Financial Setbacks and the Emergency Fund
When we first started listening to and reading Dave Ramsey he talked a lot about having an emergency fund. I always thought having some money in the bank was a good idea, but he suggested keeping 3 to 6 months worth of your expenses in a high interest savings account. That seemed like a considerable amount of money to me, but since all his other ideas seemed to worked for us, after we paid off our student loans we began increasing of “emergency savings.” We reached our goal in January of this year and the money has been sitting, earning a small amount of interest over the past six months.
Meanwhile, my mutual funds are doing great and earning significantly more than my high interest savings. I have been tempted over the past few months to take a little out of our emergency fund and invest it into some more long term type stuff. It just seemed silly to have all that money sitting, and waiting for something bad to happen…. until last week.
We have two vehicles, which we own free and clear. One is a 1997 minivan and the other is a 2004 suburban. Over the past few weeks we have noticed our van having a few problems. We took it into the shop and found out that it needs almost $2000 in repairs. Ouch! Our van isn’t worth $2000. Almost immediately I began to panic, then I remembered about that money, just sitting, waiting for an emergency. I was actually happy, not that I need a $2000 car repair, but that I have the money to pay for it, without relying on a credit card.
I share this with you, not to boast about our savings, but to remind those of you without debt, that now is the time to start putting money away for those unplanned expenses. It doesn’t have to be a car repair, it could be unexpected travel, car accident, or medical bills. With the cost of living on the rise, it makes sense to have a little extra put away for the unexpected.
For those of you who are working towards freedom from debt, once you are debt free, don’t forget about the emergency fund. There can be a temptation once you are debt free to splurge because you have worked so hard and accomplished something really great. You have, but you are not finished. Build up your savings to avoid falling back into the debt trap once again.
Filed under: Financial Friday, Uncategorized
Awesome job, Toni! It does feel great to have that money sitting there for emergencies. I can’t count the times I’ve heard my friends and family laughing (nervously) that “you — talking about people in general — spend what you make.” Not if you want to be prepared for the curveballs that life tends to throw. Living like no one else…
I love Dave Ramsey! Great post! I was wondering though, how did you set up your mutual funds? We’re in that middle ground of paid off everything, but need to save!
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[...] Last week I wrote about setting up an emergency fund. [...]