Happy Wednesday! Hopefully, you’ve drafted your budget and are starting to use it as you go about your daily spending and financial decision making.
I know it’s hard to get used to following a budget. I also understand that the budget in your head and on your paper may not always play out in real life as you expect it to.
That’s totally normal.
As you get better at budgeting (it’s a skill!), you’ll notice that it gets easier to stick to your budget. This is partly because your budget will become more realistic for your needs as you figure out what’s working and what’s not. It’s also because you’ll get better at making smart financial decisions! And speaking of smart financial decisions…I want to talk about a time we *tried* to make a wise choice with our money but instead found ourselves in a {very} costly situation.
And our emergency fund saved our bank account…over and over and over again.
Years ago, we decided to downgrade our cars. This was, in our estimation, a Good Financial Decision.
One of the cars we purchased, though, was a total lemon. The WORST, you guys.
Within the first month of owning it, it needed an expensive ($1,000) repair. Luckily, we had an emergency fund. We drained it to pay for the repairs, then starting rebuilding the fund.
Shortly after we fixed the car, it broke down again. We pulled from our freshly-funded emergency fund again.
Rinse, wash, repeat.
Until we had spent thousands of dollars in car repairs. A new engine, a new heating unit (after months of driving in 40-degree weather without heat…brrrr!), new everything. We spent as much on car repairs as we’d spent on the actual car. Every time we’d fix something, we’d think, “That’s it! That HAS to be it. This car has basically been rebuilt from the ground up!”
Until it broke again.
I hate to think about what we could have done with the money we spent on that car, but here’s the thing: we had the money to pay for those repairs. It wasn’t comfortable, but we didn’t go into more debt over fixing that dumb car.
I learned two lessons here:
- Always check out Consumer Reports detailed reports on car reliability before choosing a new car (seriously – we subscribe to Consumer Reports now and have used their car buying service for every vehicle we’ve purchased after The Lemon)
- Fund your emergency fund first.
If we didn’t have money in the emergency fund, we’d have put the repairs on a credit card, or borrowed money, or shifted bills around and fallen behind on something else. The emergency fund allowed us to pay cash for those repairs.
The car didn’t provide us with the savings we’d hoped for when downgrading. Quite the opposite! But we didn’t incur more debt or fall behind on our bills, because we had an emergency fund.
Other times we’ve tapped into our emergency fund include:
- Paying our annual HOA dues because we forgot to include them in the budget (oops!)
- Emergency vet bills (what a relief to know we had the money we needed to pay for an unexpected illness or injury for a pet)
- Repairing a broken windshield
- Groceries (yep…there have been months when we’ve had to raid the emergency fund for basic needs…which is what it’s there for!)
I like to have $1,000 in our emergency fund, and we keep it in a savings account. Your number might be different, and you might prefer to keep it in cash. Just make sure you have SOMETHING, SOMEWHERE for emergencies.
This is getting longer than expected, so, I’ll cut this off with this:
Your homework is to set up an emergency fund if you don’t already have one. Decide how much you need to have, and start putting your extra money into this fund until you’ve funded it to the full amount (whatever that might be – $500, $1,000, $1,500 or more).
If you drain your fund, or ever pull money from it, adjust your next month’s budget so that you can start funding it again right away.
That was really long, so, if you stuck with me…thank you! NOW GO FUND THAT EMERGENCY FUND! 🙂
