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Baby Steps: Baby Emergency Fund

December 28th, 2008 Leave a comment Go to comments

An integral part of your plan to get out of debt is your emergency fund.  Life is going to throw curve balls at you, and, no matter how well you plan, expenses are going to come up that you either don’t have enough money set aside for, or didn’t even consider!

Most people seem to use credit cards for these types of expenses, but that will leave you with a number of problems:

  • Credit cards are evil.
  • You might be tempted to run up the balance on the card and not have enough for emergencies.
  • You are going to pay interest, why not have the money and possibly receive interest?
  • Credit card companies are lowering credit limits, increasing interest rates, and even closing accounts due to the currently in-progress monetary apocalypse.  Will that card be available when you need it?

Let’s face it, most people who are in debt wouldn’t be without credit cards.  They make spending too easy.

So, once you get your bills current, using whatever is left from your budgeted items (you do have a budget already, right?), start socking that money away until you get $1,000.  You could go lower, but a grand is going to cover most things.  If you have a deductible on your car insurance, make sure your emergency fund is at least as much as the deductible.

It might be hard to imagine, but knowing you have that money tucked away will be ridiculously comforting.  Now don’t touch it unless it is an emergency!  This isn’t going to be the end of it, this is just the first stage of your emergency fund, enough to tide you over until you retire all of your debt.  Once that is done, you are going to work on building up three to six months of expenses into a full-fledged emergency fund.

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