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.
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.
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.