Posts tagged debt free

5 Reasons to use cash in an emergency

Have you ever thought about what it would be like to use CA$H in an emergency instead of a credit card?

Do you have butterflies every time something unexpected comes up, as you reach for your credit card?

There are many reasons to have cash built up:

  1.   loss of a job
  2.   major car repair
  3.   major home repair
  4.   sickness
  5.   travel for funeral etc.

Those are REAL emergencies and there are many more that we can’t always think of.

These are not emergencies:

  1.   Christmas
  2.   birthdays
  3.   car maintenance
  4.   vacation
  5.   clothes
  6.   phone upgrade
  7.   I need, I need, I need

Imagine what it would feel like if you had 6 months of household monthly expenses in a savings account. Think about that. Wouldn’t that be comforting? Dave Ramsey calls it our “security gland”; when he says this he’s referring to women, but I’m sure men have the same type of feeling when it comes to money in the bank.

Here are 5 reasons to have CA$H for emergencies:

1)      If you’re debt-free with no emergency fund, you are just inviting debt back in. It is imperative to have a backup plan for emergencies, or you’ll get backed into a corner when the unexpected happens. But remember, you don’t build a fully-funded emergency fund until you’re out of debt.

2)      ‘Financial Peace’. This is Dave Ramsey’s phrase for being out of debt with a fully funded emergency fund. This is also the name of his 9-week course on how to handle money. Have you ever used the word ‘peace’ in describing your finances?

3)      You don’t go into debt when you use cash! You pay yourself back, by replenishing your EFund. Emergencies are not easy or fun. But you handle it more sensibly when you can just reach into that fund and get on with your life. A properly funded account will take so much stress out of any situation. It will still hurt to hand over the cash (much more than with a credit card), but the reward is so much bigger.

4)      The emergency won’t follow you around for the next 3 years. If you use a credit card, then it’s like you’re paying for that emergency month after month, year after year! The debt gets bigger and bigger and pretty soon you don’t even remember what emergency (real or imagined) you’re paying for.

5)      If you don’t have an emergency fund you’re inviting Murphy into your life

and he’ll bring his brothers,

broke, desperate and stupid.

I love this thought by Dave Ramsey. It is so true.

One caveat to remember in handling this hopefully large amount of money is –DO NOT TOUCH IT — except in real emergencies. If you use it as a ‘slush fund’ type of savings account then you are defeating the purpose. When we first paid off and got rid of my last credit card, the one I always used, I was attached to, I used for emergencies and was my own little spending account, we had our $1,000 in a different checking account. After about 6 months with this account, I realized I was doing just that. I would use it for stuff and say I was going to transfer money back in. I wasn’t doing that transfer back in. I was using it  ‘AS MY OWN LITTLE SLUSH FUND’, just like it was my old credit card! Boy was that an awakening! I had to be deliberate in my actions from then on. I broke that BAD habit and now we both buy less and only spend what we are willing to take out of our regular spending account if it’s in the budget.

The best practice for your emergency fund is to ‘Fund it and Forget it’. Also, in a REAL emergency USE IT! It’s there for you. IT IS YOUR MONEY. Call it what you want, but don’t be so afraid to use it that your family struggles in a real emergency.