Common financial mistakes series, part five
Mistake #5: Not having an emergency fund. So many times it seems like just when we find ourselves catching up, an unexpected expense or emergency that requires money to fix it pops up. If you don’t have an emergency fund, this can be very discouraging. Without an emergency fund, we may find ourselves going into debt, or unable to climb out of it.
Solution: The single most important thing I did that helped me set up an emergency fund (and to get out of debt) was to admit that there are very few true emergencies in life — most of the things that often got labeled as “emergencies” really were just things that I hadn’t planned well enough for. Make a very small list of “real” emergencies and stick to it. My list involves bleeding and life-threatening illnesses, and that’s about it. Once you’ve defined for yourself what an emergency is, begin saving up for them. Allot a certain amount (no matter how little) from each paycheck for your emergency fund. Have it sent there automatically using direct deposit if at all possible (sometimes it’s possible to have your check split into multiple accounts). If you don’t even see the money at all, you’re less likely to miss it. Set an initial target goal for yourself, whether it’s $100, $1000, or more. Eventually you’ll want to beef it up to cover at least 3 months of expenses (or more) that you can move into a job-loss fund, but you should have a starting point that’s relatively easy to attain so that you feel like you’re making progress.
