Getting out of debt is simple, but it’s not always easy. That’s why you need a safety net— your $1,000 starter emergency fund— in place before you even begin.
That’s your first Baby Step.
Then, after you’ve paid off all your debts using the debt snowball, go ahead and beef up your emergency fund equal to three to six months of expenses. That way you’re not relying on credit during life’s major mishaps like a job loss, medical emergency or car breakdown.
While it is a safety net, your emergency fund is not a catch-all.
So whether you’re just getting started with paying off debt or you’re completely debt-free with a large emergency fund, don’t let pricey, emotion-driven “needs” steal your soft landing. Here are four emergency-fund zappers to watch out for along the way.
1. House renovations
Thanks to Pinterest and HGTV, do-it-yourself projects have never been more exciting—until they’re yours. The formula starts with a simple bathroom re-tile, which turns into a nasty mold-removal, which turns into a leaky-pipe replacement, which turns into “I don’t care how much it costs! I just want it fixed now!”
Your emergency fund is not a contingency fund. Be sure to set up a cushion in your renovation budget for unexpected costs like hiring a few pros to finish the job.
2. Celebrations and vacations
Don’t let the excitement of party planning run away with your rainy day savings. Yes, your little princess only turns 3 once, but does she really need a kingdom of inflatables, a three-tier castle cake and a fairy dusting of Disney princess impersonators? Maybe not.
And before we blame it all on the kids, what about those vacations and anniversary getaways? By all means, go out, but don’t go all out until you can afford it. Save up and pay cash, then book your room with view.
3. Out-of-town or destination weddings
Even if you like your extended family (and we hope you do!), don’t feel obligated to attend every big event if it means overextending yourself.
The wedding will happen whether you’re there or not, so don’t be afraid to send your regrets. A wedding gift should smooth over any disappointment—and that’s a whole lot cheaper than an all-inclusive trip to Jamaica.
4. Family loans
Your brother-in-law is ready to start yet another new business. This one, he assures you, is the best idea since the pet rock. And because he’s so generous, he’ll let you get in on the ground floor.
Your emergency fund is for you and yours, not for your crazy brother-in-law. Don’t ruin yourself—and definitely don’t ruin your relationships—by loaning money to family.
When it comes to your emergency fund, the more you use it, the more you lose it. So check your impulses at the door and avoid dipping into your safety net on a whim. Use it only as a last resort.
And when you really need it, you’ll be glad it’s there, waiting to catch you.