How an emergency fund saved my sanity

In previous articles I looked at psychology as it pertains to financial management and to credit card use. And psychology is, I believe, the most important factor to understand and get control of if you want to be successful with personal finance. But does it work the other way around as well? Can good personal finance practices positively impact your psychology?

A Shock Absorber For Stressed Out People On Life’s Bumpy Roads

When I first started getting serious about my finances, I finally took the advice I had given to so many other people: priority #1 is an emergency fund. Before anything else, you get this together. Before long, I had a few thousand put away. Then a few more. And before too much time had passed I had saved the equivalent of three months of net income, which was my objective.

Looking back, this was a significant turning point in my life. A lot of my background stress started to ease and many of the things I had spent literally years worrying about suddenly didn’t seem so important.

Job loss? Who cares. We have a great unemployment system where I live and I have a bunch of extra cash. I could be off for a year without breaking a sweat. Still holding a lot of debt? No worries, I can cover us even if we come up short the odd month. Car breaks down, dishwasher breaks, kid knocks a tooth out? No worries, it’s covered, in cash.

Sun On Your Face, Wind At Your Back

Having a cushion was a big part of what gave me the confidence to leave a long-standing career I hated and try something totally new. True enough, by that time I had saved a fair bit more than just three months of income, but that emergency fund was still a big contributor to the courage I needed to make the change.

I can confidently state that this one act of financial prudence has had a larger positive impact on my family than any other financial accomplishment we have had since. More than building our retirement accounts, and more than paying down debt. This despite the fact that those latter activities have involved much larger dollar amounts.

Start Now – Even Just A Little Bit

And the great thing about an emergency fund is that it doesn’t take much to get started. Start putting whatever you can afford into a high interest savings account. Set goals for yourself to reach in 3 months, 6 months, and longer. Set a final dollar value that you want to ultimately attain; an amount that is just enough to give you a sense of security and stability in your life.

Remember, this won’t be all the money you’ll ever save, but it should be the first money you ever save! And if you are at all like me, it may be life changing.