379. How a Small Emergency Fund Can Transform Your Financial Life

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In this episode of the Debt Free Dad podcast, Brad Nelson discusses the importance of having a small emergency fund and how it can significantly change the way you handle money, reduce stress, and help you feel more prepared. Brad explains why an emergency fund is a crucial step towards financial stability and debt-free living. He also shares tips on how to start building an emergency fund, even if you're living paycheck to paycheck. Tune in to learn how creating a small buffer can provide peace of mind and lead to better money management. 

Transcript

Why Emergencies Trigger Panic

Brad 0:00

Most people don't panic when an emergency happens. They panic because they don't have anything set aside for it. Now, in today's episode, we're going to be talking about how a small emergency fund can change the way you handle money, reduce stress, and help you stop reacting to life and start feeling prepared instead.

Announcer 0:22

You're listening to the Debt Free Dad podcast with Brad Nelson. Brad and his co-hosts experience the anxiety of living paycheck to paycheck before learning the fundamentals of financial success. They are now on a mission to empower regular people to pay off their debt for good and enjoy happier, less stressful lives. Keep listening for inspirational interviews, tips, tricks, and practical advice to gain financial freedom.

Free Resources And Solo Update

The Real Stress: No Safety Net

Why Save Before Paying Debt

Three Powers Of A Small Fund

Most Emergencies Are Manageable

The Peace Comes From Preparation

Keep Progress From Getting Undone

Simple Steps To Build The Fund

Start Small And Stay Consistent

Join Roots And Weekly Guide

Speaker 1 0:49

Hey guys, welcome to today's show. My name is Brad Nelson. I'm the founder of Debt Free Dad. I paid off about $45,000 of debt. I've been debt-free now for more than 12 years. I've also been fortunate to help thousands of other people save and pay off tens of millions of dollars with the work that we do here at Debt Free Debt. Now, guys, after listening to this episode, if you're ready to take things to the next level, might be why you're listening to this podcast to begin with, but maybe you're someone who wants to break free from living paycheck to paycheck. You want to reduce stress, build your savings, finally pay off your debt for good. But you're probably like a lot of people out there, you're just not sure where to get started. We've created some incredible free resources for you here at Dev FreeDad, and I'll be sharing some details about how you get some of those later on in today's episode. Before we get on today's show, we've been doing a lot of solo episodes. I know if you've been a regular listener for some time in the new year here in 2026, we've had a lot of people traveling. Chris's ice cream shop is closed this time of year. So he's been traveling. He's actually traveling abroad. Katie is also doing some traveling. And then sadly, Amber and myself, we were sick for a couple of weeks. So we haven't had the whole group together in some time. So if you're wondering, hey, where is everybody? We will be getting back onto a regular schedule as soon as everyone is healthy, returning from vacation and their travels. So you guys just get me today. And as we get started in this episode, I want to ask you something. When something unexpected happens in your life, maybe it's a car repair, could be a medical bill, a home issue, something needs to be repaired in your home. It's an emergency. What's our first reaction? Is it panic? Is it stress? Do you freak out, right? Because of the financial implications of whatever that unexpected expense is. You get that sinking feeling in your stomach where you immediately start doing the mental math, right? And worrying about how you're going to cover that unexpected expense. For most people, it's not the expense itself that causes all of the stress. It's the fact that there's nothing there to handle it. You've got nothing to fall back on. And I used to live that way, you guys, many, many years ago. And I can still remember what those feelings felt like. And when there's nothing there, every problem feels bigger than it really is. So today, I want to circle back and talk about one of the most basic things of getting your personal finances under control. And I want to talk about the small emergency fund. Not a big one, not a perfect one, but a small one. And I want to talk about how it can completely change how you experience your money and how that little emergency fund can make such a big difference in your overall financial health and honestly in your ongoing progress here in wanting to get out of debt. And why this step often matters more than paying off debt at first, is the big thing I want to talk about because most people will make the mistake and they say, I want to get out of debt, and they don't focus on saving, they focus on getting out of debt. We're going to talk about why that can be a big mistake, especially when you're first getting started. Now, here's something that most people don't realize, and I didn't at first either. Emergencies aren't stressful because they're expensive. They're stressful because they expose how fragile things feel, how fragile our financial life is. And when you don't have a savings, every unexpected expense, it feels like a threat, right? It's a threat to maybe your rent or your mortgage. You know, you freak out. Are we gonna be able to pay the mortgage? Are we gonna get behind? It's a threat to are we gonna have enough money to put food on the table and get groceries? It's a threat to are we gonna have enough money to put gas in the car? It's a threat, maybe if you're on your financial journey, it's a threat to your progress. Because, man, if you didn't have any money saved and you've been paying off debt, guess what? You have no other choice but to swipe credit cards again. It's a threat to that progress that you've been making, it's a threat to your stress levels, right? That's why emergencies don't just cost money. This is why most people in the United States agree that money is one of the number one things that stresses them out the most. Because it costs you your peace, it costs you your sleep, it costs you, man, that the emotional energy, right? And when you live in that state long enough, you stop feeling proactive with money and you start feeling reactive. You're not planning anymore, you're just waiting for that next thing to land on your doorstep. You're just surviving, and this is important. Most people don't live without an emergency fund because they're just irresponsible. If you ask most people, hey, you want to have an emergency fund? Well, yeah, most people in their right mind would say, yes, that sounds like a really good thing I should have. We live without one because life has just been expensive, it gets overwhelming, it's nonstop, right? And it'll beat you to your knees if you're not careful, right? That's what life is sometimes. And we've been putting out fires for years, and sometimes we just kind of get into this habit and this circling mindset of I'm just never gonna get ahead, I'm just never gonna be able to save money. So when someone says, like me on this podcast, I'm gonna sound like a little bit of a hypocrite right here, but when I say just save more money, it almost to you might feel insulting right now because it's not like you don't want to save money. The problem isn't effort. Yeah, maybe in some cases, but for a lot of people, it's not always just effort, it's just margin, right? So I want to talk about what a small emergency fund actually does and why we feel like this is one of the most important things that you can do, especially when getting started. Obviously, looking at your habits and your behaviors and your choices is huge, having a monthly budget. But man, top three building a small emergency fund. Because a small emergency fund, it doesn't solve everything. Heck, even a big emergency fund doesn't always solve everything, but it does three really powerful things. First, we talked about this in the beginning of the show today, it slows the panic. When something happens, you're not like freaking out and immediately scrambling the emergency sirens aren't going off in your head, right? You're not frantically checking your bank account balances and figuring out what we're gonna move around or what we're gonna skip or what we're gonna get behind on to cover this. You're not trying to decide which bills can wait, right? It gives you the opportunity to pause, it gives you the opportunity just to breathe, right? And that alone changes your entire experience. It breaks the big credit card and debt cycle. You're never gonna get out of debt if you're always depending on it to save you. Instead of automatically reaching for debt or that credit card, you reach for money because it's there. It's like a kind of like a mini financial hug you've given yourself and you've planned for, right? That one shift prevents months, sometimes years of added financial stress just by planning ahead. Lastly, it changes how you think. You go from hoping nothing goes wrong, fingers crossed, right? It's like that whole joke you see sometimes. Oh, I hear a noise in my car. I just turned the radio up a little louder so I don't hear it, right? You want to avoid it because you know that noise probably is gonna cost you some money. It's gonna cause you to go into debt because you don't have an emergency fund, right? So instead of again hoping nothing goes wrong, you know that you can handle it. That mental shift is massive, right? This is where a lot of people push back, though. They say things like, what's the point of saving $500? Or what's the point of having $1,000 or $2,000 or $3,000 saved in this small emergency fund? That's not going to cover a really big emergency, Brad. I'll start saving once my dad is gone. And on the surface, honestly, I get it. That sounds logical, and I honestly felt the same way when I first got started. But here's the thing it it ignores how real life actually works. Most emergencies, and again, I've experienced all sorts of emergencies, as I'm sure you are listening to this show, but we know most emergencies aren't catastrophic. Most, again, not all, but most are small to medium-size emergencies. We're talking about things like flat tires, car repairs, maybe medical co-pays, prescriptions, out of work for a little bit because you're sick, lost some hours, appliance repairs, you know, kids' school expenses, uh, man, utility bills that spike, especially right now as I'm recording this. It is darn cold here in Wisconsin, man. We're gonna get a bigger energy bill next month because uh, man, our heat's been running nonstop. You see, a $500 to $1,000 buffer handles a huge percentage of what people actually deal with. More importantly, it stops that emotional spiral and it prevents a lot of that initial financial stress that you feel when these unexpected expenses hit your doorstep. Because when you can handle the first hit, you don't panic about the second one. And here's something really important the piece doesn't come from the amount. Yeah, sure. The more you have, the better, right? I suggest at least trying to build it up to 3,000, but start at 500, start up to a thousand. But it doesn't come from the amount. That piece comes from the preparation, it comes from knowing the back of your mind, if something happens, we've got money put away to handle this. It comes from knowing that you made a decision for yourself ahead of time instead of just reacting in the moment. Even a small emergency fund can create that kind of peace and that kind of space in your life. And for a lot of my members, my roots members, the thousands of people I've helped over the years, I see it time and time again. They say, I just never realized when I started roots or I started listening to the podcast that in just 30, 60, or 90 days, I could feel so much less stress. And a lot of that, you guys, comes from building in emergency fund savings, having a budget, knowing what's going on with your expenses. It creates that space. It creates a lot of that peace that you're looking for. All right. And that space that we're talking about is space between the problem and your reaction. And that space is literally everything. And you can't even put a price tag on it. It feels so good. Because when you have that space, that's where better decisions are actually made. In fact, on this podcast, several years ago, we did an episode on how financial stress affects your life. They proved in a study that people who are under constant financial stress are more prone to making worse financial decisions for their financial life because of that stress. So when you're not giving yourself that space, you're actually setting yourself up for more financial stress moving forward because your head's not clear. You're not giving yourself that space to make better decisions. And that's where people stop making desperation moves, is when they have that space. That's where progress stops getting undone. And let me say this clearly: without an emergency fund, every step forward is fragile, right? It's like walking kind of on edgehills almost, like it's like you're just waiting or you're walking on ice, right? And you're just waiting for the ice to crack and fall through. One unexpected expense without an emergency fund can erase months of effort in getting out of debt. And that's why people feel like they're doing everything right and still not getting ahead. And also, guys, when you aren't saving and you're prioritizing paying off debt without a savings, you're not breaking the habit of using debt. You got to break that habit. Debt is not a rescue, you are a rescue. Your emergency fund is the rescue, and that's what you got to prioritize. But even with a small emergency fund, that's what allows you to stay in the game. You don't undo the progress, you don't feel like quitting when things uh happen, right? And again, I want to keep in mind too, full transparency. It's never fun to use your emergency fund, especially for car repairs. It's painful, right? But it feels really great that you didn't have to swipe a credit card and go further into debt. You don't feel like the system is broken, right? So you build confidence instead of frustration, essentially. And confidence is fuel. And confidence only comes by taking action, getting that win of having that emergency fund, having something happen. You have money there. It's a feel-good moment because you realize I don't no longer have to depend on debt. I can build an emergency fund for those. So a small emergency fund actually helps you get out of debt faster because debt payoff without saving, it's unstable. Every emergency without an emergency fund is going to add on more debt. Balances go back up, your motivation drops. Again, you have that feeling that no matter what you do isn't working, and eventually people just give up. Not because they're lazy, not because what they were doing wasn't working, it's because it feels pointless. There's a psychological side to this. But when you have a small buffer, like an emergency fund, right? Progress sticks. And it's never going to be perfect, but it allows you to be more consistent. And consistency is what's always going to allow you to win. Now let's talk about how to start without overthinking this. All right. This does not need to be super complicated. Your only goal is just to create breathing room. That's it. All right. So for some people, that breathing room is $500 to start with. And again, start incrementally. Start with a $500 goal, then work up to $1,000, then work up to $2,000, then work up to $3,000. I think $3,000 is a really good number for a starter emergency fund for most people. The number, again, matters far less than actually creating the habit of putting that money away and prioritizing your emergency fund. This isn't about building wealth. I don't want you to stick this into an investment account or a CD or anything like that. Put it into a boring savings account. This is about stabilizing your life. If you have an emergency fund, I want you to be able to quickly access that money and use that to save yourself rather than dead. Right. And no, this doesn't require a raise. You don't have to go out necessarily. Maybe in some cases, you don't have to go out and get a second job. Maybe you work some extra hours, though. That could be good. It also could come from small cuts, short-term sacrifices going through your budget and deciding, hey, what can we live without for a little bit so we can prioritize building the savings first? And then when that savings is built, go back to putting that other thing back in your budget. It's not gone forever, it's just gone for right now, so we can get some stabilization. It comes from deciding that piece is worth prioritizing. And here's something I want you to hear saving even a small emergency fund, you guys, is a win. And for a lot of our members, man, it's the most amount of money that they've ever had in a savings account. It was for me when I first got started. I used to carry anywhere between $1,500 to $2,000 in my emergency fund when I was getting out of debt. And you guys, I was a terrible saver. I hardly had any money in savings, if any at all. So for me, seeing that money in there is huge, is life-changing. And even that small amount, and I know that sounds crazy, but you'll feel it as well because it's proof to yourself that you're starting to take control of your finances. It's proof that things are changing for you, even if they don't feel really dramatic yet. And that matters way more than you think. So again, guys, an emergency fund isn't about the money. It's about the peace of mind. It's about the less stress. It's about, again, having that little financial hug in your back pocket when you need it. It's about waking up knowing that when life happens, and it will, trust me, you're not immediately going to be in crisis mode. All right. And especially, man, guys, if you're in a relationship, man, having a backup emergency fund is going to save so much stress on your relationship, so many money fights, so many arguments. Man, just make it a priority. And if you've been stuck and if you've been overwhelmed and constantly reacting financially, this is going to be your first move. Not because, again, it doesn't fix everything, but because it changes how you begin to see and feel about your money. And that's where the real change begins to happen. Now, again, guys, if you want help from us here at the DefreeDad team, you want to build this step-by-step plan with real support and accountability. That's exactly what we focus on inside Roots. Now, Roots isn't open all the time, but I would highly recommend that you go to Defreedad.com, jump on our wait list so the next time it opens, that you can consider joining us in there. If you're looking for a great community to help support you, ask questions. Again, help let us hold your hand throughout this entire process. All of that is available to you in Roots. And if you don't join, I would just suggest here as you're listening to this podcast, keep listening. Go back and listen to our previous episodes as well. But start small, start today. One decision, one step, one habit, and that's how you begin to change your entire financial life and eventually reach financial freedom. All right, guys, if you're ready to break free from living paycheck to paycheck, you want to reduce financial stress, you want to build savings and finally pay off your debt for good, but maybe you're not sure where to start. Don't worry. We've got you covered here at Deaf Free Debt. Simplify My Money is sent to you each and every Sunday to your email. It is your step-by-step roadmap in conjunction and partnership with this podcast to help you have better financial control. You're going to learn some easy follow strategies to manage your money effectively. It's also going to help you make stress-free money decisions. These are going to help you simplify your financial life with proven tips that actually work. And you're going to gain the tools and confidence to tackle your financial goals head on. You can sign up for Simplify My Money by clicking the link at the top of the show notes. Thanks for joining us on today's show, and we will see you guys on the next episode.

Announcer 18:47

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