emergency fund saves the day (again)

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Broken
Creative Commons License photo credit: Mike Schmid

I always think my life has been a prime example of why you need an emergency fund, and this week has been no exception. The first time we set up an emergency fund we had to drain it in the course of a week for emergency repairs to the house and cars.

We have been trying to maintain a $1,000 buffer in our emergency fund. We use a zero-based budget. If you aren’t familiar with them, here is a great link from SimpleMom. It’s pretty easy, you create a budget where $0 is left. The key is to pay yourself first-by automatically transferring your savings before you even see your paycheck. The same day a paycheck arrives a portion is automatically transferred to our savings account at ING. It takes several days for it to become available, and to transfer it back takes an additional 3-4 days. This encourages us to leave it where it is, since it would take 7-10 days to put the money back in our checking account.

Some of our “emergency” expenses would be called non-emergencies by most personal finance experts, but since we are in “ATTACK the debt” mode, I don’t have savings allocated for things like unexpected auto repairs.

Most PF experts would recommend having several savings accounts. If I had the ideal financial setup it would look like this:

  • Emergency Fund: For us I’d like to cover 3 months expenses in case of job loss, medical emergency, or catastrophe (fire, natural disaster, etc.)
  • Auto Repair Fund (if you don’t have a car, see below)
  • Auto Purchase/Replacement fund (if you are getting close to time to replace it or anticipate needing a car)
  • Home Repair Fund (if you have one) OR Downpayment Fund (for future house purchase)
  • Vacation and/or Holiday fund
  • Personal Savings (hubby and I would both have our own accounts for things we want to save for, and surprises for each other)

An emergency for us right now is anything that is not planned for in our budget and is more expensive than the $100 grace that we have in each 2 week period.

The drawback to spending so much towards debt each month is that it leaves us little wiggle room should we have more than one emergency in a 2 week period. (we get paid bi-weekly and usually I pay the bills immediately)

In the past 5 days we have had the following expenses:

  • $300 for replacement of rear brakes for one of our cars: We had planned for a small amount for the inspection that was due, and minor stuff, but now I know to anticipate a larger bill every time we have the inspections, something ALWAYS seems to come up then.
  • $135 for a larger suitcase: This happened the night before hubby left for his business trip. His suitcase was overflowing, and it was too late to borrow one from someone else or find a deal on used suitcases at 9pm on a Sunday. I headed to Target and found one that will do the job for this trip and our trip in June, and used $10 worth of coupons.
  • $300.99 for replacement of back windshield in hubby’s car. He closed the trunk on Friday night and the glass shattered instantly. It is NOT covered by insurance (and is not by most insurance companies I’ve learned-check with yours).

The good news is we have set aside money to cover most of these expenses (our EF was a little low after previous emergencies), the bad news is our EF is now at a whooping $0.

Needless to say paying off debt will be taking a backseat for the next month or more as we build up our emergency fund again. I’m considering adding more to it than my $1,000 minimum. I am thinking about bulking up to $2,500 so theses little emergencies won’t eat up our entire emergency fund.

Once our debts are paid off it will be easier to make these decisions, our cashflow will be much higher, and we could potentially be saving up to 35% of our income each month. But for now, the decisions always seem to be tough since I want to be out of debt completely as soon as possible. Just the idea of it makes my skin crawl!

We should be able to fund the larger emergency fund in the next 2 months. We’re just going to have to make some sacrifices elsewhere to make it happen.

Some folks argue that while you are in debt it makes sense to use credit for emergencies, but I firmly believe having an emergency fund has saved us time and again from having to turn to credit unnecessarily. With money in the bank I can breathe. I can pick up the phone and call the electrician or the AC repairman, or book a flight to see an ill relative without a second thought. With money in the bank I can sleep at night.  

Kelly

About Kelly Whalen


Kelly Whalen is the founder of The Centsible Life, a blog where motherhood and money meet. Her goal is to help readers live well on less. Kelly is a mom to 4, and loves that she can stay at home with her kids, and still pursue her passions for writing, personal finance, and social media. You can often find her on twitter and Facebook talking money and motherhood.

  • Karen-stay at home mami

    Kelly,
    We have had similar issues with our emergency fund. It is now down to less than $500 from over 3k just several months ago. It seems we have had lots of issues and since my husband is working only 32 hours-this has caused us to dip into our emergency fund monthly and use it for emergencies too. At least we still have some money left over-but we also have a baby on the way (in addition to 5 and 4 year old boys)! There is always something coming up here-but so far, we are hanging in there and that is always a GOOD thing with this economy!
    I have just subscribed to your blog and I look forward to reading more about your money saving tips!

  • Karen-stay at home mami

    Kelly,
    We have had similar issues with our emergency fund. It is now down to less than $500 from over 3k just several months ago. It seems we have had lots of issues and since my husband is working only 32 hours-this has caused us to dip into our emergency fund monthly and use it for emergencies too. At least we still have some money left over-but we also have a baby on the way (in addition to 5 and 4 year old boys)! There is always something coming up here-but so far, we are hanging in there and that is always a GOOD thing with this economy!
    I have just subscribed to your blog and I look forward to reading more about your money saving tips!

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  • http://www.singleguymoney.com Single Guy Money

    WooHoo, let’s give it up for the Emergency Fund!! I love my emergency fund. It’s like my best friend because it has saved my butt so many times.

  • http://www.singleguymoney.com/ Single Guy Money

    WooHoo, let’s give it up for the Emergency Fund!! I love my emergency fund. It’s like my best friend because it has saved my butt so many times.

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  • Chris @ istherecessionoveryet?

    I totally agree with the comment above! For so long I was living without an emergency fund. I was debt free too, but I was basically just spending the exact amount of money I received in paychecks every month.

    Now that I’ve built one up it feels so much better! It just lets you breathe and not freak out when something comes up. And something always comes up!

  • Chris @ istherecessionoveryet?

    I totally agree with the comment above! For so long I was living without an emergency fund. I was debt free too, but I was basically just spending the exact amount of money I received in paychecks every month.

    Now that I’ve built one up it feels so much better! It just lets you breathe and not freak out when something comes up. And something always comes up!

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  • http://rainydaypennies.net Cathy

    I’m with you, Kelly. When I was in debt, I felt like I was drowning without an emergency cash fund. Once I built up a small fund that got larger over time, I could breath. When I was in debt, I also used my emergency fund as ‘anything outside the budget’. PF experts all have their opinions – I only know that it actually got me results.

    Bumping up your security net a little is probably a good plan. I don’t see a downside to it. Like Dave Ramsey says, cash in the bank is Murphy repellent.

  • http://rainydaypennies.net/ Cathy

    I’m with you, Kelly. When I was in debt, I felt like I was drowning without an emergency cash fund. Once I built up a small fund that got larger over time, I could breath. When I was in debt, I also used my emergency fund as ‘anything outside the budget’. PF experts all have their opinions – I only know that it actually got me results.

    Bumping up your security net a little is probably a good plan. I don’t see a downside to it. Like Dave Ramsey says, cash in the bank is Murphy repellent.

  • http://www.observingcasually.com/ Kosmo @ The Casual Observer

    Wow. That windshield really was shattered!

    When my windshield was cracked by vandalism back in ’97, it WAS covered by insurance. I think it would have cost $500 to replace (for a college student!)

    I’m guessing that this wasn’t covered by insurance because it falls under normal wear and tear – same as if you had a rust problem or a headlight that cracked? I can’t think of a different reason for an exclusion.

  • http://www.observingcasually.com/ Kosmo @ The Casual Observer

    Wow. That windshield really was shattered!

    When my windshield was cracked by vandalism back in ’97, it WAS covered by insurance. I think it would have cost $500 to replace (for a college student!)

    I’m guessing that this wasn’t covered by insurance because it falls under normal wear and tear – same as if you had a rust problem or a headlight that cracked? I can’t think of a different reason for an exclusion.

  • http://manvsdebt.com Baker @ ManVsDebt

    Great job breaking the cycle of credit. Stick to your guns on this one. I’m not sure whether $1000 or $2500 is better for you. Make sure you put in context how much you’ve dealt with all at once. I’m sure the average span of time, you’d have very little. Maybe $1000 is fine you just took everyone up front :-)!

    • Kelly

      Baker, it has happened to us once before as well! That’s why I’m contemplating a larger amount in savings. It never hurts to save more!

      Kosmo, the photo is not of our car, ours shattered and broke apart. I think vandalism is a different story, but then I wonder if my deductible would be part of that as well? I think you’re right, the tech at the shop said it was just an older window and with temperature changes it sometimes happens.

      Cathy, good to know how you used your emergency fund. We have SO many outside the budget things that I really ought to pad the budget by a few hundred dollars. Worst case scenario we’d end up with more saved!

      Chris, thanks for stopping by! Glad to hear having an emergency fund is working so well for you, and great job staying debt-free!

  • http://manvsdebt.com/ Baker @ ManVsDebt

    Great job breaking the cycle of credit. Stick to your guns on this one. I’m not sure whether $1000 or $2500 is better for you. Make sure you put in context how much you’ve dealt with all at once. I’m sure the average span of time, you’d have very little. Maybe $1000 is fine you just took everyone up front :-)!

    • Kelly

      Baker, it has happened to us once before as well! That’s why I’m contemplating a larger amount in savings. It never hurts to save more!

      Kosmo, the photo is not of our car, ours shattered and broke apart. I think vandalism is a different story, but then I wonder if my deductible would be part of that as well? I think you’re right, the tech at the shop said it was just an older window and with temperature changes it sometimes happens.

      Cathy, good to know how you used your emergency fund. We have SO many outside the budget things that I really ought to pad the budget by a few hundred dollars. Worst case scenario we’d end up with more saved!

      Chris, thanks for stopping by! Glad to hear having an emergency fund is working so well for you, and great job staying debt-free!

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