We often hear about the importance of finding your “why” when it comes to staying motivated to accomplish whatever goal you have, whether it’s regarding your health/fitness, career, or finances. When I first started getting serious about paying off my debt and being a more responsible money manager, I think I was mostly motivated simply by a desire to no longer have student loan debt. Even though my loans were in deferment while I was still in graduate school, I would occasionally log in to look at the balance and noticed how quickly it would rise as the interest accumulated and compounded. Not cool! To really whittle away at the balance and maximize the impact, I needed to know exactly how much money I was bringing in every month, where it was going, and what I could do to put more money towards my student loans. With every passing day, it seems I learn a little more about personal finance and continue to improve my financial situation, even if it takes a little trial and error to get there. After paying my loans off in full after 18 months, that is no longer my primary motivation, so I really thought long and hard about why I’m on this financial journey and came up with two reasons: independence and security.
- In short, I don’t like relying on other people. It’s true in all aspects of my life, which is one reason why I wish I had some semblance of home improvement skills so I didn’t have to ask for help with every little task (seriously, changing a lightbulb and hanging a picture are about the extent of my skills, and even the picture hanging is pushing it some days). Regarding my finances, having debt makes me feel like I’m chained to the creditor. Who wants that!? Having financial independence means that I can afford my purchases, choose how I want to pay for them, and have more options in general. I can be more strategic with purchases and investments and not be forced to take the cheapest option on the table because it’s all I can afford.
- This is probably the biggest and most important “why.” I want to feel certain that if I experienced some sort of emergency situation that had a negative impact on my finances, I would be able to handle it. Even if it was something major enough to drain my savings account and require a lot of effort to replenish, at least knowing I could cover that immediate major expense would be a relief.
I have many friends who could rely on their parents for funds if necessary (actually, now that I think about it, I can’t name a single friend who does NOT have parents who are well-off or at least well-enough-off that they could float their adult child at least a few thousand dollars if a true financial emergency occurred). For reasons I won’t discuss here (or at least not yet), I don’t have that safety net. Honestly, I’m a bit envious. While the bank account of one’s parents is probably not anyone’s preferred emergency fund, that is very much a real source of security for many. I am sure it must be comforting to know that bottom line, if you were really in a financial pickle you would have your parents to help you out. It’s scary to think that if I were to become sick or injured to the point where I was out of work for several weeks or months, I would be completely on my own. My desire to have security and be able to provide for myself is what’s truly motivating my journey right now. Additionally, if something happened to my mom, I want to be able to help her out, as she is also a lone wolf financially like I am.
One of my favorite PF bloggers, Champagne and Capital Gains, talked about a nightmare she recently had about getting fired (you can find that post here). While this is not something she’s truly anxious about or thinks is likely to happen, it still caused her to reevaluate her financial situation and decide that aggressively paying off debt is not her entire focus right now. She would much rather have a cushion of liquid assets she could pull from, should something drastically change with her work situation and she needed to survive off savings for awhile.
I, too, have recently recognized the importance of having such a cushion. Before I started my accelerated student loan payoff, I followed the Dave Ramsey method of saving $1,000 in an emergency fund so I had enough to at least handle a small emergency and then threw every extra dollar I had at my student loan. It worked and making the last payment on my $22,000 loan was a major sigh of relief. The more I read, however, the more I realize that it is critical for me to build up a savings fund with at least six months’ worth of living expenses. For me, that means approximately $18,000. I have roughly $2,500 in emergency savings currently, so I have some work to do. I have two additional savings accounts that are specifically for home improvement projects and fun/travel. Obviously in a pinch I could cash those out as well, yielding me an additional $5,000, but I would rather just build up my emergency fund to a cushion of at least $20,000.
I still have a loan on my vehicle I would like to pay off quickly (I have three years left on the loan if I make just my monthly payment), but my priorities have shifted a bit. Most months, I can make two or three car payments’ worth while still contributing a solid $1,000 to my emergency fund. Realizing that my journey is ultimately motivated by independence and security has helped me reevaluate my strategies and determine how I can best reach my goals and provide a safety net for myself.
What’s your “why”? Let me know in the comments!