Devoted to understanding the basics and fundamentals of investing

I'll admit it, I've been lucky.  I married a woman who believed in budgeting.  We've lived on a budget since we were newly weds.  Our budgets at first were pretty basic.  We only had enough income to meet immediate basic needs and had little left for fun or savings.  We avoided debt and lived within our means.

Through the years our income level increased as we finished school and started a career.  We added savings, insurance of various types and fun to the budget.  Many people I know stop developing their budget at this point.

What we found however is that we kept getting surprised by unexpected events.  The car would break down, or like what happened to me yesterday, the water heater would fail and need to be replaced.  We kept finding ourselves behind in our budget. 

So we modified our budget again and added a category for emergencies.  We put a certain amount into it each month and let it accumulate.  Then, when life surprises us we can respond without breaking the bank. 

How much should you have in your emergency fund?  Maybe enough to pay the deductible on your auto insurance or your largest co-pay on your medical insurance.  Maybe enough to replace a major appliance if it breaks down.  You don't need to save the full amount at once because these are low probability events.  But you need to save each month because enough low probability events occur each year to seriously disrupt your financial security.  Also, you should have insurance of different types to protect you from catastrophic events.

If you don't do it already consider adding emergencies to your budget process.  And while you are at it, subscribe to this blog.  It's painless and best of all it's FREE.