I’ve Paid For This Twice Already…

Archive for the ‘emergency fund’ Category

The technicians are here as I type installing our new furnace.  They cleaned all my ducts this morning (that was a fun project for them, I’m sure) and now the furnace is being installed.  I just finished meeting with the president of the company, who is the person who came originally to the house to give me the estimate.  He sat down with me to go over everything, and he had a preprinted form-letter type checklist of things to touch base with me about, including the rebate our gas company is currently offering for this furnace, how to operate our new thermostat, and other issues like that.  Then I took out my checkbook to pay him, and as I wrote a check for $3700, he went to his preprinted generic checklist and the line item that said “Financing Paperwork Signed” he marked “N/A”.

This is a major moment in my life.

Honestly, it didn’t really sink in until that moment.  This is a major purchase we are making, that we hadn’t really quite planned to make so soon, and yet, we managed to swing it, without even touching our emergency fund.  We don’t need financing.  We just paid for it.  Of course, the timing of the furnace replacement was very fortuitous, with the economic stimulus rebate arriving, but even without that, we would have managed to pay for it (but the emergency fund would not have been untouched).

Times like this I realize even though we have a long way to go, we have really made a huge amount of progress in improving our financial present and future.  And we stimulated the local economy to boot. 

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I’ve spent a good portion of my adult life without anything I would call an emergency fund. Although I had saved some money in a retirement fund, I didn’t have anything to speak of in a savings account that I could easily access, and honestly, even though I thought I “should” I didn’t really think through why I should. Therefore, it wasn’t really a priority for me, and therefore, I never got around to it. And, if I *really* needed some money, I could just use a credit card, right? I wasn’t anywhere close to my limit of available credit, after all, even at the height of my indebtedness.

Well, of course, I changed that way of thinking, and stopped considering my available credit as money I had available to spend just in case. And once I started seriously budgeting, for the first time, I started to realize how often things come up that could be considered, to the unprepared, an emergency, and how often one might tap into credit if they don’t have anything saved to deal with life’s ups and downs. Besides the major expenses this past year of the car engine and the furnace, we’ve had the car’s ignition break, a problem with the alignment that caused the tires to wear unevenly and need replacing, our water meter froze and cracked, we had the spring in the garage door break, my parked unoccupied car got ran into in a parking lot… and those are just the things that spring directly to mind. Happily though, we’ve only, so far, had to raid the emergency fund once, and it has been replaced. But without an emergency fund, these were things I put on my credit cards. Thinking of it that way, it isn’t hard for me to figure out how we managed to slip into so much debt without even really noticing.

Life has a way of throwing you curveballs when you least expect them. As I hear all fall when watching my favorite sport - the best offense is a good defense. Hopefully we’re learning how to have a good defense. Only time will tell, but we’re at least on the right track. And we’re prepared for the furnace replacement on Thursday. Without the panic that accompanied the last time I spent more than $3000 on a single item, even. Progress not perfection, after all.

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I just wrote about my budget busters, just in time for something completely different to waltz right in and bust my budget wide open. It is related to one of the things I mentioned, the lack of experience budgeting - but it isn’t something I was thinking about when I wrote that post.

Argh! Well, now that that is out of my system, on to the explanation.

Wednesday night we had the blower in our furnace running to circulate some air throughout the house. When my spouse turned it off (at the thermostat) before bed, it didn’t turn off. Not being the technically savvy type, we hypothesized it was the thermostat going bad, and went to bed. Yesterday morning, I called our service company and they came out to check things out.

The technician came, and while he was troubleshooting the furnace, the fan turned itself off. Nice timing. The good news is that the technician says the thermostat is fine. The bad news is, he thinks the board in our furnace is going bad. What he said is that he thinks the relay that turns the fan on and off got stuck. The technician said he thought it would be okay until the fall, because it was the heat relay and not the cold relay. But the fan mysteriously came on again last night, so it probably isn’t okay. The only way to completely fix it is to replace the board, or replace the furnace.

The furnace is 22 years old. It has already outlasted its typical lifespan by 2 years and making a big investment of a new board in it would not be a smart long term move. Basically, this is a sign of things to come. A warning, if you will. Hey, I really wanted a more energy-efficient furnace, after all…

Coupled with the fact that I had a medical procedure on Tuesday that is sure to be expensive, we’ve decided to be proactive and shift the priority from debt repayment to saving for a short while until we get some things worked out. At this point, unless we find out the furnace needs to be replaced immediately, the debt snowball or $810.40 will continue to go towards debt repayment, plus a small bit so that we can make double payments to the spouse’s student loan (the debt snowball has $437.59 per month toward the student loan and we will up that to about $470) but all other snowflakes will be going into our savings account for a new furnace plus medical expenses. We’ll know more about the medical expense part after next week when I talk to my doctor about the results of the tests I had. But just the tests will cost money that we would rather save now versus take out of our emergency fund if we don’t have to.

This is all up for adjustment, and we may end up saving everything past the minimum debt payments if we need to of course, especially if the furnace continues to misbehave. It would be nice to continue the debt reduction in some fashion and continue to make the student loan double payments, but I am okay with not doing that if our finances warrant it. Dependent on the results of the tests I had, and our research into a new furnace, we may up the amount we need to save even more. But right now, we are guessing we’ll need about $5000 for the furnace and my tests. Once we put our economic stimulus check into savings, as well as my spouse’s additional paycheck in May (he is paid biweekly and May is a three paycheck month), plus what we have in savings already, we need to save about another $1000 to $1500. If we haven’t replaced the furnace by then, (and that number remains appropriate), we can shift back into significant debt overpayment and slay the student loan. We managed the huge car repair, we’ll manage this too. I knew things were sailing along too smoothly, and there were bound to be more bumps in the road. I was just hoping to get rid of the spouse’s student loan before we hit another one. So it turns out we may become consumers with the economic stimulus check after all, because it seems it will ultimately go towards a new furnace. The world has a funny idea of irony, that’s for sure.

Roll with the punches, I keep telling myself. This whole debt repayment thing is a huge game of adaptation. But, once more… Argh!

The technician who came for the furnace call checked my a/c unit as well and called the whole trip my yearly a/c service, so that was nice. At least I didn’t have to pay anything for that. However, the call I make this morning to have them come back… I assume I will have to pay for. But something better actually be completely diagnosed and fixed this time. Or something.

Argh!

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In my post about how all funds are emergency funds, one of the commenters pointed out that $1000 isn’t really some magic number for what an emergency fund should be, in fact it was just a number that was easy to remember, and may not be sufficient for many emergencies that the average person or family may face.

I do agree, and I replied to her comment, but I realized I have a lot to say about the importance of the $1000 emergency fund as a starting point. The $1000 emergency fund as psychological hack was what got me to finally save an emergency fund, and so I thought I would write my full response in a more formalized way.

When you haven’t ever saved anything without a specific purpose pre-assigned to it for spending, or even haven’t ever saved anything at all, the conventional wisdom of a 3-6 month emergency fund may seem so daunting and overwhelming that you never start doing it. To many people, even $1000 is a whole lot of money to have saved. I know it was to me. So even though I wanted to save a 6 month emergency fund, it was out there in my mind in the pile of “things I wish I could do but I don’t think I ever can”. The idea of the $1000 emergency fund was still pretty overwhelming, but it was small enough that I could at least attempt it. The idea, when I first started saving, that I could save 6 months of expenses seemed so far out of reach as to be impossible.

Yes, all it takes is actually trying, but if things seem impossible, it is hard to take that step to try. The idea of the $1000 emergency fund makes saving an emergency fund seem possible to a much broader range of people. In my world, $1000 is a whole lot of money, more than a mortgage payment, more than any single bill we owe, even more than all of our monthly non-mortgage debt minimum payments combined. This is not to say that $1000 is a sufficient end-all-and-be-all emergency fund for us. But making $1000 our goal made the idea of an emergency fund actually become a reality.

Now, at the point I am at now - do I think a $1000 emergency fund is ultimately sufficient? No, I do not. Even if I did, the $3600 car repair should have taught me I was incorrect. But still, we generally have the $1000 emergency fund as our emergency resource. Why? Because what keeps me up at night, still to this day, is the never-ending monthly obligations of our debtload, and how close to our minimum income our minimum expenses are. There’s not a very wide gap between what the minimum we bring in per month (which is my spouse’s salary) and what needs to go our every month to meet our minimum expenses. Yes, we bring in more than that per month due to my efforts, but all of my work, at its heart, is contract work and not guaranteed to continue past today (illustrated by the abrupt loss of my primary contracting position last October). Although many of my projects show no signs of ending, with the economy as it is, one never knows when a program will be cut or a position will end. Although the same could be said for my spouse’s employment of course, the company he works for, even in these economic times, has been rapidly growing every year, and shows no signs of slowing.

So for us, right now, we tip our balance of savings and debt repayment much more heavily to the debt repayment end, which means the minimum $1000 emergency fund. This won’t stay this way forever, and the more debt we repay, the closer we are to getting a good night’s sleep. And the more soundly we sleep, the more the emergency fund will become a priority. But until then, that arbitrary $1000 number works for us. Although I look forward to a time that both my lack of debt and healthy emergency fund of 6 months expenses plus foreseen replacements lets me sleep even better than a baby.

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I have been thinking lately about our expected upcoming expenses. As I have mentioned in the past, we live in an older home and several of our appliances are nearing the end of their expected life span. We also have two older cars, one is a 1996 Toyota Corolla and the other is a 2001 Saturn. I wouldn’t consider the Saturn older necessarily except that it has already proven itself less than reliable.

We have our $1000 beginning emergency fund sitting safely in our savings account, and I save an additional $25 a month in what I call the “long term” fund, which eventually will become the replacement fund for appliances or other home improvements and maintenance. We are still paying off debt so the beginning emergency fund of $1000 is all we have at this point labeled an emergency fund.

As our debt comes closer and closer to the point of being eliminated, I’ve thought about starting a few miscellaneous and specific savings funds, such as a new (to us) car fund and a new furnace fund. But the reality is, until we have a sufficient emergency fund that provides for an adequate cushion for the vast majority of potential emergencies, even if I am splitting up money into different “funds”, it is honestly all just an emergency fund. When we had our big unexpected car repair in January, every available resource (except the children’s college accounts and our retirement funds) were completely tapped, including the “long term” replacement fund and even my spouse’s birthday money. And if we had another emergency of the same magnitude, the same thing would happen.

At some point in the future, we will start to be more specific and selective about the money we are putting into savings and portion parts of our overall savings plans into funds for appliance replacement, car replacement, home improvements, and other savings goals. But until then, the money that I save beyond our retirement and college savings, no matter what I call it, are in reality is a backup emergency fund if the $1000 one is not sufficient. So into one single fund those savings continue to go.

This post is part of the MBN writing project on emergency funds.

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