if you don't already have an emergency fund, starting saving

Have you ever finally felt ahead with your finances, only for something catastrophic to happen like your car breaking down, or needing medical attention? Don’t worry, you’re not alone. We’ve all been there and it sucks, but it’s why an emergency fund exist.

An emergency fund is a little pile of money saved up in its own separate savings account, never to be touched until an actual emergency occurs. When it does, you’ll be able to afford your deductible, that medical bill, or make a needed purchase you otherwise would have been scrambling to afford.

Saving $1,000 for an emergency fund is Dave Ramsey’s “baby step one,” which he recommends doing even before you start working on your debt snowball. But is $1,000 enough? It is a good buffer, but if you can save more, either by selling some or your things or selling your services, go for it.

My rule of thumb for saving for an emergency fund is being able to completely cover your deductible for health insurance, since a medical emergency is the most common (and one of the very few) things you should touch this money for. My deductible happens to be $1,000, so I put off my debt snowball until I achieved that amount, then automatically set up my paycheck to deposit $10/wk into that savings account. If your deductible happens to be less than Dave Ramsey’s recommended amount, still strive for $1,000 - it’s a significant amount of money that will easily cover a good portion, if not all of the most common emergencies.

A common problem people tend to have with their emergency fund is spending it on stupid shit they consider an emergency. Thinking you “need” a new car because you no longer like the perfectly working one you drive is not an emergency. Going on vacation is also not an emergency. Until you are stuck on the side of the highway with a transmission that just crapped the bed, or struggling to pay your rent because you lost your job last week, pretend this money does not exist.

Something that helps me is assigning rules for your fund - unless your current crisis meets the criteria of one of your rules, you are not to dip into your emergency fund. For me, I am not allowed to touch the money unless of the following: I am hospitalized for any reason, something in my car breaks, I lose my job and still need to pay bills, or one of my cats needs veterinary treatment (and I’m not talking a regular check-up that I should have planned for in advanced).

The less “emergencies” you have, the more money you will have for when a true emergency arises. In conjunction to that, when you do need to use it, you should once again pause on your debt snowball to re-save that money and get your emergency fund back up to $1,000 as soon as possible.

If you haven’t started saving, start right now! Throw any extra money into an additional savings account through your bank - birthday money, overtime, yard sale money, etc. You’ll be surprised how fast you can save up $1,000+

Having an emergency fund not only prepares you and gives you a peace of mind, but it also keeps you on track for your “getting out of debt plan.” When the unexpected happens, you’ll have the funds to cover it, thus keeping you from going into more debt while never missing a beat on any of your payments.