If you are just getting started with the “getting-my-financial-act-together” bit, you might not know where to begin. Have I got good news for you. It’s time to cut through all the clutter and for you to realize one important truth. The first step to success in all other areas of personal finance is creating an emergency fund of cash. Then you need to save it for a crisis.
That may seem like a bold statement. I can attest though, from personal experience, having money set aside strictly for emergencies is the #1 strategy that has propelled my wife and I forward in paying off debt, saving for retirement and college and investing in the stock market.
Why is that you ask?
Because it’s a fact – emergency situations in life are going to come. We cannot escape them. So it just makes sense that we learn how to manage through a crisis.
If we don’t have cash that is easily accessible to take care of the emergency the moment it hits our door, then we are really only faced with one alternative – going into debt to deal with the situation. And it’s this constant accumulation of debt that hinders our ability to accumulate great wealth over time.
You must break the going-into-debt-to-solve-the-emergency cycle.
In this article, I’ll outline the basics of having an emergency fund. You’ll learn when to start one, what to use it for, how much to save and the best ways to fund it.