The one Reason you can’t get out of Debt
Have you ever met someone who constantly goes from one crisis to the next and never seems to have enough money? Maybe that person is you? There is only one reason why you can’t move forward. You don’t have an emergency fund!
You don’t have a plan for emergencies!
The one reason why you can’t get out of debt is simple: you continue to think going into debt is an option. If going into debt, even just using a credit card is an option you will never fully be able to get a handle on your finances. If you are serious about getting out of debt to follow your real dreams, then you have to set your self up for success.
The only step you need: An Emergency Fund
Before you start paying off debt you need to save up a small emergency fund incase you make a mistake or life happens… and it will. This will prevent you from pulling out your credit card when: your car breaks down, receive unexpected medical bills, or any other number of unexpected emergencies.
Things that are an emergency:
- Trip to the Emergency Room
- Unexpected car repairs
- Unexpected bill comes due
- Forget to put a fixed expense in your budget
- Get laid off
- House repairs
- Income decreases unexpectedly
Things that are not an emergency:
Entertainment with friends
Super cute shoes
You don’t want to cook so you eat out
How much should I have in my emergency fund?
A good number to start off is at least $1000 for the average person this will buffer most expenses. My husband and I started with this amount then sent everything extra we had each month to those dreaded student loans. It is a little nerve racking sending almost $3,000 a month towards student loans realizing once we sent the money we could not access it again.
One month we tried holding onto it a bit longer not sure if we were going to move and guess what we spent part of it. Big surprise… I know. If was actually a wake up call realizing how quick we could get off track. After that we decided to have some faith in our emergency fund and pay off debt as quick and possible. This is the best decision we ever made! Not only are we saving thousands in interest but also we were able to pay off $30,000 in just 11 months! If we continued to build our savings instead I am sure we would have bought that giant flat screen my husband drools over every time we enter Costco.
Is $1000.00 the right amount for Everyone?
Admittedly I am not a financial advisor but rather someone who has learned a great deal from doing things the wrong way. If you have a great deal of expenses you may want to increase this amount to ensure you would be covered in an emergency. If you are focusing on paying off debt you want to find a happy medium to where the fund is large enough to cushion expenses but not too large to where you spend so much time building it that you do not pay off any debt.
A special note to those living on commission: If you live off commission and historically have dry months I recommend having a large enough emergency fund to carry you through dry months.
Can I just use my savings account as my emergency fund?
Short answer: Absolutely Not!
An emergency fund must be separate from your savings account. Personally I don’t even add in our emergency fund when monitoring and adjusting our budget every two weeks. An emergency fund works best when you forget you have it until you absolutely need it.
What if we use our emergency fund?
Budget experts like Dave Ramsey are in agreement that having an emergency fund is priority number one. That means if you have to use a portion make sure that you build it back up before continuing to pay off debt. I know this feels like a step backwards but it will prevent you from being completely derailed in the future.
How do I save up $1000 fast?
Free Budget Form Here!
Download the same budget I used to pay off $30,000 in just 11 months!!!