Tuesday, January 19, 2016

January Spending Freeze, Day 15: Our #1 current financial goal

A few days ago it occurred to me that I haven't really written about our goals yet.  Resetting our spending habits is the main goal, of course--that aspect of the spending freeze will benefit us for a very long time.  But right now, what are the short-term rewards and accomplishments we are working toward?  There are a couple.  The first one is smaller and we've already accomplished part of it.

Our emergency fund.

We do already have an emergency fund, but it's smaller than I'd like (here's a Dave Ramsey article on that).  Due mostly to our desire to never have a vehicle loan again, we want to add about $2500 to our existing EF.  If all goes well, we should have that accomplished this March.

There are many reasons to build a healthy emergency fund, as there are many different things for which an emergency fund might be needed.  Here are my favorites.

1)  Quick recovery from overdraft.  We haven't made this mistake in a long, long time.  I keep such a close eye on our accounts that I would be shocked to find us overdrawn.  Everyone makes mistakes, though.  It's good to know that if something crazy happened and we did overdraw, I could fix it within seconds.

2)  Peace of mind when facing life's little problems.  Once, when Suzi was a toddler and we still had quite a bit to pay on the loan for our 2004 Odyssey (Broke Ass Betty), we found out it needed about $1200 of repairs and maintenance.  That can really knock the wind out of you, especially if you don't know how you're going to come up with the money.  After that, I listened anxiously for any little noise while driving, and panicked whenever a warning light came on.  What was that noise?  Jordan, do you hear that clunking sound?!  If something is broken, can we even afford to fix it?  But, as our EF grows, I am feeling more and more confident that we can handle any mild to moderate issues.

3)  It saves money.  Because we now have a healthy EF, we were able to raise the deductible on our homeowner's insurance to get a lower premium.  (We have Mr. Money Mustache to thank for this decision.  Please read his explanation; it's life-changing.)  Even if we happen to have a claim, which is unlikely, the impact this relatively minor deductible change would have on our finances is negligible.  However, because of the lower premium, we recently got a $200 Escrow surplus refund check in the mail, along with a notice that our monthly mortgage payment is dropping by $30!  So having a decent EF is going to help us quickly build an even better EF.

4)  It's a solid foundation on which to build.  The emergency fund supports and protects future, as well as past, financial goals.  If you have worked your way out of debt, the emergency fund will keep you from going back into debt.  If you have saved up and bought a car (see my next post!) the EF ensures you can keep driving that car as long as possible.  If you stumble upon an amazing deal on a house, a vehicle, or some other life-enriching or wealth-increasing opportunity, you'll be in a better position to take advantage of it if you have a decent cushion built up.

So, while it might not sound as exciting as some financial goals, I feel highly motivated by our quickly growing emergency fund.  We've found it to be the best insurance policy ever.  It pays every claim quickly and without a fuss, and if you don't use it you get to keep every penny you paid in, plus a little interest!  I feel wonderful knowing it's there.