An old post i wrote on the blackberry quite a few years ago, but still relevant today. Wow can’t believe its been this long.
“Eight months ago I did not know what an emergency fund signified. In fact, I was knee deep in debt, without a clue as to what I would do next, happily plodding along and paying my minimum fees, with money left to spend on going out. I mean, I’m 25 and I should be allowed to do what I want to do, right? wrong.. Oh how so wrong I was. Soon, my minimums raised due to the amount of debt I had out, my rent raised only 50 dollars but that was still a significant amount, and my car needed new brakes, badly. This expense was the snowball to my avalanche. Not only did I need new brakes, but a new supporting strut for my axle. I still have no clue what that is, but the mechanic was not happy that I let it go even this long as it could lead to a serious accident. With no money left in my bank account, I pulled out the credit card and paid.
I got home, panting, a tightening in my chest. I just put one thousand dollars on my last card. This sinking feeling was something I determined then that I never wanted to experience again. An emergency fund in such a situation would’ve made my day so much easier. Imagine, instead of worrying how I was going to pay the higher credit card, knowing that I had planned for such a day and that I could easily bounce back from such a setback.
In essence, an emergency fund is a safety net for your wallet and mind. I think more than anything, the psychological effect of an emergency fund is the most crucial to me.
I am more confident as a result. I used to think, what if I lose my job, how am I going to pay all these bills. Now i don’t even think about that anymore. While my emergency fund is no where near where I want it to be, it’s at a point that I can finally relax about my situation. It was the most important battle won in my war on debt.
My first 500 dollars, a feeling of joy overcame me, constantly looking at the balance in my online hsbc account, double checking that it’s all there. Needless to say, the start of an emergency fund gave me the courage to tackle the rest of my debt. I had to make the decision when I first started the fund whether I would pay more towards my debt or fund my emergency fund. I decided to fund quite a bit of my fund initially, and start paying a bit more to the credit cards until I felt comfortable with it. That point was 500 in savings.
I used that as a springboard into action, as I feel I wouldn’t have approached it quite as aggresively without the psychological wins along the way besides just paying down debt. I now knew that I could protect myself in minor situations without derailing my debt payment effort.
Whatever your plan is in tackling debt, an emergency fund is the number one on my list of must haves.”
I can still feel that day, and now with a sizeable fund, i have that memory still in my head, leading me to put away more and more. The time to stop is now though, and i have to start putting the money going forward to loan payment and for opportunity investing. It’s hard to get myself to stop thinking that way, since it provides a certain comfort, but it must be done otherwise i lose money in opportunity cost.