You need a bit of financial breathing room between yourself and your next emergency. The next step of the journey is Baby Step #1 - Your Starter Emergency Fund. It’s exactly as it sounds, it’s a grand, in cash, in a savings account, a sock drawer, under the mattress.
What is an emergency? A sudden and unexpected event. An alternator, an insurance deductible, blown tire, furnace dies. It’s NEVER a sale, it’s not easily predicted, and it’s not something that should be in your budget already. Christmas is December 25th every year, so you wouldn’t use your emergency fund for Christmas. You'd have a sinking fund, which I’ll write about in a future blog.
Christina and I have been pleased with how well our $1,000 emergency fund has worked out - it’s been used twice. Once for a surprise tax bill and once for a windshield replacement.
I sold a utility trailer on Kijiji for $900 and cashflowed the other $100 to come up with our Baby Step #1 emergency fund.
You could sell tools you aren’t using (perhaps a generator!), clean out your basement and have a yard sale, snow blow a few neighbor’s yards - this $1,000, coupled with your commitment to stop borrowing money, allows you to move on to Baby Step #2 - Pay Off All Debt Using the Debt Snowball.
If you’re borrowing money to respond to life’s unexpected events, stop doing that. You can wander into debt, you can’t wander out.
If you're convinced that having a credit card "for emergencies" is the way to go, humour me. Save up $1,000 in a separate account and see how it feels. Your next emergency will feel like an inconvenience, and you'll respond with confidence, not anxiety.
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