What do you do when an emergency expense comes up? Do you rely on your credit card or do you have a savings account that you can use?
When my husband and I decided we were going to cut up all of our credit cards, we knew this was something we had to take care of… an emergency fund. Since there would no longer be that plastic money tree to run to, we had to have a plan!
We immediately began saving for our emergency fund. To start, that fund needed to be $1,000. This is just about enough to take care of any foreseeable needs. When we are debt free (except the house), we will stock up this fund to be at least six months of our living expenses (not six months of salary, but expenses). This will be a great cushion if anything happens like job loss, illness, injury, etc. Ideally, I’d like to have at least one year’s worth of expenses saved up.
This is a recommendation we learned about through Dave Ramsey’s Financial Peace program. In his program, the emergency fund is Baby Step One and helps you not have to rely on credit when an emergency arises during your debt pay down.
I can vouch for this step, as we just had an emergency repair that was needed on our vehicle. The expense was right around $1,000 (ugh) but I am SO glad we had it! We did not have to run to a credit card to get us through! What a feeling of freedom it was to not have to add debt to our lives in order to take care of car repairs. Now, we will have to replenish the emergency fund before we pay additional payments towards any other debt (all we have left are student loans, yea!), but that’s okay. At least we can feel confident in the fact that we didn’t have to borrow any more money. Yippee!
Do you have an emergency fund? Does this sound like something that would benefit your family?
Check out this article from Dave Ramsey on How To Build An Emergency Fund Fast!