Why you need a $1,000 Starter E-Fund

I recently had a conversation with a buddy about debt and credit cards. I told him that I do not use credit cards and have not used them for over a decade. He was shocked and asked how I did it? He wanted to know how I lived without credit cards? The short answer is, years ago I have made up my mind that I will not use credit cards to finance my life. Like my friend assumed, beginning to live a credit card free was not easy. In 2008, as gas prices started to rise, I struggled with maxed-out credit and to find a way to make ends meet. A family friend came to talk to us about a book and a program he’d heard about being debt-free. His excitement and enthusiasm about it got me excited. He shared his books and videos of the Total Money Makeover with us, and that kind act changed my life. Listening to Dave Ramsey helped me to see that living life on credit was hurting my ability to finance my life. From then on, I made every effort to only use cash and implement his methods of money management. So, with my buddy’s question, the cycle continues.

If you are familiar with Dave Ramsey’s baby steps, you are familiar with baby step 1 – Save $1,000 as a baby emergency fund. This is how we began to ween ourselves off of the use of credit cards. In the beginning, everything was an emergency, we were constantly revising our budget, and this baby emergency fund was in place to provide our family with a buffer between us and life.

My friend thought this was the coolest idea (I wished I could take credit for it) and went home to discuss it with his wife. About a month later he told me how much he valued my advice and began to tell me how having the baby emergency fund in place helped him to stay away from using his credit cards. “This has been a huge help for me,” he told me. He then continued to ask me for more financial advice.

In the grand scheme of things, $1,000 is not a lot of money. But when you are trying to get out and stay out, of debt, it could make a world of difference. That is exactly what it did for me and my family. Here’s an example of what I mean … Recently, my car window fell off the track… well a small tiny piece on the regulator broke. When I brought it to the dealer to get it fixed, they told me it would cost just north of $800 to repair. This time around, I just wrote the check and fixed my window (after price checking and looking for discounts, of course). Twelve years ago, my Chevy Malibu needed a repair, which would have cost $1,000. Given my shocked state of mind and my lack of resources, The dealer convinced me that the car was not safe to drive and to use my car as a down payment on a new car. Fully loaded complete with a car payment of $500 per month. If I had this $1,000 in place then, I could have just paid for the repair instead of being talked into a new car. When you know better, you do better. Today, the baby emergency fund allowed me to stick to my conviction of not using credit.

So, why do you need this $1,000 starter emergency fund? Because life happens and I can truly say that most household emergencies in my home were, and still are, less than $1,000. I believe that the worst time to accumulate more debt is when you are going through a hard time. Dave even suggests a $500 fund if $1,000 seems too big of a challenge; you have to start somewhere. Maintaining this small amount in your bank account provides a bit of space to allow you to pay off credit card debt without adding more. $1,000 allows you the financial freedom to pay that speeding ticket, small appliance repairs, blown tire, or your kid’s school thing that you forgot to budget for but can’t ignore. $1,000 give you a slice of peace.

There is one thing to remember about maintaining this baby emergency fund, though. Having it in place is great! But when you use it the priority, after the emergency is over, is to rebuild your emergency fund so it is there to use the next time you have an emergency.

To my friend trying not to rely so heavily on credit cards, I say take the plunge! Cut them up and close them. $1,000 is just the beginning. With zero debt, growing your baby emergency fund into a fully-funded emergency fund will be a piece of cake!

“The goal of an emergency fund is to give you peace of mind when something happens” – Chris Hogan –