Financial Preparedness: Step 1: Emergency Fund

Alright, ladies and gentlefolks. It is time! Time to jump into the steps to FINANCIAL FREEDOM!! As promised, we are going to start breaking down the steps laid out by Dave Ramsey, in his book ‘The Total Money Makeover’. Again, if you haven’t had a chance to read his book, go. check. it. out. from your library! I will not be able to do the book justice as I lay these steps out, but I want to at least help reinforce his plan in any way I can. So are you ready to do this? Are you ready to take the steps toward being debt free?! It’s not an easy road and you’re going to have to be focused and dedicated. You’re going to need to sit down with yourself, your spouse, your family and make sure everyone is ON THE SAME PAGE! (An absolute MUST!) It’s going to take sacrifice! But remember the motto: If you will live like no one else, then later you can live like no one else!

So here we go!

Step 1: A $1000 Emergency Fund

Quick! As fast as you can, get $1000 together for an emergency fund.
Are you wondering why you’re collecting money to put aside somewhere when you’re trying to pay off debts? Well, that is because, as Dave lays out in the first part of his book, you are giving up a life of borrowing. (Let me say that again…) Give. up. a. life. of. borrowing! That means credit cards! (I’ll address my take on that later, but…) if you are in debt (other than your house), get rid of your credit cards NOW! Take them out of your wallet, cut them up if you have to in order to keep yourself from using them. THEY ARE A LIFE OF SERVITUDE!

Now, since we are no longer using credit cards,we need some sort of emergency fund prepared so that when an actual emergency comes a calling (Dave likes to call them the ‘Murphys’ of life, i.e. Murphy’s Law) we will not resort to borrowing again in order to take care of the emergency (remember: we have given up a life of borrowing!!)
{And Dave makes this very clear… when he says ‘emergency‘, he is not talking about the pizza man showing up at the door and your realize you don’t have enough cash. This is NOT an emergency and you do NOT have permission to get into your emergency fund for such a situation!}

You will need to sit down with, again, yourself, your spouse, your family and determine what constitutes an emergency. You need to BE CLEAR on when it is okay to access that fund.

Put that money in a place where it is difficult to access, but accessible. This means that having money in a 401K does not count as your Emergency Fund. True the money is there, but you would be more likely to use your credit card again to pay for an emergency, than you would be to take the money out of your 401K. A savings account set up for your fund would work (but be sure your checking account is not set up to overdraft from that savings account), or you could have it in cash and set aside somewhere you cannot access easily. One example Dave gave in his book was of a woman who collected the $1000 in cash and then framed it and glued the frame together. She wrote on the front of it, ‘In case of emergency, break glass’. 🙂 So, the money is there, but she’s not likely to go breaking into it when the pizza man shows up. Very clever. 🙂

I know $1000 isn’t a huge emergency fund (it definitely would not cover the surprises we’ve had in our family lately), but we’ll build a larger fund later as we progress through the steps. In the meantime, while the main goal is to get rid of debt, $1000 will do.

So okay! You have your goal: $1000 set aside strictly for an emergency in some designated location that is not easily accessible, but still accessible. Ready. Set. Save!

Advertisements

4 thoughts on “Financial Preparedness: Step 1: Emergency Fund

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s