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If you’ve started to get serious about paying off your debt you’re probably familiar with the $1,000 emergency fund goal. Baby Step 1 as Dave Ramsey calls it, the very first foundation block for his system. You can’t get out of debt if every emergency puts you right back in it. So, you need a savings buffer, something to catch you when trouble comes along.
Hey, when you’re first starting out and you have nothing (or less than nothing) saving a grand is no small accomplishment. Also, being able to save that money and keep it to the side without spending it is HUGE. Especially if you are starting out with some pretty freewheeling spending habits. For me, it was a whole mindset shift to be able to see money sitting in an account and not consider spending it.
As hard as it was to curb my spending habits and get used to having savings that sat in an account and didn’t move, I’m finally there and have been for almost a year. It no longer feels like that extra cash is calling my name when we’re down to the end of our budget. It feels like I’ve crossed a bridge mentally and guys, it was very very hard for me.
So crossing into this new fantastic me, the lady who puts money in savings and then *gasp* saves it. I started to have a realization about our family and how emergencies work for us. After much observation I have come to realize that we don’t really do $1,000 emergencies, in fact we are just a little bit extra like that. We tend to have $3,000 emergencies or higher. In fact I would stop calling them emergencies and maybe just call them catastrophes, it feels more accurate.
When our cars go down it’s never a simple battery replacement it’s more like a whole transmission rebuild. If our house is going to need work it will be a whole electrical panel replacement and then some. Our air conditioner can’t just run out of freon it has to completely blow up, smoke and ugly noises included. None of these things are $1,000 problems even if you wheel and deal and get that special hook-up on discount labor from your brother-uncle-cousin who’s also a repairman.
Why. Why, does it have to be like this? I don’t know and I really don’t like it but sadly it’s the world I live in and the karma I have been dealt.
It’s possible you too have noticed this trend in your own finances and if you have I’m here to tell you you’re not alone! Not by a long shot.
I would argue that only having $1,000 on hand to take care of an emergency isn’t just not enough, it’s almost negligent.
I completely understand the spririt in which that rule is laid out and we all need to start our savings somewhere. But, if you honestly look and ask yourself how far that money will take you in a true life emergency. For most people it won’t take you far. Not far at all.
So if you had to quantify how much would adequately cover you, what would that look like? I know for myself it’s not feasible to put away several months’ worth of income in savings, although it would be nice. It is more realistic to map out what it costs us to survive one two week period between paychecks. That’s about $2,500 worth of expenses and food for my family.
Could you make a stretch goal to save one pay period’s worth of expenses aside in emergency fund savings?
Once you hit that goal maybe sit with it a bit and decide if you want to stretch to put another two weeks of expenses aside. Or, maybe you stop at the two weeks and that is enough savings security to keep you feeling secure. It’s all relative to your level of risk tolerance.
The most important thing is that you know you don’t have to adhere to the rule of a thousand dollars in the bank and only a thousand.
Paying off debt is important but nothing is ever as important as your family’s security when an emergency happens. So if it makes you think you need to have a little more set aside, go for it! A thousand dollars is a great starter goal and feel free to keep going if you need more emergency fund to feel secure.