I have debt. Today the balances are $598 on Visa and $12,973 on the HELOC (home equity line of credit). Earlier today the balance on the Visa was $798 but I took the measly $200 that I had in an emergency fund and used it to reduce the balance on the credit card. It was an impulsive move and I thought about it all day at work and decided I was right.
I budget yearly based on my 26 pay periods. I have calculated an amount for dental, vet visits, home insurance, vehicle licensing, Christmas and replacement for things that break. I had budgeted $205 per pay period to cover that sort of thing and to act as an emergency fund for whatever else life throws at me. I have been faithfully saving and transferring money in to that savings account every other week when my pay gets deposited. I used most of the money in August to pay my house insurance but then I started making deposits to the account again.
Today I decided that I am wasting my money paying interest on things that happened in life that ended up on the credit card and the HELOC. Why should I save money for future expenses when I haven’t paid off the old ones yet? Today is the end of the emergency fund until I put an end to my debt.
I am fed up with being in debt and I want to get rid of it as soon as possible. I am sick of my debt.
I am a fan of emergency funds. I am a fan of Suze Orman who is also a fan of emergency funds. Ms. Orman would not be happy about my decision to forgo the emergency fund. I have $20 hidden in my wallet, $20 in my car, $10 in my locker at work and at least $30 in the house for real emergencies. If I need gas or a pizza I always have some cash. I do not have the 8 month emergency fund that Ms. Orman recommends. What I do have is a line of credit that I can dip in to if something major happens.
The HELOC requires that I pay the interest every month and I am not required to pay any principal unless I feel like it. Why let cash sit in a low paying savings account when it can be used now to pay off debt and if something does happen I can use the HELOC to cover the bill?
I also have stocks and a Vanguard ETF in my TFSA (tax free savings account), currently valued at $3,000, that I could liquidate in a few days if something huge happened and I would not have to suffer any tax penalties if I sold.
Emergency funds are important. As a single person with no one but myself to rely on I understand the importance of having an emergency fund. In the future I hope to have an 8 month emergency fund in a semi-liquid but still income earning state. Short term GICs (guaranteed investment certificate) or something else that does not have a fee or penalty associated with an early withdraw would be perfect.
I will start an emergency fund when I am done with debt.
I desperately want to be done with debt. Minimizing savings and maximizing debt repayment is the fastest way to get there.
I understand that if something else breaks (something is always breaking around here) that I will have to rely on credit to pay the bill. I am not suggesting putting gas or groceries on credit just big things like emergency vet bills or broken tie rods. It makes more sense to avoid the interest payments on the current debt than to worry about what will break.
I get paid next week. It will be just over $1,300. Instead of saving I will pay off the last $598 on the Visa and a $400 payment will be automatically be deposited against the debt in my HELOC. Cash in the bank? Not much more than $100. I will have just enough money to pay the bills and buy a bit of food but I will have made a real dent in my debt.
Debt that drags on is frustrating and I am in real danger of giving up if I don’t see some significant progress in debt reduction. The end of the emergency fund is the right decision for me.