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So, once I had in my mind that I am committed to this way of life and would never use debt again, you may wonder “how do you make that mindset practical?” Because ALL people will tell you “stuff just happens”! So how did I stay on track when life threw me for a loop? The answer is…
An Emergency Fund!
The first time I remember using my emergency fund was when I went to the dentist. I had prepared myself that I was getting a general cleaning and therefore the cost would be covered with my insurance. There was no amount to plan for in my budget. (We will talk more about the budget in the next post.) But during the dental exam, I learned that I had some gums’ issues and needed a periodontal cleaning. That cleaning costed me $200 something!!! Now without my Emergency Fund I would have either had to decline the service or put it on a credit card because I didn’t just have $200 “extra” lying around. To be honest, before I started this plan I really didn’t even save! But not this time!
Emergency Fund to the rescue!
So instead of declining the service or using a credit card to get me out of the jam, I was able to use my Emergency Fund.
So what is an Emergency Fund?
As per Dave Ramsey’s plan, you need a $1000 savings pot to cover for unexpected expenses. …AKA the Baby Emergency Fund…
As you start this process of killing your debt, you put away a small savings pot called an Emergency Fund that you use ONLY IN EMERGENCIES! Finding a really cute pair of shoes on clearance is not an emergency. Needing to feed your kids because you were too lazy to plan for dinner ahead of time is not an emergency. Needing an oil change is not an emergency. An emergency is when something truly unexpected, something that it is so urgent that you can’t budget for it comes up. To be honest, I shouldn’t have even called this dentist appointment an emergency, but the dentist had already finished the service and I had to pay up if I didn’t want them to call the police on me.
You keep the Emergency Fund in an account separate from your spending account and maybe even at another bank. You make it hard to get to so that you don’t take money from it on a whim. You commit to the mindset that you only use this money when in an emergency circumstance.
