Debt-Free Forever by Gail Vaz-Oxlade (the beginning after the end read novel .TXT) 📕

when you’ve got your first $400 in your emergency savings account, you’re going to put a check mark in one of your boxes beside food. There. You’ve done it. One month’s worth of food money at the ready, just in case.

One of the decisions you’ll have to make is whether you’ll save all six months’ worth of food money before you start on your second category or if you’ll check the first box for each category before saving more food money. That’s your choice. My choice would be to put a check mark in the first box of each category and then move on to save my second month’s worth of essential emergency expenses.

Okay, so you have another option for building your emergency fund. All that’s left is for you to start doing it and stop thinking about it. Go ahead, pick up a pencil and a piece of paper and start making a list of your essential emergency expenses. Now!

WHEN YOU HAVE TO SPEND YOUR EMERGENCY FUND

People are always writing to tell me how frustrated they are because crap happened and they had to dip into their emergency fund. Man, if that’s not a case of seeing the hole instead of the doughnut.

In a perfect world, you’d build up your emergency fund and then never need to use it. But we don’t live in a perfect world, and in all likelihood you will have to tap your emergency fund, sometimes before you’ve even got enough to deal with whatever caca you’ve just stepped in. If you whine and complain about never being able to get ahead, you’ve totally missed the point. Whatever you had saved made life that much easier because you were at least somewhat prepared to deal with an emergency. So now you have to get busy rebuilding your stash to cover your essential emergency expenses.

Establishing an emergency fund is a little like dusting. (I hate dusting.) I do it because I’m supposed to do it, because if I don’t, my home will be dirty. And as soon as I’m done dusting, it’s time to start dusting again. Ditto washing the kitchen floor, cleaning the toilet, or shovelling the driveway. I could whine and complain about the never-ending list of chores I have to do, or I can do them because I’m supposed to and get on with having a life.

You can whine and complain about having to set money aside for emergencies or you can do it because you’re supposed to and because if you don’t you’ll be worse off. I can’t make you save for emergencies, just like no one but me can make me dust. It’s something you’ll do because you see the point. Or you won’t do it because you don’t have the smarts or the foresight to understand the implications of not having a safety net.

An emergency fund is one of those parts of a sound financial plan that sets the Big Boys apart from the Babies. If you don’t have any intention of setting one up, don’t even bother trying to dig yourself out of debt because the next time you’re faced with a problem, you’ll be forced to turn to your credit to deal. Voila! You’re back in the hole.

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PLAN LIKE A PESSIMIST

People don’t like the idea that they could get sick, become disabled, or die. Witness the hundreds of people who put up their hands when I ask a crowd, “Who doesn’t have any insurance?” (The same people often put up their hands when I ask, “Who doesn’t have a will? Hmm.) Statistically, you’re more likely not to get sick or die. So if you want to skip this section, go ahead. After all, if you’re convinced that insurance is a waste of money and insurance salespeople are a bunch of thieves trying to get into your wallet, I’m not going to have much success changing your mind. Closed as it is, you’ve already made your decision.

However, if you’re curious, if you’re wondering what all the insurance brouhaha is about, if you know anyone who became disabled, was struck by a critical illness such as cancer, heart disease, or stroke, or if you know anyone who died and left a family behind, you might want to read on.

The insurance industry is a multibillion-dollar business. Yes, see, you say. They’re making mega-profits off us! Maybe. But the question you really should be asking yourself is: would all the people who buy insurance still be buying insurance if it were such a dumb idea? Think about it. People lay down good money month after month, year after year, to pay insurance premiums. And they do it for a good reason. They do it because they know that some disasters can be so financially debilitating you might never recover.

Let me tell you a little story that might bring the point home. It’s not a disaster story, so you don’t have to worry. No blood. No widow. No orphans.

One of my directors is a classical harpist. One day on set, Nathalie wanted to talk about the insurance on her harp. After listening to me prattle on about cutting costs, she thought it might be sensible to save her $500-a-year insurance premium in an account instead of paying it to a nasty, profitable insurance company. In other words, Nathalie was considering “self-insurance.”

Self-insurance is all the rage with people who consider insurance premiums to be a waste of money. They think that since it is very unlikely that they’ll ever need to claim on their insurance, it makes sense just to bank the money.

First I asked Nathalie what it would cost to replace her harp. About $16,000, she said. So then I asked Nathalie whether she had $16,000 in the bank to buy a new harp right now. Nathalie shook her head, a little stunned at the question. “Then you definitely should not cancel your insurance,” I advised.

Here’s why. When Nathalie buys insurance on her harp, she’s shifting the