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We have been debt free for 9 months and it hasn’t been easy.
We went on vacation in September, are going again in January, paid our homeowner’s insurance in full, oh and my husband got a kayak. I told him it’s his birthday, Christmas, and Valentine’s Day gift 😉
If it wasn’t for our savings we would have been back in credit card debt months ago.
Our vacation fund is nonexistent, but we wanted to take advantage of a really great cruise deal and the fact that our daughter can miss some school days this year without being penalized.
If you want to get out of debt and stay there you MUST have an emergency fund.
WHAT IS AN EMERGENCY FUND?
An emergency fund is money set aside that is only to be used during an emergency. (duh!)
It should not be used to cover wants or regular expenses (groceries, electric bill, etc.)
Use an emergency fund to cover:
-Medical expenses
-Supplement your income in case you lose your job
–Unexpected car/home repairs
Do NOT use your emergency fund to buy a “want” of any type”. For example:
-Those cute leopard print high heel shoes you’ve been dying to get
-Gifts
-Entertainment
-Travel
WHY YOU NEED AN EMERGENCY FUND?
Having an emergency fund will prevent you from going into more debt and also give you the buffer you need to stay out of debt.
When we were in debt I had a good chunk of money saved. I didn’t allocate that money for anything other than general savings. What I should have done was take some of that money to put towards our credit card bill. We would have been out of debt a lot faster.
According to Dave Ramsey, debt is an emergency. His book Total Money Makeover is a must-read and one of my favorite money books thus far because it is written in a easy to understand way, but has such good information no matter what step of your debt-free journey you are working on.
I read the book AFTER we were out of debt because my husband came across it in his selling side hustle. I was ecstatic that we had done the majority of what was in the book and it had good suggestions of what to do with regards to life insurance and retirement.
Now I know how important it is to give your money purpose, which is why we have multiple bank accounts for different uses.
By hustling and going through the process of getting out of debt, my husband and I have become a lot better with our money. Do we still make mistakes? Yes, but that’s how you learn and I hope you can learn from our mistakes too.
Related posts:
* 13 Important things to do after becoming debt-free
*6 Bank accounts you should have
WHERE SHOULD I KEEP MY EMERGENCY FUND?
Keep your emergency fund somewhere secure where you won’t use it for non-emergencies.
I keep our money in a savings account that gains interest and is accessible, but requires a little work.
HOW MUCH SHOULD I HAVE IN MY EMERGENCY FUND?
This all depends on your current financial situation.
If you’re in debt and struggling to pay the bills, make it a goal to save $1,000 for your emergency fund. You can even do a money saving challenge with your friends.
I personally think a good amount to have in your emergency fund is 3 months worth of expenses. If you unfortunately lose your job or get sick you will have time to recover without worrying about how you’re going to keep the lights on.
Once you pay off more of your debt put more money into your emergency fund until you have an amount that you are comfortable with.
We are currently organizing our finances in preparation for the New Year so that we can plan out how much more we can start saving and create a decent vacation fund.
HOW TO START YOUR EMERGENCY FUND?
Now onto the most important question, how do you start building an emergency fund when you’re in debt or living paycheck to paycheck? The simple answer…
AUTOMATE
Set up your bank account to automatically set aside money each week. Start with $20 and work your way up. If you save $50 a week it’ll take you 20 weeks to save $1,000 for your emergency fund.
If you want some easy ways to build up your emergency fund quickly visit this post. (I’ll have it up within the next week!)
WHAT TO DO AFTER YOU USE YOUR EMERGENCY FUND?
Eventually a rainy day will come. It might not be tomorrow or this year, maybe not for a few years. However, when it does you’ll be prepared.
At one point we had $10,000 saved in our emergency fund. Now it’s a bit less because we had to reallocate our funds with everything we had going on the past 3 years (moving, unexpected expenses, increased pre-k tuition). I plan on upping the amount in our emergency fund gradually in the near future.
When that rainy day does come use what you need out of your emergency fund and rebuild it as fast as you can, when you can.
CONCLUSION
No matter where you’re at in your debt-free journey, beginning, middle, or end, you NEED to have an emergency fund.
Once you figure out how big you want your emergency fund to be automatically send money to a separate savings account each week.
Get your side hustle on to make money faster.
After you’re satisfied with the amount of money in your emergency fund you can use your cash to tackle your debt harder, invest more, and just do more.
Do you have an emergency fund? If not, let’s go!
Great post & advice. We’ve become more financially savvy as we’ve gotten older. 10 years ago we took that plunge & tightened up to become debt free & it has paid off tremendously in the long run. It’s something we’ve taught our daughter also.
Love that! My parents are at the age close to retirement and sadly do not have much saved. I’m trying my best to get our financial situation in order so that I can hopefully help them too.
Excellent tips for growing an emergency fund, especially like the fact that you include the income brackets of people who live paycheck to paycheck. Great stuff, thanks! 🙂
thank you!!! 🙂
Oh yes! Mine has been dwindling due to our rental houses needing repairs. I will get back there. Every month was a new AC unit! It can go quickly!
I’ve wanted to get into rentals too but know how much work they are.
So important! I think an emergency fund is something everyone should have or be working towards.
Yes. It wasn’t until I became and adult with “real” bills that I understood the importance of having one.
Great idea! Before I was out of a job, I would make it a point to put at least $50 to $100 out of my paycheck into a savings account. It adds up!
Yes it does! Automating helped us a lot because it goes to a separate account so out of sight out of mind.
This is such great advice. My husband and I are working on this right now! THanks for the tips!
You’re very welcome and that’s great!
Yes, it’s very important. I was taught to save for emergencies when I was very young. You never know when that “rainy day” comes!
Yes I didn’t spend much when I was younger, but also didn’t save so that is a great lesson I hope to pass on to my kids.
I think it is so important to have an emergency fund. We do everything we can to stay out of debt and when we have got our emergency fund saved up it seems we always end up having an emergency. We joke because we don’t have an emergency unless it’s there but thank goodness it is. I just wish we could hang on to it for a little while. lol I love Dame Ramsey stuff.
Okay it’s not just us then lol. My husband laughs and says no matter how much I save stuff will come up, which is true but I like having that security blanket.
A really good point
Such great advice! This is something all people should read!
thank you!
Great post! It would be wonderful if we all could live debt free in this very expensive world we live in! Great tips!!
Yes so so true!! Every time we get ahead things come up, but we still make the same amount. It’s like you have to hustle just to stay complacent.
I’m a big believer in emergency funds. Even a small amount can keep you out of one financial problem that can quickly spiral into a huge disastr
Yes! Sadly it doesn’t surprise me how many people don’t have one. My hubby didn’t when I met him.
We’re big on living a debt free lifestyle. If you are still in debt, then $1,000 is all that Dave recommends in the emergency fund. Once your debt is paid, then you build to have 3-6 months of living expenses. It’s definitely the way to go.
Yes I feel everyone should read his books. If I read them in college I think I’d be further along. Lessons learned!
I agree that having an emergency fund is so important! We are constantly trying to build ours, and as soon as we have a good amount in there something happens, like the car breaks down or we have an ER visit! We don’t automate our fund, but I really like that idea. Thanks for the tips!
I know I feel the same way so we’re trying to reevaluate where we are saving our money so that we don’t have to pull as much out when emergencies come up.
I agree completely! It may be difficult to start but I have needed our emergency fund a couple of times!
This is so very important. I can’t tell you how many times I have had to use it, but not worried about not being able to pay for something that was needed. It makes life so much better.
I know, we have too! It’s amazing how things come up and although it stinks taking money out I’m thankful we have somewhere from which to take the money out of!
We have an emergency fund. It has come in handy when vehicles have broken down, loss of employment and more.
Yes ours was very helpful when we needed to buy a “new” car too.
Great advice! Love this post! I need to work on this.
This is great advice! I love Dave Ramsey! We had a years worth of emergency fund, then life happened, we had 4 deaths in the family in one week in 2 different states. Then 2 months later my husband was in a horrific accident, he spent months in the hospital and did not work for over a year. Thankful we had saved before this happened. Wish we would have saved more.
Thank you for sharing, both sad and very inspiring. Goes to show just how important an emergency fund really is. So glad you were able to recover (at least financially) a little easier with your emergency fund. Currently crunching the numbers so that we can save a little more too.
I am a strong believer of an emergency fund! Thank you for sharing this!
Thanks. So many people don’t have one, whether it’s because they are in debt or don’t make enough money, but it is important to have no matter what.
Yes! An emergency fund is SO critical. This post is so comprehensive. Thanks for sharing! I’m going to queue this up to my Pinterest account!
Thanks!!
Dave Ramsey is big in our house! We got out of debt and we are so proud to have an emergency fund. Happy you spreading the word!
That is great. I’m trying lol
Great advice and tips! I really need to work towards it. I’ll keep this post as reference. Thank you!
Thanks. It takes time, but so worth it when you hit a snag.
I love Dave Ramsey and it has been such a struggle to keep an emergency fund over the years. We have consistently had one for a while now and it brings me such stress relief!
Yes ours has been like a yo-yo. we’re working on building it up a little more so it doesn’t matter.
These days it’s so important to have an emergency fund. Even if you never have to use it, it sure is nice to know it’s there!
Sooo important! Having something set aside on a regular basis to act as a rescue when an emergency rises. It has saved us several times!
Great advice! Everyone should have some sort of emergency fund available to them.