I recently read an article that stated that 78% of Americans live paycheck to paycheck. 78%!
That means 78% of people couldn’t make ends meet for more than a few weeks if they lost their job. That’s eye opening to me. My husband and I have been following Dave Ramsey’s baby steps for a little over a year. If you are unfamiliar with Dave Ramsey, he teaches people how to create a budget, pay off debt and build wealth. This can be achieved by following his baby steps. Baby step 1 is to save $1000 for an emergency fund, which is so important to help prepare for unexpected expenses.
Dave talks about the law of Murphy: that is if something can go wrong, it will. It is not intended to be negative, but it is just a fact that is better to be prepared for. Cars need repair, appliances break, unexpected emergency room visits etc. One way we prepare for an unexpected expense is to have an emergency fund. This is money that is easily accessible when an emergency arises. We have ours in a savings account that can be transferred to our checking account whenever we need it. If you are finding yourself transferring money to cover bills or because of overspending, it may be better to have it in a completely separate savings account. That way is is still easily accessible, but it is a little bit more work to get to.
Recently, we had to put $900 into our SUV and then a couple of weeks later, we had to take it back to the shop and ended up spending another $300. It was a stressful situation, but it would have been much more stressful if we wouldn’t have had the means to pay for it. Could we have used a credit card? absolutely! But, we are trying to break the cycle and dig our way out of debt. Having an emergency fund lessens the stress of knowing we aren’t going more into debt to cover expenses. Whenever we use any money from our emergency fund, we make sure we put it bring it back up to $1000 before paying extra on any debt or making any large, unnecessary purchases.
Another way to prepare for an “unexpected” expense is to have a slush fund. A slush fund is a savings account (separate from an emergency fund) used to save for a specific thing. For example, we have a slush fund for Christmas gifts, car insurance (we pay every 6 months) and our upcoming Disney trip. Every paycheck, or every month we put a specific amount of money into those accounts to slowly save for each. A slush fund could easily be used for car repairs. You may not know exactly when a car will need a repair, but if you set a small amount of money aside each month, it will be there when repairs are needed.
Do you have an emergency fund? If you would like to see more about our debt free journey, click here.