Your Uh-Oh Fund: Are You Proactive or Reactive?
Which scenario would you rather happen to you?
- Scenario One: A client injured her leg in December while skiing. She was annoyed since she needed to pay for two years worth of health insurance deductibles for her surgeries.
- Scenario Two: A pal injured his leg and didn’t have health insurance. He needed to go to the Emergency Room for surgeries and then declared personal bankruptcy since he didn’t have enough money.
The person in Scenario One stored money aside to pay her medical insurance deductibles. Thus, she focused on healing herself. The person in Scenario Two did not have money put aside. His life went into chaos. He moved to a more affordable city. He got a new job in this new city. He adjusted his lifestyle so he could rebuild his life, credit, and financial foundation. And worst-of-all, this person felt defeated.
Now, other than health insurance, what’s the biggest difference between these two? An Uh-Oh Fund.
- AKA an Emergency Fund.
- AKA a Rainy Day Fund.
- AKA a Sh*t Happens Fund.
The person in Scenario Two isn’t alone. Unforeseen medical expenses are the number one cause for personal bankruptcies in America. To quote a 2013 NerdWallet article:
“In 2013 over 20% of American adults are struggling to pay their medical bills, and three in five bankruptcies will be due to medical bills. While we are quick to blame debt on poor savings and bad spending habits, our study emphasizes the burden of health costs causing widespread indebtedness. Medical bills can completely overwhelm a family when illness strikes,” says Christina LaMontagne, VP of Health at NerdWallet. “Furthermore, 25 million people hesitate to take their medications in order to control their medical costs. Unfortunately this can lead to even worse financial outcomes as preventative treatments are not rendered and patients end up using expensive ambulance and ER care as their health worsens.”
My challenge to you: your first priority for a healthy financial foundation is to set up your Uh-Oh Fund!
How To Define Your Uh-Oh Fund
I asked a new client this question, “With the money you’ve saved, how many months of livelihood expenses would that cover if you lost your income?”
His answer, “That’s a good question. I never really thought about it.”
Your Uh-Oh Fund can pay for a medical emergency, a plane ticket for a funeral, a busted tail light on your car, and any other life responsibility. However, this fund can be your lifeline if you suddenly lose your income. You can then pay for your livelihood expenses.
Livelihood Expenses = money to keep you alive, healthy, and to keep/gain your income.
- Examples: Shelter, Basic Food, Transportation, Medical, Basic Bills (Insurance, Utilities, Internet, Debt Payments, etc.), and Job Keeping/Searching Expenses
Dollar Amounts For Your Uh-Oh Fund
Everyone has a unique situation but here’s a chart displaying general guidelines to consider so you can proactively prepare for life’s curveballs.
Trust your gut for what’s appropriate in your situation. Factors to consider: mortgages, other debts, safety-nets (like helpful family members), special needs children, and the list goes on-and-on.
- For personalized help, discuss your situation with a trusted financial professional. To learn how I can help you, please visit: Well-Rounded Success Services.
Designate a Separate Account
Most people are “winging it” with their savings by lumping all of their money in one big account. This account is for their day-to-day living, a future down payment for a house, retirement, vacations, holiday spending, and for emergencies. Hmmm… Is this really the best approach?
Create a separate account for your Uh-Oh Fund versus just trusting that a portion of your overall checking account is for emergencies. Money in your checking account is too tempting to spend. Ask your bank to open a free separate savings account so you can isolate money for emergencies.
It’s important to have this money sitting in cash or as other liquid assets. You want access to this money immediately if life demands it. There should be few barriers between you and access to this money.
Once you know your target dollar amount, set up an automatic savings plan into your Uh-Oh fund. Learn how to do this here: Trick Yourself to Save Money
Don’t Cook Meth
Remember that Walter White from Breaking Bad resorted to cooking meth because he didn’t have an Uh-Oh Fund. And look what happened to him!
Upgrade your mindset to become intentional when building your Uh-Oh Fund. A major benefit to this strategy: once you reach your savings goal, you can direct your money elsewhere with the peace-of-mind that you’re handling your basic ‘adult’ responsibilities!
Think about it. Proactive “Adulting!” Sounds refreshing, right?!?
Thank you for reading and if you want guidance on how to navigate your personal finances, please get in touch with me or learn more about Well-Rounded Success’ Services on the website.
Cover Photo credit: Jarryd Wafer