Starting your personal financial journey is nothing short of a difficult task. There's a lot of information out there, and it's really easy to get lost and overwhelmed. A lot of times, it starts with a simple question: Where do I even begin? If you're reading this, I'll tell you.
I like to advise my clients to start by saving $1,000 for emergency expenses. Yes, you read that right. The very first step is to save money for those rainy days, instead of immediately paying down your debt. Here's why: life throws unexpected expenses at all of us. Even as a CPA, I’m not immune to these surprises.
Now, if you decide to pay for those emergencies with a credit card and can't pay it off right away, you'll end up with a high interest rate fee for carrying a balance. And so begins the vicious cycle of credit card debt—ignoring it because it’s "scary and keeps growing." Don’t let this be you! With an emergency fund, you can pay for these expenses out of pocket and avoid any extra interest. Trust me, credit card interest is outrageous, ranging anywhere from 20% to 25%! Plus, there's a psychological bonus to saving and achieving this goal. It feels good, and once you get started, odds are you’ll keep going, making progress toward financial peace and freedom.
Let’s use an example: Say you had to take your dog, Bucky, to the vet for an unexpected surgery. Bucky is okay, but you're left with a $1,000 vet bill. If you have an emergency fund, great—you can pay the $1,000 right away. But if you don’t and you use your credit card, in just one year you could rack up $250 in interest, making that $1,000 bill cost you $1,250. Personally, I’d rather pay the $1,000 upfront, know Bucky is okay, and avoid the headache of interest piling up over the year.
My two cents: If you don’t have any savings, your number one priority is to save that first $1,000 for emergencies. I won't lie—it can be extremely difficult. I’ve seen people living paycheck to paycheck still manage to do it. Yes, it took them over a year, but with diligence and patience, they saved the money and set themselves on a new financial path.
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