Personal finance expert Dave Ramsey believes having an emergency fund is a foundational part of building wealth over time because crises are unavoidable, especially when one is tight on money.
Answering a question about savings on “The Ramsey Show,” he said that having no cushion for unexpected costs like emergency repairs can drain your paycheck quickly.
“When you’re broke, your life looks like a country song, you know everything that can go wrong will,” Ramsey said. “That’s the advantage of the emergency fund, because until you stop giving your money to repair man all the time, it’s difficult to build wealth.”
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When Dave Ramsey Was ‘Really Broke’
Ramsey said that facing emergencies without money can trigger intense, stressful emotions that leave a lasting imprint on memory. He said he can still remember the exact cost of fixing his air conditioner years ago, when he was “really broke” and had two babies at home.
“It was $318. That was almost 30 years ago and I remember precisely the amount of money it took to fix it. Memory is activated by stress,” Ramsey said.
However, several years later, when Ramsey faced a similar situation after building wealth, he couldn’t recall the cost of installing a new heating and air system, since it caused him no stress.
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“I can tell you it cost a little more than $3,000, but I honestly just don’t remember exactly what the bill was,” Ramsey said. “There was no stress associated with that, no freakout associated with that, no drama associated with that, and so it didn’t activate my memory.”
Ramsey emphasized the importance of making more money because it gives you the flexibility of handling crises without affecting your emergency fund or investment accounts. Ramsey said that when he was struggling financially, he used to buy retread tires because they were cheap. But recently, when a tire blew, he didn’t worry at all, thanks to the financial security he now has.
“An emergency fund turns a crisis into an inconvenience. It’s worth getting one,” Ramsey said.
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