Wednesday, October 19, 2016

A Safety Net

When I heard about this company, Earnest, earlier this week, and was sent their blog post here, I had to laugh at how much my financial responsibilities have changed over the past ten years.  This is the second financial institution I was introduced to within the last few months.  You can read the other financial post on my blog here.

As a young, single teacher in my early twenties, I had no desire to save money and seldom thought of emergency situations.  I paid my bills on time and often had a small surplus of funds that I spent selfishly.  I would go salsa dancing with friends every other week, and loved shopping for new dresses and accessories.  If I was later invited to a party or gathering and did not have money to buy a gift, I would whip out my credit card.  Bad idea.  All those little swipes began adding up to big debt!

At a roaring 20's party in my mid-twenties.  Do not be
fooled by the photo; I could have been better about
handling my finances.
When my husband and I were engaged, we took Dave Ramsey's Financial Peace class at our church.  Over seven years of marriage later, I still say it was one of the best decisions we made.  It ensured that we were on the same page financially.  Ramsey has what he refers to as 7 Baby Steps:  1. Save $1,000 2. Pay off debt 3. 3-6 month fund 4. Invest 5. College 6. Pay off house 7. Give

Because we are a young family with three children ages five and under, and life happens, we have spent some time hanging around Step 3.  We also regularly do Step 7.  We hope to eventually tackle Steps 4-6 simultaneously.  All in good time.  Step 2 can be made easier and help you with Step 1 by refinancing your student loans to lower your rate and payment with companies like Earnest.

When building an emergency fund past the initial $1,000, you want to have 3-6 months worth of your expenses saved up.  The logic being, should calamity strike (job loss, natural disaster, accident, etc.), you will not go into debt providing for your family's everyday needs.  It gives you a small cushion and window of time to gain control of your finances again.

Back in April of this year, we had plans to begin converting our garage into a piano studio.  We had saved up money and received our income tax return, which would help.  About a week after deciding to move ahead with our blueprints, our city received a large amount of rain in a brief amount of time.  During the storm, we noticed that our kitchen ceiling started leaking.  As often happens in life, we had to put what we wanted on hold in exchange for what we needed:  a new roof.  Though I was initially disappointed at having to hold-off on the studio, I was thankful that we had the funds necessary for our new home improvement project.

Adventures in life are great!  Having a safety net in case
something goes wrong is ideal.
Situations like these, though not super common, have happened enough to show me the absolute importance of having a safety net.  Because of our commitment to living debt-free and continually building and rebuilding our savings fund, we have managed to stay afloat when unexpected events have occurred.  We have not had to borrow money to make ends meet.

If you are interested in reading more on the importance of saving and getting your finances in order, I highly recommend visiting Dave Ramsey's website here.  For a step-by-step guide on how much you should ideally set aside in an emergency fund and how to do that, read this Earnest blog entry.  When you find yourself in a situation and are not sure if you should dip into your emergency fund, ask yourself these questions first.

I shudder when I reflect on some of the poor financial decisions I made in my early twenties.  Though I learned valuable lessons and had times when I was greatly humbled, I am happy that I no longer live there.  


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