This weekend, I was reminded of why every one of us should have an emergency savings fund.
I planned on having new brake pads installed on my car’s front wheels. That would have been $450 and was an expense that I had planned for. What I didn’t expect was to replace the brake pads on all four wheels, rotors for the front, and a broken sway bar on the front passenger side. The grand total was $1,443, or $1,000 more than I planned on spending.
The good news is that I was able to take the extra $1,000 from my emergency savings. I really don’t like to take money from emergency savings, but this is the kind of “life happens” event that the fund was designed to cover. As much as I did not want to spend the extra money during the holidays, the good news is that I didn’t need to turn to credit cards.
Having emergency money saved up before “life happens” is the entire point and is one of the foundations of financial stability. Credit cards too often mean high interest rates and long-lasting monthly payments, making your personal finances less stable. You can start small like I did. My first goal was to have $500 (which would have covered the front brake pads as well as many other small emergencies). Gradually I set higher goals and saved more money.
With the new year only a few days away, why don’t you set a goal of establishing or expanding your emergency savings fund? You can bet that my goal will be to replace the money I just took out and to add more until I reach my goal of having six months’ worth of expenses in my emergency savings account.
My second goal is to figure out what a sway bar is and how they get broken.