When we originally started seriously getting out of debt, we set our emergency fund at $1000 kind of arbitrarily. There was a reason specific to our family – I had had about $1000 for the past two years in our savings account and it was usually enough to bail us out of any problems, but mostly, it was honestly because I’d heard that number thrown around so much (thanks to Dave Ramsey) that we chose it.
When $1000 was serving us as a default emergency fund in the two years prior to this blog, our family and home situation was quite different than it is now. We had one child and we rented an apartment. Now we have two children and we own a home, which adds its own set of challenges. Several times in the past two years we’ve been hit by unexpected situations that the $1000 wasn’t enough to cover (new furnace, replacing car engine), and a few other times we’ve completely emptied the fund to meet the challenge of an emergency (when my dad passed away, different car repairs, home repairs).
So we made the decision for 2009 to raise the emergency fund to $2500. I naively thought that wouldn’t be too difficult – it hadn’t taken too long to get to $1000 and when we’d had to use it we’d built it up again quickly. But almost like the world was challenging us, increasing to $2500 has been full of setbacks. Not only in draining the emergency fund when emergencies have happened, but also having to divert money that would go towards the emergency fund to pay for things that have come up (most recently, taxes that I’d underestimated, and a repair to our front porch which had a rotted-out post so the roof would not start to sag.) And with the worsening of the economy, we’ve had income setbacks – I am earning less than I was a year ago with my different freelance efforts, and my spouse’s salary has been frozen for the forseeable future.
We’ve been able to maintain the status quo without going into more debt, for which I am thankful. And I’m not unhappy or complaining – it is more bemusement. And we forge on! However, my priorities for after the emergency fund have begun to shift. The emergency fund stands at $2200 as of now. Will it stay there? Who knows. But I anticipate being able to reach the desired $2500 in May. At that point, we were going to start saving for a new-to-us car. But I think we’re not, yet.
I started this blog to help us get out of debt. And it has, greatly. I’ve shifted priority in 2009 from eliminating debt to saving money, and I’ve come to the realization that it is time to shift it back. We’re on the home stretch, with one non-mortgage debt remaining of about $9000. Yes, the Saturn could die. Yes, we could need to replace it. That is still true – but at the same time, eliminating our debt is also an important priority and for now, we’re going back to it. Finances is part practical and part psychological – and my brain needs to focus on debt elimination right now for the simple fact it is concrete and in the here and now.
So the student loan will soon come under attack. We’ve been paying $300 a month towards the loan so far in 2009. The rest of our budgeted towards debt repayment amount, at least $500 and sometimes more, has gone to the emergency fund. But now we’re going to flip that. $300 a month will go into our “long term savings” which is a new-to-us car fund right now. And then, $500 or more per month will go towards the student loan. Hopefully more, but that depends on my income earning ability. I’m working on it, though. Viva la snowflakes!
Debt updates and a new timeline next week! I need to play with numbers and work out some scenarios. I know that many of you will find this crazy, and others will find it right on, and that is okay – agreement is optional.
What’s your emergency fund minimum magic number and what factors play into that? What comes next – debt repayment or other priorities?