Old Car Teaches New Grad the Value of an Emergency Fund

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Every one of us has had "aha! moments." Epiphanies. Days when we reach a crossroads and realize that we have to make some changes. For the next two months, we're sharing moments like those in our Life Stage Lessons series: Real stories straight from the financial lives of our DailyFinance contributors about times when they realized they were due for a serious course correction. So read on, learn from our mistakes, and get inspired to improve your relationship with your money.

Like many people starting their careers in their early 20s, I had a low-paying job -- too low-paying to allow me to buy a reliable car for commuting. And my used car, I soon realized, required repairs I couldn't afford -- but my spanking new credit card could.

Credit can be a great thing to have. But in the hands of a recent college grad who isn't earning much but still wants to enjoy the basic necessities of life -- such as food, an apartment, transportation and the occasional night out -- it can be a too easy way to pay (or overpay) for some of those bills. I don't think I used my first credit card -- thanks, Discover (DFS) -- to buy groceries or pay the rent, but I did use it too often when sudden expenses appeared in front of me, such as a broken-down car. It also came in handy when I'd drive to Los Angeles to visit friends who earned more than I did and wanted to go out on a Saturday night.

While the credit card bills for partying in L.A. were bad enough, and should probably have led me to the realization that I needed to mend my debtor ways, it wasn't until I was hit with a $1,500 car repair bill that it hit me: I really needed to have an emergency fund to pay for such unexpected expenses. (And with the car I was driving, those shouldn't have been so unexpected.)

Raising My Limit -- and Learning From It. (Well, Eventually.)

I clearly remember asking to use the mechanic's phone to call my credit card company and ask for an increase on my credit limit. Discover was happy to provide the increase, and my car was repaired, and I drove away later that day a poorer man but a little wiser about how I should organize my finances.

Actually, I must admit that the credit increase made me a little more financially reckless for awhile; I used it to pay for weekend activities that I couldn't really afford. But after a few months of even higher credit card bills, I realized I had to get back to setting up an emergency fund.

That's hard to do on a low salary, but I put aside a little each month, and within a year I had enough to cover one major car breakdown. Unfortunately, an emergency fund can quickly be depleted by life's emergencies, which always seem to be popping up: a doctor's visit, a home repair, or a sick pet.

Making sure you have a car that can get you to work may be the primary depleter of an early 20-something's emergency fund, but it's likely to get tapped for a wide variety of uses in the years ahead. Somebody always wants to get paid, and now I get it: It's better to have cash on hand for those moments than to go into debt getting through them.
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