I know, boring. Who cares about an emergency fund anyway? Let’s just start throwing money at those credit cards and watch the balances plummet. Sounds good, right? Wrong!!
Before we dive in, let’s look at this emergency fund concept from another perspective. The holidays are over and you’ve decided it’s time to lose a few pounds. You pour your heart and soul into your efforts, and things are moving along well. You’re seeing the weight come off and are excited about the new thinner you. Now, let’s say you wake up one morning and all the hard work is gone. All those fat cells you worked so hard to lose suddenly reappear and you’r back to where you started. Do you think if this happened, you would be motivated to hit the gym again knowing that at any moment all your results would be lost? Probably not.
Now, same scenario except this time instead of losing weight, your goal is reducing your debt. You’r doing great and are excited about how well you’r sticking to your goals. Your mountain of debt is crumbling and your momentum ball is rolling smoothly. Then it happens. You wake up one morning to go to work and your car won’t start. This, unlike the exercise example above, can and most likely will happen. To make matters worse you only have a few hundred dollars in your checking account. Guess what? Looks like you’r using that credit card you’ve been working so hard to pay off. So let me ask the same question I asked earlier. Do you think if this happened, you would be motivated to continue paying off debt knowing that at any moment your results would suddenly be lost? And the answer again is probably not. Bummer, and so the cycle repeats.
Now what if you had $2,000 in your checking account when your car broke down and didn’t have to use your credit card to fix it? Your debt reduction progress is not lost and more importantly your momentum ball is still rolling.
I’m not only a guy who has build an app to help people get out of debt but also a guy who has struggled with debt. The reason I say struggled is because every time I start to pay off my debts, I don’t think about building up an emergency fund first. No matter what happens I always get hit with unexpected expenses that destroy my debt reduction efforts and the momentum I worked so hard gain.
Don’t fall victim to this endless roller coaster ride of watching your credit card balances rise and fall. Stop it in its tracks by building up an emergency fund first, before you even think about reducing those balances.
In my next post let’s look at what an “emergency” is and what are some good guidelines for establishing your own emergency fund value.