When you are coached to start your journey to personal finance success with a small emergency fund, say only $1,000 or $2,000, it's important to understand the reasoning behind that coaching advice. That way, you can get the most out of the guidance provided and really maximize your energies in being successful with your personal finances. Here, we will discuss five great reasons to start out with a small emergency fund.
1. It lets you know what it feels like to have at least a little money in the bank
If you've never had any money in the bank, working to get a starter emergency fund might give you a new feeling, and you might like that new feeling. That would be a sensation of at least a little bit of security. You're not running with everything totally "hangin' out" and that could be something you start to enjoy.
2. Establishing a starter emergency fund demonstrates some initial ability to change your financial future
Maybe you've been of the opinion that you just weren't built for financial success. But, being successful at a starter emergency fund could help to show you that you can be successful in this area. And, a little success at the beginning could help set you up for bigger success later, when the challenge gets greater.
3. It doesn't allow you to get to comfortable with your current financial situation
While it's important to feel success in getting your financial act together, you don't want to get too comfortable. The point of the starter emergency fund is to allow you to quickly move on to other steps in the process. At the same time, it is not intended to give you a warm and fuzzy feeling. We all know that $1,000 is not that much money and that later, a much bigger emergency fund will be needed.
4. A starter emergency fund helps you to start managing risk better
Having no emergency fund leaves you open to lots of potential surprises and financial crises. Even having $1,000 socked away can make what was previously an "emergency" be a mere hiccup. Having to use that money and then replenish it helps you to understand better how to manage life's risks.
5. It allows you to quickly start tackling debt
At first, you only want to spend time and dollars on a small emergency fund. This allows you to move on to debt repayment much more quickly. And, this is important because changing your financial picture requires substantial action on your part. Initially, that substantial action needs to be repaying debt as fast as possible, to get it out of your life, never to return again.
As you can probably tell, dealing with personal finances is oftentimes a matter of dealing successfully with our emotions and stress levels. A small starter emergency fund can help to bring the stress levels down but does not allow us to get comfortable enough to stray away from the very important task of quickly and aggressively tackling our debts. Ultimately, the long-term solution to being financially comfortable is exiting all debt from our lives and understanding what it’s like to truly be debt-free!!