I’ve Paid For This Twice Already…

Archive for the ‘emergency fund’ Category

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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As readers of the comments to my last post have learned, the car is not in good shape. I’m not exactly sure what happened to it to get it to this point, but to quote from my spouse’s email to me about what the Saturn dealer said:

Ugh, it’s the engine, I mean the whole engine. Something broke inside of it and pushed some crankshaft out so basically we need to rebuild it or buy a “new” engine.

My spouse did call me to tell me the news, but he also emailed what he remembered as far as details. So, the engine - dead. Cost of replacing it? Around $3700. I said $3500 before but that was my brain doing some self-preserving rounding trick on the numbers, I guess. Plus there are any random incidentals like the tow to the shop so the total will be above $3700 if we go this route, but I am going to just use that number right now for simplicity’s sake.

So again, back to the “options”. We could buy a new (to us) car instead of fixing this one. It is something I am sorely tempted to do, but as far as our overall budget and debt load, an option I don’t think I am comfortable with. We still owe ~$3300 on this car, and we’d have to roll that into our next car’s payment. We don’t currently have the money to pay off this car and buy a new car and pay it all in cash. At all. I have to think on this option more. I’m not sure how comfortable I am buying a car that is more than a few years old and having a payment on it still. This car is 7 years old, so I don’t know why my brain thinks like this, but all I can wrap my head around is buying a 3 year old car for $10-12,000, not buying a different ~7 year old car for a lot less. How much less? I have no idea. At this point I’m babbling so I’ll move on to other options. I haven’t discarded this idea but I’m not leaning towards it either right now. Ask me again in three hours and I might feel differently. I do think a $3700 car repair might qualify as “driving the car into the ground”, though.

We’ve done some research on possible other places to take it to get it fixed (we’d have to tow it there of course) and my spouse is currently calling around to see what our options are on that front. I honestly have no idea how that will pan out. I’ll know better later this afternoon.

So, that leaves us looking at - what if the $3700 number is what we are left dealing with? The Saturn dealer offers financing. Yes, the evil of financing. I would generally reject that out of hand, but they do offer 90 days same as cash so if we took advantage of that, it would give me a little time to gather up as much money as I possibly could. My thoughts on that is to pay $1000 immediately and put the other $2700 on the 90 days same as cash plan. Then when my transfers out of the ING subaccounts go through as well as my spouse gets paid again (within the next week and a bit), I pay another $1000. Then I will have about 80 days to come up with the other $1700. I would snowflake anything I get my hands on for the next two months directly to that $1700 and if it doesn’t completely get paid off, I can decide then if I want to pull the remainder from college savings accounts or if I want to balance transfer the remainder to one of my two empty credit cards.

Hello setback.

And that begs the question - what if another emergency happens in the next 90 days? Honestly that’s something that I can’t completely wrap my head around but obviously is a very real possibility. Paying everything possible to this debt before rebuilding the emergency fund leaves us open to another disaster as well. At this point, I genuinely can say I am just trying the best I can to not let this become the beginning to a huge downward spiral. And everything else aside, I am trying the best I can to figure out how to minimize the damage to our finances and maximize our options so that we turn this around as fast as possible. That may necessitate revising the above to rebuilding the $1000 emergency fund before paying off the remaining $1700, if we go that route. I don’t know yet. Still… thinking.

The destruction of my spouse’s student loan will have to wait. The $175.17 left on the 0% credit card will have to wait. We’ll get through this, whatever we decide to do. And whatever that is, for the first time since I started the blog, that debt number is going to up this month instead of down. Sigh. And I will definitely keep you posted. Your thoughts and comments are welcome, my brain, still in shock.

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I mentioned earlier that there were some problems with my car’s taillights. My spouse took the car in yesterday morning to have the service station re-fix it since the fix the first time wasn’t adequate, and learned that the right taillight was unfixable because the part had been recalled by Saturn. Why they didn’t figure that out Monday, I don’t know, and we won’t be taking the car back to that place. I wish I knew how to find a good mechanic.

But, anyway. We made an appointment with the Saturn dealer to get the recall work done this morning. I was excited that the problem would be fixed for free since it is a recall. The top brake light and one of the taillights still worked, so my spouse felt comfortable driving the car home. But the car did not cooperate. As he was exiting the highway on his way home from work (about 2 miles from our house), the check engine light started flashing, the car made some weird noises, and then died at the end of the exit ramp. He coasted it to the side of the road, and called me.

The timing of this event was pretty fortuitous, all told. It could have happened on the way home on our 800 mile trip, or even on the way out on our trip. But still, it wasn’t the greatest timing, for it was 11 degrees out at the time and even though my spouse was close to home, he wasn’t close enough. I ended up calling him a cab to get home and a tow truck to the Saturn dealer for the car. More of that story is on my family blog, we’ll just call the cab fare (which was only $8 including tip) my spouse’s stupid tax for the day, since he had the keys to the shed (where the extra carseats for his car are stored) in his pocket so I couldn’t go get him with his car. But anyway.

So now, I wait. Obviously, the car has problems beyond the back taillights. The question is, how serious are the problems? I don’t know yet. Our emergency fund stood at $1263.80, the amount over $1000 was a small amount of interest plus the remainder of the November extra paycheck. That $263.80 has now been transferred into our checking account. We also have about $300 left in our checking account which is the carryover from December (more on that when I do the December wrapup post in the next few days). So basically I have about $550 immediately available, plus $1000 on standby and transferable at a moment’s notice. I am hoping that’ll be enough. Again, I have no idea how bad this is.

And we were so close to having the credit card paid off. In fact, that ~$263 was going to be transferred to our checking account today and as soon as my car was fixed (the recall work, I mean), I was going to pay off the credit card with it. Now of course, we’ll be waiting on that to see what happens. So close yet now so far.

I am very thankful for the emergency fund. Hopefully it is enough. If not, we’ll be discussing our backup plans. I’m not sure what those are but we do have options, depending on what we decide is the lesser of all evils and how bad the damage really is. And we’ll be reassessing our whole emergency fund strategy. We were planning on doing that anyway as soon as the credit card debt was paid off. Now, we’ll be doing it just a little bit earlier.

Hello Murphy. Not so nice to meet you, but it could be under a lot worse circumstances, all told.

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It’s that time of year again. I call the furnace maintenance people to renew our existing contract, and while on the phone with them, they make noises about the age of our furnace (it’s 20 this very year, by the way). They ask if we’ve thought about replacing it and try to sell us on the benefits of their “upgraded” service plans, because with our furnace being the age it is, we can (according to them) expect service calls this year. I sigh, decline their offers of upgrading or replacing (just not in the budget at the present time) and think about if I’m going to regret this decision come winter.

Right now in our debt reduction mode, we have a $1000 emergency fund. It may not be ideal, but it will likely cover any small single emergency that may come up in the immediate future, such as a home or car repair or a medical issue. Most of our available money is being funneled as aggressively as we can towards debt reduction. But at some point, we may need to take another more objective look at our situation and make an adjustment in this line of thought.

We have one priority that ranks above all others. Not until the credit card debt is gone. The credit card debt hangs over us and needs to be eliminated to give us some needed breathing room. Not until the credit card debt is gone.

But, in that time after, the time I cannot wait for, there may need to be an adjustment. For there are several things in our life that could go wrong, and we need to plan for them. Especially the expensive ones. The furnace, as I mentioned above. Our fridge is even older than our furnace, at the ripe old age of 23. My spouse’s car is a 1996 Toyota, and mine a 2001 Saturn. Both doing well right now, but the likelihood of problem increases rapidly as more time goes by.

I am saving a token amount each month separate from our emergency fund to help cover replacement expenses ($25/month) but as time keeps passing we are going to realistically need to do more, or risk a major expense wiping out much of our progress.

This has lead me to an idea I originally read about on The Simple Dollar - putting the extra amount towards paying down student loans in a savings account as a backup emergency fund and then each time it reaches a certain level, using the majority to pay down the debt in one chunk. Then repeating that process over and over again until the student loan debt is gone. This method would cost us more in terms of interest but is the peace of mind worth the increase in cost? And what about the periods where you pay down a big chunk of debt? As the account is building back up, you’re back in that same state of vulnerability you were in in the first place.

I honestly don’t have answers right now. It is just something I’ve been mulling over in my mind. The fine details, the exact method, all the little bits and pieces that may make it successful - those are for another day closer to reality. Our situation might be different then. For now it is just the kernel of an idea, a possibility to consider once the credit card debt has been completely wiped out. And that in itself makes me excited to think about it. When the credit card debt has been completely wiped out….

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