Importance of an Emergency Fund

It is vitally important to have an emergency fund that is truly used for an emergency because not having one can make for some bad financial practices. Believe me, I know from experience.

When I first moved to Austin it took me a good month to figure out that I wanted to go into financial planning. This also required an additional 4 or so months to study and pass the insurance and financial tests needed to be a planner. When I moved to Austin I had approximately $4,000 saved. During this 5 months (and another month waiting to work for Ameriprise), I have spent all $4,000 and brought upon myself quite a bit of credit card debt.

The 2 biggest problems I faced during this time was that I didnt work during these 6 months and that I was not properly budgeting my money. I wanted to explore Austin and I did have a really good time, however I will be paying for that for a while to come.

As for my lack of budgeting my money this was a problem throughout my whole life. I always thought I had a good running total of how much I made and spent each month. And I also had large credit card limits which I didnt think would be a big deal to use. Little did I know that when I wanted to switch from being a financial planner to being a teacher I would have another few months where I would at least have a decrease in pay until I was teaching. I took a job as a courier and about a month after the job my car needed a new transmission. I had to take out a car loan and get more into debt.

The moral of the story is that if I had an emergency fund and if I properly budgeted my money I would be in a MUCH better financial situation that I am in now. I could have possibly put a down payment on a house in a market where there are bargains. Instead I will need to first pay down my credit cards, then save for my down payment.

Have at least 1 month of expenses in emergency funds available if you are in a stable job (like a teacher), and at least 3 months of expenses for less than stable jobs in an extremely low risk account like a money market account. Ive been using ING since it is super easy and requires almost no paperwork.