… is what I hear all of the time. Depending on who’s saying the words, they either have a positive or negative connotation. Today, we’ll be talking about Step 1 of the Baby Step process: Save $1,000 to start an emergency fund.

It’s definitely the easiest, but sometimes the most misunderstood and hardest step for people to wrap their head around why they’re saving such a small amount, and how it will help them.

Three Types of People

When it comes to Baby Step 1, there are three types of people:

1. The person who has much more than that saved up already and who thinks that $1,000 is not enough for an emergency. They also don’t want to see their balance go down to $1,000 because it makes them feel a little… itchy.
2. The person with no savings who thinks “$1,000? I can save that in a heartbeat! Let’s go!”
3. The person who sees saving even $1,000 as an impossible feat (The Eeyore of the bunch)

So, who’s the correct one? Well, person #2, of course! Both #1 and #3 can learn a lot from person #2. Why? Because they’re showing enthusiasm and willingness to jump into the process with both feet, with the full belief that it will work.

Next, let’s break it down for you, if you’re person #1 or #3 (If you’re person #2, read this anyway so that you can talk the 1s and 3s in your life into jumping in, like you! In fact, everyone should read all three. There’s good stuff in here for all of you!):

Person #1, Read Here!

I know, I know, I get it! It feels really strange to let go of your safety net (Your savings account that totals more than $1,000). It makes you feel secure and ready to deal with a problem when it pops up. However, THIS IS A SHORT TERM THING! If you look at yesterday’s blog, you’ll notice Baby Step #3: Save 3 to 6 months of expenses for emergencies. It will come back, and then some, I promise! Not only that, you’ll be able to use the funds from your current savings to pay off some of that stupid debt! Let’s look at some numbers.

If you have a $10,000 savings account and $40,000 of consumer debt (All debt except for your home), You can now immediately put $9,000 toward that debt and have a balance of $31,000. What does that do for you? SPEEDS UP THE PROCESS and gets you back to your comfort zone (Baby Step 3) MUCH faster than you would have done it without it.

Person #3, Read Here!

I understand where you’re at. You don’t think you can save $1,000 because of the amount of crushing payments that you have are eating up all of your income. Do you know what else is eating up your income? CREDIT CARD INTEREST! According to a recent credit card rate survey, the average credit card rate is now 16.75%. What does that mean in simplified terms? If you carry a $10,000 balance, you’re paying $1,675 per year in interest. Ouch. So if all of your cash goes to bills with nothing left over, what are you supposed to do (Here’s where we find out just how serious you are)? Get a second job. Get a third job. Do whatever it takes to get your income up to a level that helps you get through Baby Steps 1, 2, and 3 as quickly as humanly possible!

In fact, if you’re able, person #1, #2, and #3 should ALL be getting extra work. Not only that, you should have already found a few bucks extra in your budget by getting rid of that Starbucks coffee in the morning, or packing your lunch instead of heading to a restaurant (Even fast food!), selling everything that you own that you don’t need, or finding some other creative way to save some cash. Get through the painful parts fast, so that you can get the reward (Your life back) as quickly as possible!

So, What Do You Mean By Extra Work?

Well, I’m glad you asked! Here are some examples.

• Uber driver
• Pizza delivery
• If you’re a musician, play as many gigs as you can for whatever they’ll pay you (I did this and made an extra $10,000 one year)
• Handyman work (Grass cutting, ditch digging, fixing cars, fixing houses, etc…)
• Night shift at the gas station
• Caring for an elderly neighbor or babysitting a child

You get the picture, right? Find something you can make some side money on, and do it!

Why $1,000?

Good question! $1,000 is enough to cover most emergencies (Car breakdown, hot water tank blew up, appliance breakdown, etc…). What does being able to pay for those things in cash do for you? It keeps you from using debt to fund them (Remember, you’ve sworn off debt!). If the emergency costs more than $1,000 (or more than you currently have in your emergency fund), you have to get a little more creative (See: Extra jobs), but it should take care of most of life’s hiccups. And, remember, if you’re working on Baby Step #2 when it happens, you immediately PAUSE that step, cash flow as much as you can, use some of the emergency money if you need to, and get that emergency fund back up to $1,000. The overriding point here is that whenever something comes up, if you have to take money from your emergency fund, stop everything else, and get that fund back to $1,000. It’s your life line.

Come back tomorrow to talk about Baby Step #2. It’s easily the most complex, long, and frustrating of all of the steps, so I might just take a few days to talk about it. I haven’t yet decided. Oh, by the way, I don’t want to bum you out. It’s DEFINITELY the most rewarding step as well! I’ll see you tomorrow to get to the real work!

 

What challenges do you see in getting started on this process? Fixed income? Single mom? Disabled in some way? Comment below and I’ll offer some advice!

Are you excited about starting your journey to financial independence? Share this post with the people you care about!