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Emergency Funds
Dec. 29th, 2007 11:49 amThe one thing you know with certainty is that you will run into surprises that require money. You *will* have emergencies---everyone does. A week ago my jaw and tooth started hurting and voila---Christmas Eve I learned that I will need 4 wisdom teeth removed in late January. This will cost me $2500, and the exams and X-rays to diagnose it came to $130.
Before you start paying down debt (other than your monthly minimums, which must be payed on time to prevent your FICO score from going down) set up an emergency fund. You *will* need it. Without an emergency fund, you will put the costs of all your unexpected emergencies on a credit card or a HELOC (home equity line of credit), getting deeper and deeper into debt.
You will also be susceptible to feelings of panic and overwhelm on a periodic basis, because you will not have anything in reserve with which to face the world. But with an emergency fund, even a small one, you will begin to feel more confident and powerful in the world.
Dave Ramsey and several others I respect suggest setting your first emergency fund goal at $1000, and working towards meeting that goal first.
Once you've reached that goal, shift your strategy, putting all your extra money towards paying down credit card and personal debt.
Later, you can start building up the emergency fund to 3-6 months of expenses.
Before you start paying down debt (other than your monthly minimums, which must be payed on time to prevent your FICO score from going down) set up an emergency fund. You *will* need it. Without an emergency fund, you will put the costs of all your unexpected emergencies on a credit card or a HELOC (home equity line of credit), getting deeper and deeper into debt.
You will also be susceptible to feelings of panic and overwhelm on a periodic basis, because you will not have anything in reserve with which to face the world. But with an emergency fund, even a small one, you will begin to feel more confident and powerful in the world.
Dave Ramsey and several others I respect suggest setting your first emergency fund goal at $1000, and working towards meeting that goal first.
Once you've reached that goal, shift your strategy, putting all your extra money towards paying down credit card and personal debt.
Later, you can start building up the emergency fund to 3-6 months of expenses.
