How Emergency Savings Saved Me
By Julie Roth, AFC® Candidate
FINRA Foundation Military Spouse Fellow (2010 Graduate)
Originally published on MilitarySaves.org.
Six years ago, when we were still a kid-free, two-income household, my husband and I decided to get our financial life in order. We started with a small emergency fund of $1,000. I was amazed at the freedom I felt once we had the $1,000 in the bank, knowing that whatever came up, we could afford it and could get rid of those credit cards for good this time! This wasn’t our first time getting out of debt, but something always came up; a car repair or a move—that new house needed some new furniture to go in it, right?
This time we were done and the emergency savings was the start of a solid, long-term financial change in our life. Living off one income, we used the other to pay off our debt and then fully funded our emergency fund to 3 – 6 months of our living expenses. I thought we were set. Now it was time to start saving for retirement and the new car I knew we would need in a few years.
Emergency Preparedness: Are You Financially Ready for an Emergency?
Then we got orders that we would be PCS’ing from Tennessee to Washington, DC. We’d only been in our house for two years and it was 2008—when the housing market took its huge dive. We put our house on the market four months before we moved, but not a single bite. I was no longer working, as our son had been born that summer, so the extra income we had been using for saving and other expenses wasn’t there to help pay for the mortgage payment.
Thanks to our emergency fund, we were able to make our mortgage payments for the next eight months on the house in Tennessee, until it finally sold after exactly one year on the market. It was painful to see that savings shrink each month as we wrote out a mortgage payment for a house we weren’t living in, but I was grateful that we could afford to make the payment. Without our emergency savings, we would have never been able to afford to pay the mortgage after our move, and I’m certain we would have ended up with either a short sale or foreclosure on our credit history. It has taken us another three years to build back up our emergency savings, with me working part time, but I know the value of having those funds there.
You CAN Save for Emergencies
- Start small. You will be amazed at how motivating and freeing it is to see $1,000—or even $250—in an emergency savings account.
- Work to pay off your debt. Now that you have some emergency savings, you don’t need those credit cards. Get rid of them and pour any extra income into paying off your debt. Instead of sliding backwards when the AC needs to be repaired, use your emergency savings, then fund it again and go back to paying down the debt.
- Fully fund it. Once you are out of debt, take all that money you were putting toward debt payments each month and throw it into your emergency savings account. You’ll be amazed at how quickly it adds up.
- Relax! Now you can rest knowing that whatever comes your way, you can manage. The fear and uncertainty of a move or a job loss is lessened knowing you can pay your bills for a few months while you figure things out. An emergency savings account gives you time and freedom to make the right decision for your family.