When I started working hard to repay my credit-card debt I also started working toward building up a $1,000 emergency fund. I have always known how important it is to have an emergency fund as I’ve witnessed and experienced many occasions where it has been needed. Eventually I hope to be liquid enough to not need an emergency fund but until that day comes, I plan to have some cash stowed away in a high interest savings account for emergency situations.
As you know I started repaying my credit card debt in August of 2009, at that time I also vowed to start putting money aside for emergencies in a savings account. I opened an account with Ally, a regular high interest savings account that will get me 2% interest on the money I put in that account. MUCH better than my regular bank could offer me.
I subsequently walked into my bank’s local branch and told them I was no longer willing to pay a $2 maintenance fee for my old savings account with them because Ally could offer me a free account and a much higher interest rate. The gentleman I was dealing with was gracious enough to waive further fees on my savings account with them, I left the account open as it’s attached to my debit card along with my chequing account. I use the savings account at my regular bank to stash $50 in case I need it for that must have and don’t really do anything else with it.
Back to emergency funds and why they are SO important. If you are like me, just barely out of university and drowning in debt and bills the odds are that you don’t really have the $1,250 on hand to repair the clutch bearing on your car and replace the front tires before the inspection runs out on it in three weeks. Or, what would you do in this scenario;
You’re dying of pain in your teeth, you can’t sleep at night because the pressure and associated pain on your front teeth are keeping you awake. It’s all because of your incoming wisdom teeth, they are driving you insane and to have them taken out will cost about $1,800 that you don’t have.
I ran into this situation late March. I have known for some time that my wisdom teeth needed to come out but I was too stubborn and cheap to have it done until it was absolutely necessary. This March that time had come, I was referred to an oral and maxillofacial surgeon who removed all four of my impacted wisdom teeth on May 25th. I am very lucky that I signed up for health insurance 6 months prior and was just past the waiting time to be able to have this done. Even with insurance though it still cost me $1,150 out of pocket.
Fortunately, by May I had managed to save up $1,100 in my emergency fund so I was able to pay for the surgery. Had I not had the emergency fund built up, I would have had to use my credit-card, borrow from bank or family to be able to pay for the surgery. Not having them removed in my case was no longer an option.
Lesson learned. I’ve always known the importance of an emergency fund but now I’ve experienced the importance of having some cash stowed away. What if it had been a more serious situation?
And that is the reason an emergency fund is a must have.
Do you have an emergency fund set up yet? If you haven’t, why not? Have you ever run into a situation like this? I’d love to hear from you below!