Welcome to day 6 of our 21 Day Personal Finance Challenge!
We get it, it’s hard to break the cycle of living paycheck to paycheck and not being sure if you’ll have enough money to get you through the end of the month.
It seems no matter how much money you make (or how little), we always seem to find a way to spend it all and not have anything left over when actual emergencies pop up. Cars break down, medical expenses pop up and before you know it you’re piling more and more debt on your credit cards.
Establishing an emergency fund provides an extra layer of protection between you and the accumulation of more debt when unexpected financial costs rear their ugly head.
Many personal finance experts will advise you to have at least 3-6 months living expenses in your emergency fund but this can be a nearly insurmountable level for people just getting started. Dave Ramsey, a financial expert that I respect greatly, recommends starting with a “baby emergency fund” of $1,000.
For the purposes of today’s personal finance challenge, set a goal of saving at least $1,000 in a dedicated emergency fund and make a pact with yourself or your spouse that you’ll not touch the money unless it is for an actual emergency. If you already have this money set aside then you’re in good shape! Note, a new television or weekend vacation is NOT a family emergency, LOL!
Setting an emergency fund goal of $1,000 provides enough cushion to cover most minor emergencies and allows you to more quickly pay off the debt in your debt snowball. Once you’ve wiped out most of your debt snowball you can start building up your emergency fund to the more appropriate 3-6 months of living expenses. The more money you’re able to set aside in your emergency fund, the better protected you’ll be to weather a job loss or a medical condition that prevents you from working.
21 Day Personal Finance Challenge Lessons by Day:
Day 3: Calculating Your “Net Worth”
Day 11: Personal Finance Motivation
Day 12: Selling Stuff You Don’t Need
Day 14: Reviewing Your Will
Day 15: Invest in Your Career
Day 16: College Savings Accounts
Day 18: Developing a Grocery Plan
Day 20: Ideas to Supplement Your Income
Too Much Debt? Download our free Trees Full of Money Debt Snowball Calculator and see how quickly you can pay off your debt.