How a Fat Emergency Fund Gives You Choices

Oh, what a difference a fat emergency fund makes. When I first started this blog, my husband wasn’t much into saving. He didn’t spend wildly, but he was definitely feeling like we’d never get out from under our debt and wasn’t as committed to paying it off quickly.

Then I created the Plan. Then the Plan started to work and he started to see the light. Then the Plan was complete and the prospect of buying a house became very real. Then we bought a house, and still had money left over. Now, the fat emergency fund has become a sacred cow.

Baby Stepping to Savings
I always had faith in my plan, so at first it was hard for me when why my husband didn’t see the plan. But each month, he stuck to it and started to believe, too. The first key was that I never stopped believing we could get out of our debt. As long as one of you believes and is willing to convince the other, then you can do it.

The second key was that my plan was doable and methodical. I ran calculations and determined we could pay off $40,000 by December. I knew approximately when our windfalls would arrive, so that helped. As it happened, they arrived sooner than anticipated and we paid off our debt faster.

The third key was that I built in initial successes. We were fortunate that the highest interest rates also correlated to the lowest debt, so we targeted that first. Once that was paid off, our snowball really picked up.

The fourth key was that we had a clear goal – pay off the debt so we could start saving up to buy a house. We also had a debt payoff deadline – our interest-free credit card would expire in August of that year and we wanted to pay as little interest as possible. We ended up only paying two months’ worth of interest, or about $200 on an initial debt of $17,000. Not bad!

Once that debt was paid off and our goal started to become real, his enthusiasm for saving really took off.

Where We Are Now
Fast forward 18 months. One day in April, 2009, my husband announced that “saving money is fun”. This was a breakthrough, people!

Now it’s 18 months after that and we’ve been in our house for a year. My husband has started to say things like “we can afford that,” when I say that I want to make drapes for a $400 cost instead of buying drapes for a $2000 cost.

But, we had another breakthrough when it came time to buy me a new car. Losing 30% of our income this year due to my husband’s surgery and a couple major home repair expenses means our emergency fund isn’t as fat as it once was, but it’s still going pretty strong. We didn’t have to dip into the fund at all during his disability leave.

Last month, my husband looked at the fund and realized we could almost afford to pay cash for my new car. We opted not to, because we didn’t want to drain the fund, but that realization was a big step. He now sees that we still need to be saving precisely so that we have these options, and other options, in the future.

In addition to the cushion in an emergency, that’s what the fund does: it gives you the freedom to make choices about what you want to do with your money. Need new drapes? You can decide between making them or buying them. Personally, I decided that the time investment was less important to me than the financial investment, so making them was the clear choice. But you may be able to make a different choice if you have a savings cushion and a commitment to saving.

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