On Monday I wrote my treatise on why I find value in having an emergency fund even while still in debt. Mathematically, there is a sacrifice in interest earned on savings vs interest saved by using that to pay down debt, but I feel the benefits are more than financial. The responses to the post were mixed – some agreed, some lamented the idea of following irrational financial decisions with even more irrational decisions, and some brought up another benefit to the emergency fund that I hadn’t touched on in my post - teaching a spender the art of saving.
I started my life a saver, but learned to be a spender, and building an emergency fund really did help me to rediscover how to save. Even if the amount is not much, the act of putting money into a savings account just to save it, and not for a predetermined purpose, was a very new act for me. Even when I saved money, I always had something in mind for it while I was saving it. But the emergency fund isn’t pre-spent before it is saved – it is just-in-case money, and the act of saving it teaches me to save for the sake of saving.
Someone that’s in debt and struggling to get out may never have actually committed to saving before. Learning to save, and making a commitment to saving, is teaching a valuable skill that is best learned hands on. Paying down debt is obviously important, and I fully believe in doing everything you can to pay down your debt and escape the bondage that debt brings. But learning how to move forward and handle financial crises, big and small, without turning back to the allure of debt is important too. Having that feeling of being able to manage things without debt can, dare I say, make saving feel fun.
On a personal note, I obviously have an attachment and fondness for the cash emergency fund for a number of reasons, not the least of which is the fact that I’ve had to use mine several times. And yesterday afternoon, I received in the mail the explanation of benefits for my CT scan, and learned that as I expected, I will be paying about $1100 out of pocket for the procedure. That includes my $1000 deductible (we pay 30% of everything over $1000 up to $3000 a year), so I know my colonoscopy in June will be less expensive – or, at least, we’ll pay a much lower percentage of the charges out of pocket at least. We’ve already shifted to a half debt repayment/half savings plan for the forseeable future, and so have enough saved to cover the procedure. If the hospital takes as long to bill me as they did after my daughter was born, I won’t see an actual bill now that I have the explanation of benefits for a few weeks yet, and we have about $300 left in our healthcare Flexible Spending Account that we’ll also be pulling out to apply to this bill.
So things will be fine, and we will carry on. Without any emergency savings, my spouse’s student loan would be $1400 less right now, but we’d also be charging $1100 on a credit card. Debt begets debt.