Today I'm going to discuss the first step in your financial plan for success.  Some of you probably freaked out yesterday when I asked you to cut up your credit cards.  I'm guessing that your main response was "What if something goes wrong and I need money for x?".  Well, what if you had some money set aside to cover those emergencies. Then when an emergency arises you can pay for it rather than borrow the money. 

All that said, you NEED to have a small safety net of 500 to 2000 dollars.  You might be wondering why I would suggest you take the time to save some money before you begin to level your mountain of debt.  Well, the simple answer is because you will need it.  Here is what happens if you don't have a safety net.  The first couple of months are great.  You're knocking debt out left and right, and then wham.  Life smacks you over the head with a 2×4 when you wake up one morning and realize that you need 4 new tires for your car, or the washing machine quits, or the sewer backs up, or… you get the picture.  You are forced to borrow the money because you don't have a safety net to cover the unexpected expense.  That is extremely demoralizing.  

Speaking from personal experience; my wife and I had to use our emergency fund several times, including car repairs, travel for unexpected funerals and most recent our car dying on us during a trip up North.  The amazing part for me was realizing that I was able to actually pay for these emergencies as they came up and not borrow the money.  Yes, it was extremely frustrating to hit that small emergency fund with the knowledge that I would need to replenish it the following month.  Knowing that doing so would put me a little behind on my get out of debt plan, but it was EXCITING to know that I paid for it with money that I had in MY bank account.

So how big should this fund be?  We don't want thousands of dollars locked up here.  This is just a small safety net to help safegaurd you while you work through the next stage.  My plan is this:

If your yearly income is less than 30,000 dollars then save a minimum of 500 dollars but no more than 1,000 dollars. 
If your yearly income is more than 30,000 dollars and less than 60,000 dollars, then save 1000 dollars
If your yearly income is more than 60,000 and less than 90,000 then save 1500 dollars
And finally, if your yearly income is more than 90,000 dollars, put back 2000 dollars.

Saving this money needs to happen quickly.  It shouldn't take more than a couple of months to put this money aside.  Have a garage sale, get a second job, do whatever it takes (legally, ethically and morally) to save this money.  You need to knock this out quickly.  If you have an income tax refund coming then use it to get the whole process jump started.  Just Do it.  Whatever it takes to get it done.  Remember that this is only a starter safety net.  We'll come back later to fill out the safety net so it will be able to absorb more of what life throws at you.

Here is the summary of the basic safety net emergency fund: