Why I Can’t Live Without My Emergency Savings Fund

by Kristina Tahnyak on May 8, 2012 · 2 comments

As I learned to become financially responsible, I decided that I had to change the way that I managed my money. We can’t expect things to stay the same and expect different results. When I was younger I used to live pay check to pay check, I was not saving money in an emergency fund, and I was definitely not saving for retirement.  I used to shop a lot and I would usually charge my purchases on to my credit cards; then I would spend my entire pay check making only the minimum monthly payments on all of my credit cards.

I was spending my hard earned money on making only the minimum monthly payments and it was not cost efficient.  I decided to make some financial changes in my life; one of them included supplementing my income with a second job so that I could finally start paying off my credit card balances, and the other one included starting to save in an emergency savings fund and saving for retirement.

I never saved money in an emergency savings fund because I thought that my credit cards were my emergency savings fund. Whenever I wanted something and I didn’t have the money to pay for it, I would just charge the purchases on my credit cards.  I would also use my credit cards for basic living needs such as paying for groceries and rent; and then I would use my pay check to make the minimum monthly payments.

I finally decided that my minimum monthly payments could be better spent.  I used my secondary income to start paying off my credit card balances with fixed regular payments that were above the required minimum monthly payments. I made a personal budget that ensures all of my bills are paid on time each month.  To say that my personal spending was cut down would be a major understatement, with my new budget my income is fixed and therefore so are my expenses.

I reallocated the amount of money that I was paying towards my credit cards into an emergency savings fund.  Now I enjoy watching my savings grow.  I’ve learned about different ways to invest my money rather than spending my full paycheck. It is comforting to know that I will not be accumulating debt if ever I have another personal financial emergency.  It is also important to note that my personal definition of a financial emergency has changed. Like many people who have struggled with debt in the past I am deathly afraid of falling into my old bad habits and once again accumulating debt.

I have a short term emergency savings fund as well as a medium term emergency savings fund.  I save some of my money saved in a high interest savings account so that I have access to cash at anytime.  I save the rest of my money in a bond mutual fund for longer term or larger emergencies; it acts as a backup emergency savings fund.  This way I have the flexibility of having cash on hand at all times as well as earning a higher rate of return on money that is in my emergency savings fund but that I am not using.

Photo by davidberkowitz

{ 2 comments… read them below or add one }

1 Modest Money May 8, 2012 at 12:22 pm

It is important to have some easily accessible cash for various financial emergencies. You don’t want to be forced to pay high credit card interest rates each time some kind of emergency comes up. That just makes those emergencies that much more expensive and stressful. Having that cash available just gives you extra peace of mind.

2 Rod May 11, 2012 at 2:02 am

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