You’ve just started your journey to freedom and all of the sudden, your car’s transmission decides to go out – “It would do,” you think to yourself as you sigh and hand over your credit card to the automotive professional.
That’s reality right? Just when you think you’re about to get ahead, somebody or something knocks you down again. Wrong. That’s a victim mentality and there’s a way to get out of that rut that’s been tested and proven by many a successful person: it’s called an emergency fund.
The First Baby Step
As mentioned in the last blog, Dave Ramsey gives a lot of good advice on getting out of debt and this is what he calls the first baby step: Put away $1,000 that are earmarked only for emergencies. It’s important to be really clear about what an emergency is because it’s always going to be tempting to take those funds and put them elsewhere, especially when there’s something you want that you can’t get without that stash, but that $1,000 is only for the rainiest of days to keep you from piling up more debt.
You might think that trying to save $1,000 is out of your reach, but it’s not. Even if you can only put away $50 a week, you’ll still be there in just 20 weeks. And as you get going, no doubt you’ll gain momentum and see even more places where you can save or delay gratification to get there faster.
If you already have $1,000 in savings, congratulations! You are on the right track. Unfortunately, according to a 2016 study done by Bankrate, 28%, or nearly 66 million, Americans have absolutely no emergency fund. This is the place that everyone needs to start.
Getting Real With Your Spending
If you’re having trouble imagining where you can save enough each week to get to that $1,000 mark, you need to look yourself in the eye in the mirror and get really honest with these questions:
- How many times each week do you eat out?
- How much money could you save if you packed something simple, like a sandwich, every time you knew you would be out over a meal time?
- How many times each week do you purchase a beverage of any kind when you’re out?
- How much could you save by brewing your own coffee or tea, buying a six pack instead of something at the bar, etc.?
- How much food do you throw out when you clean out your refrigerator?
- How could you economize your food budget to ensure that you aren’t wasting anything you buy?
- How much do you really need a new pair of pants or shoes, the new blouse, etc.?
In reality, we often spend a lot more on things that are not necessary than we think. While you are building your emergency fund, you need to be brutal and intense about cutting out everything that isn’t absolutely necessary. You can think about it like a crash diet if you want, but it’s more like a life-saving change. No one wants to be enslaved to their lender, but when we’re in debt that’s exactly what we are.
Once you’ve got that $1,000 securely in the bank, we’ll move on to more sustainable budgeting choices, but right now you need to cut back everything until you’re there.
Are You In or Out?
This is the point where most people have to make a choice. Cutting back everything is painful, it’s not fun, it means you can’t go out for a drink with your buddies, you can’t go to the basketball game, you can’t go shopping, you can’t do anything that costs money that you don’t absolutely have to spend. You have to decide if you’re willing to endure the short-term pain for the long-term gain. Having been there, I can say it’s totally worth it, but you’re going to have to decide that for yourself.