If you find yourself in a debt situation that is causing you to live paycheck to paycheck with no savings, you cannot just start throwing small bits of money at the debt right away. Without an Emergency Fund you will most likely be doomed from the start and life would have to go perfectly as planned for you to get out of the debt hole you are in.
Not having an Emergency Fund is one of the biggest reasons that people are unable to get out of debt. It is nearly impossible to get out of a serious amount of debt without first creating an Emergency Fund for many reasons. If you have never really had an emergency fund you will be very surprised at how quickly it can change your mindset, decrease stress and anxiety, improve sleep and allow you to free your mind to live in a more positive space.
What we are talking about here is a Starter Emergency Fund. You will read all over the place that you should have 3-6 months of expenses saved up but if your situation is not great then all you need to worry about is getting this up to $500 or $1,000 – preferably $1,000. Once you successfully get rid of all of your debt you will be in great financial shape and have the confidence to then build up a nice 3-6 month Emergency Fund but you shouldn’t worry about this right now.
How the Starter Emergency Fund will help prevent you from failing to get out of debt
Not Adding To Your Debt When Life Throws You A Curve:
Life has a tendency to throw you curveballs at what seem like the worst possible times. If you are living paycheck to paycheck with no savings and you see your credit card balances going up and approaching your max limits, the thought of a $600 car bill can lead to panic and a lot of anxiety. Knowing that you have money in the bank that can financially cover a lot of what life throws at you will give you a great sense of comfort and security. Consider yourself the “owner” of this emergency bank and it’s much better to get a loan from yourself than it is to borrow from someone else.
Staying Mentally Strong Enough for Your Debt Free Plan:
Many people get really motivated to get out of debt, getting all of their bills together and creating a budget and everyone is happy. 2 months down the line your car brakes start making that awful sound every time you break and now you need new brakes – boom, $750 please. With no Emergency Fund, your only real option is to add to your debt and put it on the credit card. Seems pretty straight forward but it is not, and this is where people give up on the plan that was just created. Over those 2 months you might have been able to work really hard and pay down $500 – $600 worth of debt only to see all of this not only get erased but you are now in a worse position than you were 2 months ago. This can crush someone’s confidence and turn a positive mentality negative which is why getting to at least $1,000 is so important.
Having an Emergency Fund in place will allow you to view life’s unexpected events as inconveniences instead of them feeling like life shattering events. More importantly it will allow you to feel just a bit more secure which should help you sleep better at night and keep you in a positive mindset. A positive mindset will be a major factor in whether you succeed and by accomplishing this first goal you will start strong and have a lot of confidence propelling you forward.
Best of Luck and Stay Positive!