Five years ago, I finished graduate school with $75,000 in student loan debt. I wasn’t sure what to do until I read Dave Ramsey’s book, The Total Money Makeover, and decided to pay off my debt as quickly as possible. Dave’s personal finance principles were completely foreign to me. I was raised to believe that debt is “normal.” I had always been told that saving money was unnecessary and that I “could just use a credit card” if I ever had an emergency. The sad truth is that most Americans live this way. Most of us don’t have enough money saved to cover even minor emergencies, so we rely on credit cards and continue racking up more debt.
Dave Ramsey and many other personal finance experts recommend setting aside $1,000 in an emergency fund before paying off debt. This was a new concept to me, so I felt a little unsure about it at first. Did I really need to save $1,000 or would I be better off putting that money toward debt? Over the past few years, I’ve learned that there’s one thing I can always count on: there will always be emergencies that pop up. I’ve been thankful for my emergency fund on several occasions.
1. Car Problems
I drive a 19-year-old car, so it’s not surprising that it occasionally needs expensive repairs. Often, these repairs are a few hundred dollars but there have been a couple of times when the repairs have been nearly $1,000. It’s a good thing that we had $1,000 saved! If we didn’t, we’d have to put the cost of the repairs on a credit card or my husband and I would have to share a car. My husband and I shared one vehicle for a while in the past, which turned out to be quite tricky logistically because our workplaces are far from each other. Having two cars is more expensive, but it’s much simpler.
2. Medical Bills
My husband and I are both young and relatively healthy, but we still go to the doctor at least a few times per year. A $1,000 emergency fund is crucial because we have a $1,000 deductible on our health insurance. Last year, I found out that I have gallstones and surgery to remove my gallbladder was an option. After receiving some abnormal lab work, I was sent to a specialist, where I had numerous more tests done. I hit my deductible during the first few months of the year. If we didn’t have that emergency fund, I would’ve had to set up a payment plan with the doctor’s office.
3. Emergency Vet Visits
The majority of our pug’s vet visits are planned, but occasionally he has to go to the emergency vet unexpectedly. One time, he had an infection and another time, he ate a grape. Neither visit was cheap! Our emergency fund prevented us from having to pay for these visits with a credit card or a payment plan.
A couple of years ago, my step-grandpa passed away unexpectedly. This happened the exact same day I had just made an extra payment on my student loans, which wiped out the majority of the money in my checking account. Thank goodness for my emergency fund! My step-grandpa lived in Arizona, so we had to travel from Minnesota to Arizona for the funeral. Between airfare and the cost of the hotel, the last-minute trip was about $1,000.
Many people rely on credit cards for emergencies, which puts them in an endless cycle of debt. Instead of using debt to pay for emergencies, I have $1,000 in savings. I’ve been thankful for this emergency fund on several occasions. Without it, I would’ve ended up right back in debt — exactly where I don’t want to be.
Jen is an HR/Finance professional and frugal lifestyle blogger. Jen and her husband are paying off $117,000 of student loan debt in just three years. She writes about healthy eating on a budget, affordable wedding tips, destroying debt, and living frugally on her blog Frugal Millennial.
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