This Should Be Your #1 Financial Priority
Several winters ago, on the coldest day of the year (-30 degrees wind-chill) my furnace broke down.
To stay warm, my wife and I put on our winter coats and bundled our one-year-old daughter with more layers of clothing than you could count. She kind of looked like Randy from “A Christmas Story”. She may not have been able to put her arms down, but at least she was warm.
Thankfully, we were able to get a repairman to come and fix the furnace. I thought all was well until I remembered- the bill! As grateful as I was to be warm again, I shuddered to think how much it was going to cost.
When he handed me the bill, I gave it to my wife, who didn’t want anything to do with it either. She immediately passed it along to our daughter who quickly determined that furnace-repair bills are boring and inedible (she’s sharp), and thrust it back in my direction.
I forced myself to look at the bill and sighed with relief.
“No problem,” I thought.
I quickly scribbled out a check for $538 to the repairman and watched him slip out the door.
Why was I so nonchalant about writing a check for over $500? Because we had an emergency fund for expenses like this. If you don’t have one, establishing a $1000 emergency fund should be your #1 financial priority.
Without one, you’ll probably pay for every unexpected expense with your credit card.
With every swipe of your Mastercard, your debt increases. Your monthly credit card payments increase. Before, you had a few dollars left over every month. Now, you’re living paycheck-to-paycheck. You can still pay your bills, but just barely.
So then what happens when you have another emergency? Swipe. More debt. Swipe. Higher payments. Swipe. And guess where your stress level is? Through the roof.
Now let’s rewind this scenario and say that you had $1000 set aside to handle emergencies. You get a $650 car repair, and you simply… pay the bill.
Then, over the next several months, you steadily build your emergency fund back up to $1000 so that when you get hit with another emergency, you’re ready.
Ideally, your emergency fund should have enough money in it to handle at least three months of expenses. One thousand dollars can take care of a lot of emergency expenses, but it won’t last long if you lose your job, for instance.
If you don’t have an emergency fund right now, then saving $1000 should be your goal. If you already have $1000, then add to it until you can cover at least three months of expenses with it.
You do have a choice when it comes to handling financial emergencies: Pull out your credit card every time, leading to more debt and worry, or establish an emergency fund and pay for every emergency with cash, resulting in no debt and no worries.
Which option will you choose?