Imagine this scenario …
Bruce has a sudden dental emergency and gets a bill for $2,500. He doesn’t have any savings – who knows where the money goes each month – so he puts it on his credit card at 20% interest.
“Luckily” the minimum payment is only $42 per month – he can figure out a way to handle that! But that only covers the interest, so a year later, even though he has already made $500 in payments, he still has a $2,500 balance.
Then Bruce gets an invitation to a college friend’s wedding out of state. He thinks – well, that’s what credit cards are for, right? He charges the trip, and now he has a $4,500 balance with a $75 minimum payment – which only covers the interest. He finds a way to make the payment because he has to, but now saving money seems even more out of reach. He decides to just hope that nothing else will come up.
Many people end up in credit card debt because of situations just like this. They find a way to make the payments because they have to – but as the interest payments squeeze their budgets, it gets harder and harder to get ahead.
If you currently don’t have savings – make having a $1,500 starter emergency fund a priority. Make it a “have to” the same way you would if you “had to” pay some new bill. That might mean picking up some extra hours at work, having a “no spend” month on restaurants or clothes, skipping a planned trip, getting a temporary side job, or having a massive yard sale – whatever it is, do it! Find SOME way to get at least $1,500 in savings, and a way to keep making monthly contributions so that when you do have to use that money, which WILL happen, you have a built-in way to replace it.
When we have money in the bank, instead of having every emergency spiral us out of control, we can deal with things calmly, knowing we have a plan in place.
If you are paying off past credit card debt, creating an emergency fund is even more of a “have to.” It seems counterintuitive, but it is very difficult to get out of credit card debt if you don’t have a way to pay for emergencies other than more credit. Use the ideas above to get the emergency fund started, then start adding at least $150 per month to grow/maintain it. After that, put whatever else you can afford toward paying down your credit card balance.
And about that trip Bruce took for his college friend’s wedding … When you get in the habit of planning ahead and saving for future expenses, it’s easier to decide whether or not you can afford something because you know how it fits into your overall budget. You will be less tempted to just blindly charge it and tell yourself that you’ll “deal with it later.”
The bottom line is that creating an emergency fund puts you in control. It prioritizes YOU and those who depend on you – because it gives you the ability to deal with life’s emergencies with calmness and foresight. It is also the first step to building wealth for the future!
If you are feeling like you don’t know how to get started, or that this is just not possible – I can help! I offer a free, 30-minute introductory session via video call where we can look at your specific situation, and I can give you some tips to get you going. Sign up today – it is never too late to change your financial future.
