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Getting out of debt is simple, but it’s not always easy. That’s why you need a safety net— your $1,000 starter emergency fund— in place before you even begin.
That’s your first Baby Step.
Then, after you’ve paid off all your debts (Baby Step 2), go ahead and beef up your emergency fund equal to three to six months of expenses (Baby Step 3). That way you’re not relying on credit during life’s major mishaps like a job loss, medical emergency or car breakdown.
While it is a safety net, your emergency fund is not a catch-all.
So whether you’re on Baby Step 1 or Baby Step 7 (build wealth and give), don’t let pricey, emotion-driven “needs” steal your soft landing. Here are five emergency-fund zappers to watch out for along the way.
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1. House renovations.
Thanks to HGTV and DIY Network, do-it-yourself disasters have never been more entertaining—until they’re yours. The formula starts with a simple bathroom re-tile, which turns into a nasty mold-removal, which turns into a leaky- pipe replacement, which turns into, “I don’t care how much it costs! I just want it fixed now!”
Your emergency fund is not a contingency fund. Be sure to set up a cushion in your renovation budget for unexpected costs like hiring a few pros to finish the job.
2. Celebrations and vacations.
Yes, your little princess only turns 5 once, but does she really need a kingdom of inflatables, a three-tier castle cake and a fairy dusting of Disney princess impersonators? Maybe not.
Don’t let the excitement of party planning run away with your rainy day savings.
And before we blame it all on the kids, what about those vacations and anniversary getaways? By all means, go out, but don’t go all out until you can afford it. Save up and pay cash, then book your room-with-view. (Read 5 Steps to Planning a Memorable Vacation!)
3. Pet surgeries.
We love our pets, so this one is a little tricky. But if 15-year-old Fluffy Kitty “needs” a lump removed, get a second opinion.
And if you do decide to operate, don’t be afraid to shop around and ask for cash discounts. Then, try to work the cost into your monthly budget instead of making a hasty decision and breaking the piggy bank on your four-legged family member.
4. Out-of-town or destination weddings.
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Even if you like your extended family (and we hope you do!), don’t be guilted into overextending yourself in honor of Cousin May’s big day.
Let’s get real: She’s gonna have a good time whether you’re there or not. So unless you’re in the wedding party, don’t be afraid to send your regrets.
A gift card should smooth over her disappointment—and that’s a whole lot cheaper than an all-inclusive trip to Tahiti. (Did they ask you to be in the wedding party? Read Will You Be My Bridesmaid? for everything you need to consider before committing to the big day.)
5. Family loans.
Your hyperactive brother-in-law is itching to start yet another new business. This one, he assures you, is the best idea since the pet rock. And because he’s so generous, he’ll let you get in on the ground floor.
Your emergency fund is for you and yours, not for your crazy brother-in-law. If his bright idea is that good, he can work his tail off and raise the capital he needs without your help. Don’t ruin yourself—and definitely don’t ruin your relationships—by loaning money to family.
When it comes to your emergency fund, the more you use it, the more you lose it. So check your impulses at the door and avoid dipping into your safety net on a whim. Use it only as a last resort.
And when you really need it, you’ll be glad it’s there, waiting to catch you.
Looking for a fast way to increase your safety net? Read 4 Quick Ways to Build Your Emergency Fund.