The first step in Dave Ramsey's Total Money Makeover Baby Steps is Save up $1,000 in a small emergency fund. ($500 if your income is under $20,000). Why is this important? Shouldn't you start tackling your debts right away? The reason the $1000 emergency fund is so important is that it serves as a safety net for unexpected out of pocket expenses that might cause you to go running back to your credit cards if you don't have the money there. I've done it before-- paid off my credit cards, sworn off using them, and then had a car repair. I had to pay for it with my credit card. What happens next? You have to pay the balance on the credit card and you run out of money in your checking account. That leads you to putting more expenses and sometimes non-necessities on your credit card. Does anyone else see how this can become a problem really quickly?
The average person going through the Total Money Makeover pays off their debts in 2 to 2 1/2 years. John and I have been doing this for two years. Have we had to use some of the emergency fund? No. Really? Why not? Because the only emergency we have had in the two years we have been doing this is for car repairs. We actually have a budget for car repairs because we know we are going to have to maintain our cars until we run them into the ground and can afford to buy new ones.
So save the $1000 as quickly as you can. It will give you more peace of mind than I can tell you. And DON'T USE YOUR EMERGENCY FUND FOR NON-EMERGENCY ITEMS.
No comments:
Post a Comment