Why it is Important to Have an Emergency Fund

emergency fund

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Years ago when I graduated high school and started to earn a substantial income I had no concept of savings. I spent money as I earned it and lived paycheck to paycheck. It wasn’t until I read Dave Ramsey’s book Total Money Makeover that I learned my mentality on money was foolish. I was only 21 years old and had drowned myself in credit card debt and a terrible credit score to boot. I felt overwhelmed, like I had dug my own financial grave. It’s scary to feel as if you have no control and can’t get ahead. It is these obstacles that help us grow though. I knew I had to come up with a solution and Dave Ramsey’s book proved to be the key to my salvation.

Dave Ramsey has seven baby steps to financial freedom in his book and the first and most important in my opinion is to start building an emergency fund. The amount you should shoot for is dependent on your personal expenses but he recommends at least $1000. I found this goal to be fairly easy to reach in a short period of time and it has proven to be a good amount for my circumstances. Once you have that money saved away your emergencies won’t feel like emergencies. They will merely feel like a small bump in the road.

Why is it important?

For starters, if you get fired or “let go” you’re screwed without it. You can always resort to charging up all your credit cards, but that’s just going to get you into a sea of financial trouble. Don’t be a dummy.

You get socked in the face at a bar. Insurance only goes so far, beyond that you’re going to need to cough up some money to cover the extra expense to get your teeth fixed.

Your tire blows going down the highway. These things happen more often than we’d like them to.

For the average person with no money in savings these scenarios would cause anyone to go into a huge panic.  With a savings account built up these all become inconveniences. Savings give you peace of mind and financial security. $1000 may not be enough to live off of if you lose your job but it will give you some time to come up with a solution. If you feel more comfortable having more than aim for a higher goal. Even if you feel that you are currently living paycheck to paycheck, you can find ways to cut out non-essentials to slowly grow your savings account. If an emergency comes up, think carefully about the situation and be sure it is actually an emergency before you spend money out of your savings to fix it.

What changes have you made to help grow your savings?

 

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5 comments

  1. Mr Ikonz @ Project Ikonz says:

    I’ve just started growing my emergency fund at a rate of $300 a month. God knows how I’ve managed to live life without having an emergency fund.

    Even at $300 a month, I’m a bit worried that it’s going to take too long to build it up to being a significant sum, so might be tipping in some more over the next few months.
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    • Heather says:

      Now that I’m used to having it I don’t know how I ever went without. I guess with credit card debt is how. If you can save more it’s always best at least until you have an amount that you’re comfortable with. I’m working on saving as quickly as possible in order to reach some savings goals and maintain my emergency fund.

  2. @WilliamLipovsky, First Quarter Finance says:

    That’s cool you found DR at such a young age! He does say $1k takes care of 90% of emergencies!

    A recent could-have-been emergency of mine:

    I withdrew $300 from my bank account three!!! years ago. It was never debited and I called them but they didn’t really care. Fast forward to last month, they want $300 from my account! Good thing I had it! You’d think there would be a statute of limitations on those kinds of things.
    @WilliamLipovsky, First Quarter Finance recently posted…Would You Rather… (with DoSomething.org)My Profile

    • Heather says:

      They were still able to request you to pay up? I would dispute the heck out of that but I think the law is up until 4 years though. What a bummer.

      Dave Ramsey is my ish! I’ve tried introducing him and his books to my friends but I get cold shouldered quite often :/

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