Debt Free + Emergency Fund = Unparalleled Power

I’m really excited. Super excited. “Stoked,” you could say. Why? We’re almost done with our fully funded, 6 month’s worth of expenses emergency fund. Not only that, but we’re debt free except for our mortgage.

I can’t fully express how thankful we were to encounter Dave Ramsey’s 7 Baby Steps. Today, we’re starting to fully realize the true financial peace it brings to live debt free, and have a major cushion between us and financial apocalypse.

Soon, we’ll be able to start saving for the major goals we have in life. Sure, anyone can save, but nobody can save like those who have freedom from debt. I’m convinced that if you want to have unparalleled power in your finances, you must be debt free and have a solid emergency fund. These are the foundational elements to success.

How To Become Debt Free

Hard work. A lot of hard work. SACRIFICE! You have to make that person in the mirror behave! Practice saying “NO” to yourself on a regular basis. It’ll take a hefty dose of willpower and accountability.

After you have achieved a mindset of financial responsibility, it’s time to make sure that you do the following:

1. Create a workable budget. Make sure you don’t “wing it.” Put some serious thought into what you’re going to spend for the upcoming month and stick to it! Trust me, I know it can be tempting to overspend, but if you’re going to escape the death trap that debt really is, you’re going to need to stand firm.
2. Create your debt snowball. Simply list all your non-mortgage debts from smallest to largest balance, pay minimum payments on everything except the little one, and attack the little one with vengeance!
3. Raise your income and throw all extra money at your debt. The bigger your income shovel the better! Fill in that debt hole with every little scrap of cash you can find.

For many people, becoming debt free can take a few years. Don’t become discouraged! You can make it. It just takes time.

How To Build Your Emergency Fund

After you have become debt free, it’s so much easier to build your emergency fund. Just imagine all your payments going toward your savings account! Emergency funds are built easily once you have financial traction.

Simply make sure you’re still on track with your budget. Don’t end your budgeting process just because you’re debt free! You must continue to fund your grand plan.

Then, determine the following things:

1. How large should your emergency fund be? I recommend 3 to 6 month’s worth of expenses. We opted for 6 months, as we tend to be more conservative with our finances. But if you have a good paying job and feel comfortable about the stability, you can cheat towards the 3 month mark.
2. Are you in a major financial crisis? If you expect an emergency to come soon, build up as much cash as possible - even greater than 6 month’s worth of expenses. Pile up your money so that you can get through the storm.
3. Where is your spouse in all this? If you’re married, don’t forget to include your spouse in the decision-making process. Whoever wants the bigger emergency fund wins. Remember: the emergency fund not only provides real financial security, but it can provide emotional security as well. For some people, 3 month’s worth of expenses feels like a disaster waiting to happen.

Welcome To Unparalleled Power

By achieving these two goals, you’ll have unparalleled power to move forward with your financial plan. Tire blew out? Not a problem . . . you’ll probably have enough money to cash flow it (remember, you would only have a mortgage payment). If not, your emergency fund can take the hit. Get the picture? Become debt free. Subscribe to The Christian Dollar for more tips and tricks on reducing your debt and bulking up your emergency fund.

Image from Commons: http://www.flickr.com/photos/nasacommons/4858564088/