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Thursday, December 20, 2007

Emergency Fund vs Ninja Bills...

Many self-help finance books discuss the need to have some back-up Emergency Fund. Well for years I resisted, and I am sure some of you are right now as well.

"I have Credit Cards! Why would I stick my hard earned money in a savings account with less then 1% of Interest. I am so much more flexible this way I have the access to emergency funds in my wallet at all times!"

Problem was I was using my card for everything: car expenses, golf clubs, trips, signed pictures of Bradgelina (kidding). I wasn't paying them off every month and often when something would come up I would rob Peter to pay Paul (or at least blackmail him).
For the last 90-days I have had a $2000 Emergency Fund in my Wells Fargo Savings attached to my Checking account. We came up with that amount by looking back for the last few years issues that have come up. Car issues, Home issues, illness and found that while most were under $1000, a couple (car) were closer to $2000. This cushion helped us sleep at night knowing that if most things came up we could handle them.

How did we get it saved up? Basically we paid the very minimum on anything we could, i refinanced a much lower rate on some bills and paid our property taxes and we had some left over. (Before we would of spent this as a bonus to ourselves for being so good!) It took a couple of months with NO extras for us.

But now we have it. This fund is especially great for what I call Ninja bills. When you are first getting your finances together bills seemingly pop out of nowhere...like Ninjas..."Honey what is this bill from a Wine Club?" "What is this old gym bill still being sent", etc..

In the old system Ninjas were deadly. If we had the credit we charged it, if not we would get some stupid interest signature loan until my next (hopefully) bonus.

This is known in psych terms as a viscous circle. No money to pay debt so you borrow to pay debt which you can't pay back because of your debt...

Now we have had a couple Ninja jump out at us, but we have defeated the evil "nomoney clan" with our emergency fund armor.

We broke the circle. Now even when things come up we can handle it. We only use the fund for emergencies (non-shopping kind!). Since then we haven't yet had to touch a credit card!

In the words of Keanu Reeves...we know Kung Fu...


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