In the beginning the motivation to pay off your debt is high and you are excited to achieve financial freedom but there are a few reasons that you may lose your enthusiasm. One could be the time period it takes for you to reach your goal or it could be frustration from unexpected expenses that throw you off of your plan during the payoff process. We are going to talk about the latter.
It is important to have a starter savings to help combat any unexpected expenses that may occur while you are paying off your debt. Most of the time, it will help you to not go into more debt. Let's talk about "emergency" expenses for a moment. Truthfully they are not really emergencies, you know there is a probability of something happening, you just don't know what or when. They become emergencies because you did not prepare for them.
To help combat some of the frustration that comes from unexpected expenses slowing down your debt payoff plan you should have a small savings in place before you decide to start aggressively paying off debt.
How much? It depends on what you are comfortable with. Dave Ramsey recommends $1,000 but if that does not make you comfortable then you should increase the amount but it should not be less than $1,000. When I started paying of debt I started with $1,000 and while I was paying off debt, I would add a percentage to my savings every time I made an extra debt payment until I reached a month of expenses. At that time, I was a single mother and I was more comfortable with having at least a month of expenses saved.
I know what you're thinking: I don't have it, how do I save it?
The same way you planned to pay off your debt. If the plan was to work a second job or a side hustle, sell some of your stuff, or cut some of your luxuries. Use the money from those activities to build your starter savings quickly. A lot of times you have the money, you're just spending it on other things.
All of your debt repayment money should go towards your starter savings first. Once you meet your starter savings goal, all extra money from that point forward should go to your debt.
If you do have an unexpected expense and have to dip into your starter savings, stop paying off debt and build your starter savings back to the amount you designated in the beginning. Don't let it discourage you, stay focused on your goal because you don't want to be in the same position a year from now.
And just so you know, I understand how it feels, here are 3 things that happened to me while paying off debt.
1. Its June in the South and the evaporator coil on my air conditioner developed a hole (it was old), so all of the expensive freon leaked out and my house was burning up. So I had to purchase more freon (we are not going to talk about the coil). Freon was $200 a pound but I signed up for a membership to reduce the cost to $87 a pound but I needed 5 pounds (I wanted to cry but I'm a G).
2. My plumbing backed up upstairs and leaked through the ceiling downstairs onto my carpet (carpet cleaning, plumbing repair, drywall repair). This was 2 months later and I didn't replenish my savings.
3. The big one: I can't fully explain the cause but it involves an uneven driveway and some protection foam missing, but the effect was, water coming into my dining room during heavy rain and my insurance company would not cover water coming into the house. You need flood insurance for that.
So yeah, take it from me, you need a starter savings, it helps soften the blows. What happened to me was extreme and may not happen to you, but there is a sense of comfort attached to your starter savings.
What's your starter savings amount and how did you determine the amount?