I’ve Paid For This Twice Already…

Archive for the ‘emergency fund’ Category

On Friday, I got into the trusty Toyota (the 1996 Corolla with 203,000+ miles) to drive home from work.  Upon turning the car on, I was greeted with a light on the dashboard I’d never seen before.  Check… something.  Some weird alien-looking drawing.  I took out the manual as my heart skipped a few beats, and found the decoder there - this was the Toyota’s check engine light.

Great.  I have to admit I got out of the car and kicked it.  Lightly!  But still.

I do have to admit, it took over 200,000 miles for either me or my spouse to ever see this light, and the just-turned-100,000 mile Saturn has given us its light so many times I’ve lost count.  But still.  I wasn’t pleased.

So as I pondered the fact that cars drive me crazy, my spouse made an appointment to take it in on his way to work today.  And the diagnosis?  A failed oxygen sensor, which in the Toyota is a bit under $400 to replace.  (It’d be cheaper if we could do it ourselves of course but that is not happening, I want to be able to drive the car again someday.)  Interestingly enough, this is one of the few drawbacks to the Toyota vs the Saturn, the same exact repair was about half as much in the Saturn a few months back.  But I digress.

By a stroke of cosmic coincidence, about $400 was the exact amount I had just moved from our checking account to our savings account to begin growing our emergency fund over $1000.   If the Saturn hadn’t emptied and then some our car maintenance/repair fund in January, we’d have some money saved specifically for repairs, but we don’t yet.  So, that $400 comes back out of the emergency fund, we replace the oxygen sensor, and the emergency fund is again back at $1000.  I am beginning to think that the world would like our emergency fund to stay at $1000 for some undecipherable reason.

So the emergency fund is still at $1000,  we’ve made zero progress on the new-to-us car fund, and the last remaining debt is being eliminated at a snail’s pace.  2009 is shaping up to be one rocking year.  I am using positive thinking to expect March to be better.  On to March!

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Editor’s note:  I set this post to publish yesterday and made the classic “New Year” mistake of setting the date to 2008!  When I looked this morning at my blog, I was confused as to why yesterday’s post wasn’t showing… okay, I found it.  Heh.

When I started this blog, our #1 priority was to pay off our non-mortgage debt.  We had quite a lot of it, and the minimum payments alone were a significant amount of our monthly budget.  We saved a $1000 emergency fund to keep us from having to resort to credit card usage, and then systematically started debt-killing.  First the credit card, then one student loan, then the car loan.  Now, we’re left with a $10000+ student loan, and a minimum payment of $145 versus the over $800 minimums we were tied to just 18 months ago.

As the economy changes, and as our debt shrinks, I began to wonder if staying the course and focusing 100% on debt reduction was the wisest path.  A $1000 emergency fund, at the time we saved it, seemed like a huge amount of money.  It still does seem like a huge amount of money, as far as spending that much on one thing, but at the same time, the past few years, we’ve had several emergencies that were over $1000 out of pocket.  We’ve been able to cover the difference with budgeted money or snowflakes we hadn’t spent on debt yet, but it showed me $1000 probably wasn’t enough for an emergency fund for us.  And then my car tried to die for good (although for now we’ve stayed the inevitable), and I realized we were going to get ourselves into even more debt trying to pay off the debt we already have if we didn’t become more prepared for life happening.

Even without a specific issue looming, the economy seems more uncertain every day.  Jobs that might have seemed stable are not quite so stable.  Growth industries stagnate.   It makes me want to hoard money and hide.  Not that that is a good plan or anything, but the uncertainty around me makes me want to hoard and wait and try as much as possible to be prepared for anything.

Are you still aggressively paying off debt?  Are you increasing your emergency fund?  A bit of both, as our current course is?

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Every time I hear the words “fully funded emergency fund”, I start to think about what that really means.  And thus far, I haven’t really come up with a good clear definition.  There are lots of ideas and suggestions out there, but the definitive answer eludes me.  Mostly because there really isn’t one.

There is a lot of banter among personal finance blogs, writers, experts, and even everyday people about the fully funded emergency fund.  The general wisdom is that a fully funded emergency fund is 3 to 6 months of expenses in savings or another easily liquidated account.

Besides 3 to 6 months being a wide range for even the average person, it begs the question - what does the “fully funded” emergency fund mean to you?  Is 3 to 6 months enough?  Is it too much?  Do you trend towards the 3 or the 6 or something else entirely?

As the economy does more things that unsettle me, I’ve begun to really ponder the whole paying down debt versus hoarding cash angle.  There will be more on that in a future post, but the whole idea has made me really question what exactly is a fully funded emergency fund, and if there really is a rule of thumb I should use or follow.  How do I decide what fully funded means to me?  How much savings should I shoot for to be held in a savings account “just in case”?  What impact does that number have on the rest of my financial aspirations?

There are a lot of questions in this post and no real answers.  So I ask you - what do you consider a fully funded emergency fund, and why?

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Wednesday afternoon, my daughter developed a rash on the insides of her thighs.  I had put a new pair of pants on her that morning, and I thought maybe she’d had an allergic reaction to them.  We changed the pants, and the rash didn’t seem to get any worse.  Problem solved, I thought.

But the next morning, the rash was all over her lower body.  I called her pediatrician, and they suggested hydrocortisone cream.   But by Friday morning, the rash had spread even more, and she had a fever as well.  The pediatrician then decided it was a reaction to the MMR vaccination she’d had the week before, and said to treat the fever as needed and it would start to get better in the next day or two.

By yesterday morning, her hands, feet, and face started to swell up.  I rushed her to urgent care, and after they looked at her and then consulted by phone with our pediatrician’s partner, they sent us to see our pediatrician’s partner in his office, on a Sunday no less, and he diagnosed her with a systemic, whole-body allergic reaction.  He gave her steroids, and sent us home with a prescription for steroids for the next two days, plus instructions to dose her with antihistamines every six hours.

At many points Sunday morning and afternoon, I thought we were headed for the hospital.  We may still be.  She’s not out of the woods yet.  Hopefully by the time you read this, the steroids will be doing their work and she will be a lot better.  But this is exactly why we have an emergency fund.  Whatever happens, whatever copays we have to pay (we’ve paid for the urgent care copay and the steroid prescription, but who knows what a Sunday visit to a doctor costs), and whatever happens in the next few days, I didn’t have to think about money.  I could just focus on taking care of my child without the added worry of how we were going to pay for it.

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My spouse’s employer now offers short term disability insurance as part of his elective benefits package.  I’ve heard people say that you are much more likely to be disabled (at least for a short time) in your working career than die, and yet more people have life insurance than disability insurance.  Which at least, in our case, is true - we both have life insurance but we don’t have disability insurance.

I looked into the policy and basically, we’d pay $19 a pay period (he gets paid every two weeks) for coverage that if we used it, would provide $500 a week for 26 weeks.  So for a little under $500 a year, we’d have 26 weeks of $500 coverage, or $13000 total.  Which doesn’t seem too bad, but I started thinking more about it, and realized that we could really provide our own version of short term disability insurance by having $13000 saved on our own.

Which, is a lot, and not very realistic right at this moment.  But our long term goal (say, 5 years out from now) is to have about $18000 in our emergency fund.  At that point, we’d basically be insuring ourselves as far as short term disability went.   Which also leas me to consider if I’ve factored enough different things into the total we decided on for our emergency fund, and I will have to revisit that sometime in the near future.  But for now, I’ll keep the $18000 figure, which would more than cover the short term disability potential payout.

But again, that isn’t going to be realistic for at least a couple years, and if my mini medical saga the past four months has taught me nothing else, it has shown me that things can potentially change in a very short time, or even an instant, as far as ability to work is concerned.  My spouse’s election period for this coverage is this month, and we’ve decided to elect coverage for him for the next year.  Yes, there are many other things I’d like to do with that $500 but at the same time, it is not a lot to pay for a bit of peace of mind.  As we save a substantial emergency fund, we’ll revisit the issue of short term disability coverage and at some point drop it.

Which begs the question of long term disability coverage (something my spouse’s employer does not currently offer) - I have a bit of research on that front to do and options to weigh, for I have a feeling that’s something we should seriously consider as well.

It seems this summer is turning out to be the summer I figure out how expensive it is to be a responsible grown up parent.  How exciting. 

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