for emergencies, it would be easier for you to save (having a specific amount for a goal). 

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• Allot a certain amount every time you receive your pay in order to quickly complete your emergency fund. Although this depends on how fast you would like to complete Baby step 1, you do not really need to pressure yourself too much yet especially if you still got time on your side. For those parents who are going to have college kids soon, then they should definitely work double time for Baby step 1.
• Keep your emergency fund somewhere easily accessible. You can open a regular savings account with a card and with the least maintaining balance. Having a card will be more convenient to extract from your emergency fund when the need arises.

Check on the other Baby steps.