Are You Ready for Bumps in the Road?

Making the decision to get out of debt is a good one. But along the way there will be bumps in the road and you need to prepare yourself first before starting the debt-free journey.

What Should I Do BEFORE Paying Off My Debt?

Put $1,000 in a “baby emergency fund.”

According to an article by MarketWatch “just 40% of Americans have separate savings to cover short-term emergencies like car repairs or urgent medical care.”

“A Consumer Federation of America study shows that it is those people without an emergency fund who have the most trouble paying for unexpected expenses and that, in turn, makes it harder for them to amass any kind of rainy-day fund.”

I’m going to take that a step further and say that those who don’t have a small emergency fund to pay for unexpected expenses also have trouble paying off any debt they have.

Life happens. Cars break, kids get sick. If you have no savings to cover those emergencies, then you are more apt to dust off the credit card and charge the expense putting you further into the hole.

“It will take me forever to save up $1,000! The maid is coming tomorrow, I’ve got to pay her. And Sally needs a pair of new 7 for All Mankind jeans…”

Cancel the maid and clean the house yourself. Take a trip to Target or JcPenney’s for the jeans. Sell things on ebay or Craigslist. Have a garage sale. Work overtime. Do whatever it takes to get that $1,000 baby emergency fund built up quickly.

A Pedicure is Not an Emergency!

Once you have your emergency fund built up don’t touch it unless you truly need it for an emergency. A new outfit or DVD is not an emergency. If your car breaks down (especially one that you use to get to work); that is an emergency. If you or a family member get sick and you need to use the money for medicine or a doctors appointment; that is also an emergency.

Keep it accessible, don’t have it in a mutual fund or anything that could take a lot of time to access. But don’t make it TOO accessible (like in your wallet or under your mattress).

We started Dave Ramsey’s Total Money Makeover at the end of March 2007. It took us less than 1 month to get together $1,000. It’s a separate savings account that we don’t use. There have been a few instances where we thought we were going to have to use the emergency fund (in 4 months we’ve had car trouble TWICE!). Luckily we were able to pay cash and left our emergency fund intact.

Do you have at least $1,000 in an emergency fund?