When our debit card was rejected at the start of our trip to visit relatives last week, my spouse and I realized that we don’t really have a backup plan for something like that. And when my car completely died on Wednesday and we had no idea how expensive the repair bills would be (still no idea… hopefully find out today), we realized that we don’t have a concrete backup plan for an emergency that is potentially over $1000 either. However, because we have been focusing on improving our financial situation in the past months, in both cases we had options to consider and it was possible to create one on the fly.
In the case of the malfunctioning debit card, we knew we could use our debit card at our bank’s ATMs but not at any other places until the problem was fixed – and there was no timeframe on how long the problem would take to resolve, just “sometime that day”. So we had a few options. We brainstormed in the car the following ideas:
- We could go to an ATM and take out more cash to cover all expenses for that day.
- We could wait to buy gas, and when we needed to stop, hope the problem was resolved and if it was not, use the cash we had to buy gas.
- If we went with the wait and see option, if it was not resolved by the next time we needed gas, we would have to use a credit card to cover expenses.
We didn’t really like the go get more cash option because we weren’t sure where an ATM for our bank was and we didn’t want to waste a lot of time getting off at every exit and checking around to see if we could find one. So we decided to go with the wait and see approach. We knew we had enough money to cover completely filling our gas tank once, plus tolls and food. Because we had transferred the balance on our Capital One card to a 0% offer on a Citicard, we had our Capital One card completely empty and could, if we really needed to, use it for gas and pay it electronically later that evening for the charges well before any interest would be assessed. It wasn’t our preferred plan, but it was definitely possible. And we were guessing that the debit card would work again before we had to use a credit card at all.
If the debit card might not work indefinitely, we would have looked for a branch of our bank or called our bank to get directions to the nearest branch. Using our credit card, even for just a short while and temporarily, was very low on the list of things I wanted to do. But we decided to run the risk because we were told that it would be a very short timeframe, and it did work out. By the time we needed to stop for gas the first time, our card worked again so we continued with our trip with no further incident on that front, and no credit card usage. We figured our bank (which is a large semi-national one) was being harassed by many many inconvenienced people and would solve the problem as fast as possible, and it turned out we were correct and it was resolved fairly quickly.
And then came the question of is a $1000 emergency fund sufficient. Well, I have never claimed that I thought it was completely sufficient, or that I planned on only having a $1000 emergency fund for the rest of our lives. But in the balance between paying down debt and protecting ourselves from more debt, we decided to have a $1000 emergency fund while we still had credit card debt. Once the credit card was paid off (and… that is so close I can actually feel it in my bones at this point), we were going to re-evaluate our emergency fund strategy and possibly change it while we are paying off our student loan. That time has come faster than we thought, and there will be more about our thinking on that next week. But for now – when you car dies, it seems serious, and you think it may be more than the $1000 emergency fund – what to do?
For us, we gathered up our financial statements and started brainstorming options. After transferring the remainder of the November extra paycheck into our checking account, we had approximately $550 available to start with. In our savings account, we had $1000, so we had $1550 available immediately (it only takes a minute to transfer the money from savings to checking) to deal with this problem. That would leave us incredibly tight until the 11th when my spouse gets paid, but it is doable.
But what if the repairs are more that $1550? Then we have to get creative. We have a number of ING subaccounts we can tap into. The first one we would hit is our “long term savings” account, which is slowly saving for things like a new furnace and water heater. That has $150 in it, and would be the first to go. Next is my spouse’s Playstation account. He has been saving his birthday money from the past year in this account and hoping to add it to this year’s birthday money and buy a Playstation 3. (Now before anyone attacks him over this, remember that he got a $1000 windfall and cheerfully put 90% of it towards debt and 10% of it into our kids college accounts, without saving a dime of it towards his Playstation. He doesn’t ask for much.) The Playstation fund has ~$150 in it (I was going to give him a $25 deposit for his Christmas present from me but haven’t yet because he wanted the credit card paid off first) and that would be next. So, we’ve raised our available total to $1850.
So the question is – if the repairs are significantly more than that, do we use a credit card, or hit the kids college accounts? And that’s where we are stuck. I do have some money in my “blog” account to cover taxes from my blog earnings, and I can tap into that as well although it would have to be replaced by tax time. But if the repairs are significantly more than the $1850 I’ve already outlined, something more is going to have to give.
So… credit card or borrow against the college accounts? Which is the lesser of two evils? I used to, back in the before the blog time, semi-regularly borrow against and pay back my son’s college account any time we had an emergency, and even though the money is technically “our” (my spouse and my) money that we put a college fund designation on in our heads, I hated how I felt about it and it stunk. Between the two kids, there is about $3000 available in the college funds. We’re still going back and forth about if we want to tap into that (with the first priority being replacing it) or use our empty Capital One card and prioritize paying off as much as possible before interest came due.
Hopefully we don’t have to decide between either of these options and the repairs are much less than the $1500 we can “comfortably” deal with. Not that a large amount of money like that will be at all comfortable, but it will just set back our plans, not semi-derail them.
And soon the emergency fund strategy will get an overhaul. Once we figure out if we still have an emergency fund, that is.