If you are trying to get out of debt, you may be following Dave Ramsey and his Total Money Makeover or some variation of his advice.
When I first bought the Total Money Makeover 6 months ago, I read it in two days and told Brad "This is what we are going to do!". He was on board with everything except Baby Step 1 - Building a Baby Emergency Fund of $1000. He didn't see a need for it and he wanted to skip straight to Baby Step 2 - The Debt Snowball. After much discussion and me telling him that this is what I needed to feel secure, he agreed.
And our $1000 has sat in the bank since that day. A few times he has mentioned using it for something (like Christmas Shopping or even just putting it toward the one credit card to speed up our Debt Snowball) because "nothing has happened" to us, but I held firm.
Events in the last 2 weeks have shown me how important that fund is!
As you may remember, we now operate on a cash system in our house and as part of our Total Money Makeover, we have every single dollar that comes in to our house budgeted, with every extra dime going to paying off our credit card & cars (which will be complete with our tax return this year). We DO live paycheck to paycheck, but that is because I have budgeted us as such in order to pay off our debt. Of course, if something is coming up we can (and do) rework the budget, but my husband gets paid every other Friday, I go to the bank and cash a check for our expenses for 2 weeks, pay bills on Saturday and then the cash that I took out of the bank on Friday is all we have until the next paycheck. This has worked fine for us (although my sister thought I was a bit odd when we were in Indiana and I only spent $40 at Hobby Lobby...we LOVE that store and it has always been a several hundred dollar shopping spree for both of us when we go to Indiana and are able to go to Hobby Lobby).
But in the past two weeks Murphy has hit our household.
Two weeks ago, I found out that my identity thief had hit my bank accounts again. Once again, I got all my money back, and the minute Brad's check had been Direct Deposited, I closed all of my accounts and opened new ones. I took out the cash we needed for 2 weeks, paid my bills and thought everything would be fine.
The next day (after all the money was taken out for our cash or used to pay bills), my grandfather died and I found myself needing $300 to drive back & forth to Indiana as well as pay for a hotel, meals, etc. In the past, the solution would have been to simply put those expenses on the credit card. But because I now had that Emergency Savings Fund, I took the cash out of there (and the Debt Snowball gets put on hiatus until that $300 is replaced)
Yesterday was payday again. When I went to my online banking, I found that someone who shall remain unnamed (but rhymes with "my Nusband Trad") forgot to change his Direct Deposit for the new accounts and our bank refused the attempted deposit in to the old account. We have no money except for the $40 left over from the last paycheck that I didn't spend.
We got the paycheck situation figured out and we will have his check by Wednesday or Thursday, but by having the Emergency Savings Fund, it doesn't have to affect our daily living (except I am supposed to pay bills today and now won't be able to until we get that money...and being borderline-OCD, I don't like my "schedule" interrupted....but then again, I'm a lunatic). I simply took the cash for our expenses for 2 weeks out of the Emergency Savings Fund and will replace that money as soon as we get his check.
My purpose for telling you this story?
Because I know the temptation to skip Baby Step 1 - Creating a Baby Emergency Fund. If you are trying to get out of debt, you want to just GET OUT OF DEBT. But please don't skip this important step of creating a "backup". Once you have that "backup", resist the temptation to just grab that money to speed up your Debt Snowball or for any other non-emergencies.
Our fund sat there for 6 months unused. If we hadn't had that money in savings, we would have been pretty much screwed with the Direct Deposit mix-up. I can't tell you how glad I am that it was there when we needed it!
(originally posted in December 2008)
Julia @ Hooked on Houses
My husband and I did this about ten years ago. It's so nice not to have any debt! Our cars are paid off and we don't carry credit card debt any more. It's one of the best things we ever did for ourselves. It's great that you're telling people about your experience and teaching them how to do it, too. An emergency fund is so important! We've upped ours over time to $6,000. It came in handy this fall with an unexpected medical emergency that insurance didn't fully cover.
Scary about the identity thief. Yikes. I'd be freaking out about that.
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Heather
We are sum what doing the Dave Ramsey Method. We have completed Baby Step 1 and 2, but Murphy has moved into our house while trying to work on Baby Step 3. Well God is the Great Provider so I know it will all come in the right time.
Congrats on your accomplishments so far. When we where paying off our dept I got a wonderful high every time one dept at a time was payed off.
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Tosha
I agree, I would be freaking out about the identity theft big time! I am so sorry you have had such a bad couple of weeks. Hopefully things will turn around quickly for you.
My Husband always think any money in the savings account is there for him to spend when he finds a big ticket item he wants. The other day he was saying we "need" a carbonator , to which I said we need a HOUSE of our own(we rent).
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Mindi
The identity thief doesn't bother me as much as you might think....I had a credit report run and it looks like they only got hold of my bank info (and not my SS#). Of course, I have a "high alert" for fraud filed with the credit card reporting bureaus, just in case.
The first time it happened, I thought my debit card had been "skimmed". The second time it happened it was on a different account. I figure my Paypal account got hacked or perhaps the eTrade account. Now that all of my bank accounts were closed and I have not relinked any of my "online life" to my new accounts (and my Paypal account has a new password) I will just request paper checks for any future transactions through Paypal. I'm hoping it is the end of it. Of course, I'm also not freaking out because I have got every dime back except for a $5 charge for a new debit card.
But I can just hear my husband now. Like I said, by the time we get our tax return, we will have zero debt except the house and I want to work on getting the Emergency Savings fund up to at least $6K. Brad wants a new TV. We'll see who wins 😉
Usually Lurking
I can't stress the importance of an emergency fund enough. A few months ago, I was severely injured in a freak accident and have been on unpaid leave from work since. I haven't seen a paycheck in months and don't know when I will. If I didn't have my emergency fund to take care of bills and pay for groceries, then I don't know what I would have done.
Celia
We are doing Dave Ramsey too, and thank goodness for the fund, because it looks like there is a car repair in my immediate future. Last year we had no emergency fund, and our December vet bills wiped us out and left us almost nothing for Christmas. My cat is worth every penny, but it was a hardship.
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Amanda @ The Mom Crowd
I am so thankful for our $1000 emergency fund. We used it this summer to fix our A/C. We live in south Texas, not fixing it wasn't an option. $1000 really does cover most things. Another time we had some water damage in the house and we got a discount from FloodMasters for paying in cash! All just because we asked. You can even haggle better in your emergencies when you have cash!
Ugh. Still on baby step 2. Sallie Mae, the old lady, really likes our house.
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