What is there to worry about when you have no debt and an emergency fund?

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Let me tell you a little story. Once upon a time, there were two crazy kids desperately trying to pay off their student loans. They were on the home stretch – the end was in sight! Based on their careful budgeting, they were able to see that based on their income and spending habits, they would pay off their debt in the next two months. Wahoo! In addition to throwing all the money they could at their loans, they had been putting a small amount aside each month to save up for a new vehicle, since they knew that their 13-year-old clunker with nearly 200,000 miles was not going to last much longer. But since they were oh so very close to paying off that big, ole chunk of student debt, why not just tack on the money that was in their car fund and pay off the student debt that much quicker!? They could easily refresh the car fund the next month with the money they had been paying towards student loans. I’m sure you will never guess what happens next! I know this is just going to blow your mind. Can you believe that just one week after we said, “I think we can be sure that we won’t need to use that car fund in the next month,” our vehicle died. In the middle of the road. The motor was fried. It would cost far more for a new engine than we paid for the vehicle three years prior. It was towed away into oblivion, and we never saw it again. So guess what we had to do just one month before we planned to click the pay-off button on our $50,000 of student loans? We had to take out a car loan. We had to take on more debt. I wish I was making this stuff up.

There is a thing called Murphy’s Law that claims that anything that can go wrong, will go wrong. And whether you’re an unashamed realist like me or a blind optimist, things will go wrong at the most inopportune time. The old adage “when it rains, it pours” is no joke. Just when that pesky check engine light flicks on in your car, you will find yourself in the emergency room for some unexpected malady, and can you believe that it happens to all fall during that week that you need to pay your annual Amazon Prime fee…you get the picture. When all of the money coming in each month is sucked up by living expenses and loan payments, that is stressful! How would you be able to handle an unexpected emergency? Your only option will be to go into more debt. When you have an emergency fund, you don’t have to live in fear of the unexpected destroying your finances or causing a major setback in reaching your goals.

Having no debt and a solid emergency fund brings peace and confidence in your ability to create a positive financial future. How much you need in your emergency fund depends on your life situation. A good rule of thumb is 3-6 months of living expenses (typically $10,000-$15,000 for most households), and if you are a diligent budgeteer, that should be easy to calculate. If you are a dual-income household in stable jobs, you may only need three months saved up. If you are a single-income freelancer, six months or more is probably a good idea. If you do have debt, make that your priority, but never let your emergency fund dip below $1,000 at a bare minimum. Once your debt is paid off, it shouldn’t take long to fill up your emergency fund with the money you’ve become accustomed to throwing at your debt.

Once we reached the point of being debt-free and having a fully-funded emergency fund, the relief was incredible! I no longer worry that our car’s transmission will go out or we’ll be hit with a major medical expense or my husband’s business might have a slow month because we are well prepared for the unexpected. Life without financial worry is a life of freedom!