The Uncomfortable Truth: How One Emergency Could Sink Your Financial Future

Many adults lack money to cover unexpected expenses.

In my native Sweden, a study was done around 2016, on how the Swedish people could handle an unexpected expense.

Its findings were shocking.

Around 20% of people were unable to handle an unexpected expense around 12000 SEK (~1130 USD at todays rate). It required them to take out a loan. 1 out of 10 had no savings at all. That is baffling.

Recent findings in the U.S. show the same thing. Lots of people would be unable to cover an unexpected expense of that amount. Many would use credit cards or take loans. 27% have no savings.

Every working adult should be able to cover such an expense. It’s crazy that a large number of people live on the brink of financial disaster.

It doesn’t need to be that way.

Sure, an argument could be made for the cost of living increasing faster than wages. That makes it hard to save. There is truth to that.

The cost of living has been going up compared to wages. That has a role to play. Denying that would be ignoring reality. But the statistics have been around the same numbers for years.

Good times, bad times. People don’t save.

But that’s not the whole story.

A big issue is the lack of financial literacy. Grown adults don’t understand basic concepts. Which leads to stupid decisions. Like financing a car.

One would think schools would teach this. But no. And, chances are your parents wouldn’t have the knowledge either.

I get it. Today we’re bombarded by luxury. Everyone on social media are doing great. You compare your lives. You feel poor and unsuccessful. You finance that car. Sure, you’ve fucked up your financial life, but your happiness increased. For a while anyway.

It’s easy to get fucked by the system since you don’t understand it.

It doesn’t need to be that way. Mistakes can be avoided. Two basic concepts you should understand are debt and emergency funds. What they are, why they matter and how to use them.

Debt - It can create or ruin your life

Debt is a loaded topic. Many are extreme in their opinion on it. A few have a nuanced opinion.

The truth is that debt, in itself, is neither good nor bad. Why you’re in debt is relevant to decide if it’s good or bad debt.

Taking on debt for a house loan or to further your education can be a great way to use debt. It can be great tool in investing provided you know what you’re doing.

I used student loans to fund my studies. Without that, it would be much harder to get a job. Also, it was a fun time of my life. In a few years, my wife and I will buy a house. To be able to do that, we need to take on debt. And that’s okay. We’re not buying a house to make money. We’re buying to create a home for our family.

On the other hand, buying a car using debt or using debt to fund a lifestyle you cannot afford is stupid. It’s bad debt.

But there are gray areas in the good ways to use debt too. Buying a much bigger house than you require, increasing your debt, is irresponsible. In the same way, it’s stupid to take out huge loans for an education where there exist few jobs. That’s putting you in a bad financial position.

Emergency fund - This is the way

I understand that you might have it tight money-wise. It’s a situation I’ve been in myself. It’s tough. But the worst thing you can do is to ignore creating an emergency fund.

Yes, it will decrease the money you can spend. That is true. But it’s a childish way of looking at it.

Do you want to be one broken fridge from financial disaster?

Because that’s how many adults live. They are never far away from fucking up their financial life. Many times that fuck up happens because they lack an emergency fund. When shit hits the fan, because it will, they need to borrow money. When you reach that point, it’s easy for things to spiral out of control. Suddenly, you take on debt to pay other debts. This outcome can and should be avoided at all costs.

Always living on the edge of financial ruin is no way to live. Everyone should save a bit of money every month. No matter your wage. Saving will always be better than not. Even if you consider it to be a small amount.

What should your goal be? Hard to say because I don’t know your situation.

When I started my own emergency fund I had one goal. That was being able replace my phone if it broke. My expenses back then didn’t require a large amount saved.

Today, I have a wife and kid. It might come as a shock, but my expenses and standards has increased a bit since I was 20. My wife and I have a goal of having 3 months of essential expenses saved. That is our long-term goal.

My point is, your life isn’t static. Your requirements will change. Your fund should reflect that fact.

Things to consider:

• What unexpected realistic expenses could you have?
• How easily could you get another job?
• How big are your essential expenses?
• What insurance do you have?

Start from where you are. Build from there. Start today.

An emergency fund gives you freedom.

What would it mean to you having 3 months of expenses covered?

To us, we feel it lowers our stress. It gives us options. We aren’t stuck in our jobs. We can jump at opportunities we otherwise would miss. Case in point is a recent move we made. In a short amount of time, we decide to move closer to our families. But we needed an apartment. And the move would require hiring a moving firm. We found the apartment. One perfect for us. We hired the firm. My wife quit her job. I started up a new office.

Our emergency fund made that possible. We had the option. We took it. It’s hard to describe how good that felt.

Trust me. Nobody regrets building an emergency fund.

Now, when you understand the why, we can move on to the how.

Because it’s important to do that. To start. But how?

Relying on discipline is a sure way to fail. You don’t want to think about it. Hell, you don’t want to see the money. Avoid the temptation to spend it.

Make saving automatic.

Set up an account. Make an automatic transfer each month as your paycheck comes in.

Your emergency fund will grow as if by magic. You might think you’ll miss the money. But you’ll realize how quick we are to adapt. After a short time, you won’t be missing that extra cash. Do the responsible thing. Every journey starts with one step. Take it and take it now.