Emergency Fund Complete!

Today, I can finally say that I have an emergency fund! It is ready to tackle the unexpected events Life decides to throw at me. This is a big milestone for me because I have never had $1000 in savings before. I can not begin to describe the feeling of relief from stress that this brings. After reading “The Total Money Makeover” by David Ramsey on my way back from holiday vacation, I set out to take control of my finances. The first step in the book is to get an emergency fund of $1000 established. This seemed like an ass-backwards way of dealing with your debt but I read some more blogs, articles, and books that all hinted at the same thing. An emergency fund allows you to stop using a credit card and to start using cash instead. Granted my emergency fund came from the security deposit refund on my old place, but hey I’ll take what I can get.

My goal is to have two emergency funds. One will be for true emergencies such as “I need to fly home to Philly tonight because a family member was in a car accident” or “I got into a fender bender and my deductible is $500”. This emergency fund, lets call it Major, will have a balance of $1000 and will be in an online savings account by the end of the month.  The second one is for mild emergencies like “I forgot to pick up a birthday gift for my niece whose birthday is this weekend” or “Its my turn to provide for the soccer team half time snacks at today’s game”. This emergency fund, called Minor, will have a balance of $500 and just be in a regular savings account at my bank.

It is difficult to define what a true emergency is and everyone has their own definitions. So thats why I have two funds.  I don’t like making decisions, and by forcing myself to act a certain way my decision is made for me. 

The best part about having the Major and Minor, I know that if some emergency comes up, whether big or small, I’m covered.  

The Bottom

This year I have decided that I will no longer be a debtor. I realized that I was living beyond my means and had a large amount of credit card debt to show for it. It was a huge shocker to me when I realized that my parents had not really taught me anything about how to save or create a budget. Don't get me wrong, my parents taught me how to make money and work hard to do it. They just never showed me how to keep it. I was determined though to change and the start of a new decade was the perfect place to do it.

On my flight back to San Francisco, I wrote some goals I wanted to accomplish for the year and read a very good book. "The Total Money Makeover" by David Ramsey has really changed the way I view how to handle my finances. I have read several books on personal finance and each book has contributed to my understanding of the subject but TTMO really brought all the concepts together in a very simple format. So when I got home (to an empty apartment...totally another story for another post), I wrote out my debts. I started with the smallest balance and worked my way to the biggest. It was an eye opening gut wrenching life pivotal moment to see all of my debts lined up and the large total underneath. I have five credit cards, two student loans, and a car loan as follows:

American Express - $1,291

Barclays iTunes Visa - $2,743

Chase Southwest Visa - $5,520

Bank of America Visa Signature - $8,019

CapitalOne No Hassle Visa - $10,697

ACS Student Loan - $11,471

Ford Motor Credit - $31,293

Great Lakes Student Loan - $35,565

TOTAL: $106,558

This is equivalent to one year's salary for me. Yes I make $100,000 per year and I have nothing to show for it. That was the hardest part about this whole experience. I realized that I had enough debt to equal an ENTIRE YEAR of income. I didn't like that so I had to change.

I started small and gave myself some goals to accomplish for the month of February. You are probably saying well what happened to starting in January? I was going through a lot of crap personally and just couldn't do it. So February is my New Year, fiscally that is. I sat down at my desk and started a budget. I put in my rent, bills, debt payments, food, entertainment, etc. and came up with a pretty decent budget. Now mind you, I had created pseudo budgets in the past that I thought I was keeping when in reality I was just ignoring. I wrote it down and look it at almost everyday. I bought a small notebook and began tracking my spending. Every time I spend money, I write it down. I am not trying to reduce my spending...well, I am...just not at this moment. I am seeing where all my money goes during the month. At the end of the month, I am going to add up my expenditures and compare them to the budget to see where I was over and where I was under.

SO now I am at the bottom and started my climb out from underneath my debt. It will be a slow climb at first but as time goes on, I am sure I will gain speed and strength. Along the way I hope to share with readers some info and insight into how to achieve financial freedom.