Like most people, I started saving my emergency fund based on advice from every personal finance article I read. It was the first step in Dave Ramsey’s baby steps. Everyone thought it was a great idea so I should have one too right? It took me FOREVER to save it up. I struggled and would get a little saved and then an “emergency” would happen and suddenly I was starting over. It took me months and months.
I think the struggle to save that first $500 is a rite of passage. It’s hard! It hurts! You take one step forward and 2 steps backwards over and over until you finally start taking two steps forward and then one step back, and then three steps forward and one back until you finally have it! And by the time you have it, you have developed a saving habit.
What a feeling! It’s like graduation. I was proud! I wanted to celebrate! My little nest egg was there. What I didn’t realize until I had a real emergency and had to spend my little nest egg was how much stress it removed from my life. Suddenly I was back at step 1 and worried about how I would pay for any emergency. What if my car broke down? What if there was an unexpected medical bill? While I didn’t consciously think about these things apparently they were in the back of my mind because my stress level increased.
I was back to struggling to rebuild it but you know, this time it was easier. I had a firmly entrenched saving habit. Taking that 10% off the top of all income didn’t intimidate me anymore. I knew that I wouldn’t miss it much if at all and I knew the security that comes with it.
The financial benefit of having an emergency fund is simple. When you have money saved for emergencies, you don’t have to borrow money when they happen. The emotional benefit of an emergency fund is much more complicated and much more rewarding. It makes you feel secure. It gives you freedom. It empowers you.
When do you stop saving? You don’t! When your emergency fund is fully funded with 6 -12 months of expenses, you simply switch to saving for retirement if you haven’t already started one. And the funny thing about all of this is that when I know I have money in the bank, I am less likely to ‘need’ to purchase something.
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Tags: emergency fund
Simple post, and yet pretty solid. I like the last part best:
“And the funny thing about all of this is that when I know I have money in the bank, I am less likely to ‘need’ to purchase something.”
It’s so true that suddenly when you actually have the money to purchase something, it becomes so much less important to you. I think it’s because the amount of time/energy/commitment you’ve spent in saving up has given you satisfaction that no thing will ever compare to.
I need to get better at keeping an emergency fund. It can be too easy to either spend all your income or invest any leftover cash elsewhere. Having that extra cash does make your life so much easier. Money is no longer a daily concern when you have that backup money. For most of us, when we have extra money we end up finding a way to spend more. So it can be tough to save up such an emergency fund.
Cash, I’d say just make it an automatic thing and forget about it. Don’t even look to see how much you’re saving. Ignore it and act like you don’t even have it, and look at it after a year.
Wow, it seems like you have really developed a good saving strategy. It seems like you learned that the confidence and security that comes from saving is much better then keeping the money when you first have it, even if it is a bit tough at first to develop the saving habit.