Sorry for no fun posts lately with tons of pics….I have been working a lot and most nights I don’t get home until about 9. I also don’t have much of a weekend since I am expected to work Saturdays now so I have no life (yay tax season)! I will try to get back on it this weekend and take some pics no matter how boring they are.
I wanted to follow up the Budget post to talk about the importance of an emergency fund. Before you start paying off debt it is very important to save up a little nest egg first. The first step of Dave Ramsay’s baby steps is to save up $1,000 for emergencies before you start attacking the debt. Since our only debt is the house and we don’t have to be too aggressive, we follow the Suze Orman rule of having a 6-8 month emergency fund. This means that if (pardon the french) shit hits the fan and we both lose our jobs or something we could live on our emergency fund for 6-8 months with no income coming in. You might have noticed in our spreadsheet we use in the budget post that we have our expenses separated into categories with essential items being on the top. These are the basics we would need to live – shelter, food, heat, etc. Every other expense we would cancel if we had to. Our emergency fund is based on 6-8 months of the essential items we would have to pay for. Also, it is my personal preference to have more money saved away because I am more comfortable just knowing that it is there so the hubs has to go with it! If your debt is credit card debt or student loans then it is better to follow Dave Ramsay’s $1,000 plan because these loans are usually high interest and it is better to start paying these down right away. And if an emergency would come up the $1,000 will still be helpful. Either way do what you are more comfortable with.
So why do you want an emergency fund? To have less drama! Let’s face it stuff is always happening and sometimes when it rains it pours. Your car will break down, the furnace goes out in winter, you have a plumbing emergency because the basement is flooded, your pine tree got the beetle and is dead and you have to call the tree guy out to chop it down – geez these weren’t real life situations or anything 🙂 These things suck but if you have an emergency fund you can pay for all these things and move on with your life! It might take a few more months to save up the emergency fund again, but when problems happen you can deal with it.
I also have to say the emergency fund is for EMERGENCIES!! There is no dipping into the emergency fund to fund a vacation or a shopping spree you leave it alone for actual emergencies. After you do your monthly budget and plan out where all your income is going, your emergency fund is always there in the bank never changing. You budget the monthly income and you pay your debt with the monthly income. Your emergency fund is just there for emergencies – ok I think I emphasized that enough! Don’t worry about whether your emergency fund is making interest or not it is supposed to be liquid and easily accessible it is not an investment opportunity. Investments come after you pay off your debt and you become a rich guy!
Set up your budget and get a plan going for all your doll hairs, then save up your emergency fund, then attack that debt. Ready. Set. Go!!! You can do it!!!!