emergency fund

Archive for the ‘emergency fund’ Category

As the likelihood of an emergency increases, your plan changes too

Saturday, October 6th, 2007

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….

Give yourself a payday advance - Have an emergency fund

Tuesday, September 4th, 2007

In a perfect world, no one would be living paycheck to paycheck. We’d all be paying this month’s bills and expenses with money we’d been paid last month (or longer ago). But, sadly, this is not a perfect world, and many people (me included) rely on what we are currently earning to pay our expenses day to day. That’s why payday loans on the surface sound so attractive. The commercials promise that you can just come in, give them a check postdated to your payday, and walk out with cash right now. Of course, once you do a little research into them, they become much more frightening than enticing, but that fundamental lure is still there. If only I could get my money a little bit sooner. If only I could get a little bit ahead.

I struggle with that too. Neither my spouse or I get paid at the beginning of the month. My compensation for the previous month’s work arrives about the 15th every month, and my spouse is on a biweekly pay schedule. If we were ahead enough that his second paycheck of the month was going to the beginning of next month’s expenses, that would be one thing, but we’re not, and probably won’t be for some time. This month, my spouse gets paid the 7th and the 21st. Usually it is not a huge problem to get to that first paycheck, because there is money carried over from the previous month for irregular expenses and sometimes a small surplus, and we do not have a lot of bills due at the beginning of the month (I pay our mortgage for the current month out of the second paycheck of the previous month, so we are in fact barely ahead of the game on something). But this month, I have been biting my nails. My son’s preschool tuition and gymnastics class fee is due this week (which I have been saving for every month, but part of it comes out of September’s budget), plus the normal groceries and gasoline and diapers and other miscellaneous things that come up and the few bills that are due at the beginning of the month. It is making things feel pretty tight and I’m afraid we won’t have enough cash to go around until Friday.

These are the times when the concept of a payday loan feels most attractive. Don’t worry, I’m not going to get one! But the idea that if I just could have money a little bit earlier we would be doing better, not more money over the month just allocated differently, is very real and present to me right now. I was driving to Babies R Us today to buy diapers and passed a Payday Advance place, and although I was not tempted to stop, I understood all too well the allure. So I thought to myself - why is it that I don’t want to stop?

Because we have an emergency fund. I have already discussed it with my spouse and although not at all ideal, if it turns out we can’t quite make it to Friday, we can transfer a small amount out of our emergency fund for the rest of the week, and then transfer it back in on Friday. Having that emergency fund is in some ways like having the ability to give ourselves a payday advance. No, not the ideal use of the emergency fund, but it keeps us afloat and able to weather large early month payments if necessary. And keeps us from turning to credit or a scary payday advance place. Maybe that’s a little how people who don’t live paycheck to paycheck feel, that there is always that built in buffer there for when spending throughout the month is unequally distributed from start to finish. Maybe. Hopefully in a few years I’ll find out for myself.

Waiting for the emergency to resolve

Thursday, July 19th, 2007

Well, the locksmith is coming at 11am. Please locksmith, be able to fix the problem and not cost me my entire emergency fund. Thanks.

Speaking of the emergency fund, the good news in the locksmith not being able to see my car until 11, meant that I had a chance to look at my bank account online this morning, and yesterday’s check deposit cleared. Yippee! So I moved the $350 back into the emergency savings. Emergency savings now again stands at $650.

Hopefully I will be able to work this car mishap into the month’s expenditures somehow and not have to use any of the emergency fund. I’m thinking I won’t be able to add anything to the emergency fund this month though like I planned. Supposedly I was going to have ~$300 left over from my check at the end of the month that was going to build the emergency savings to close to the goal of $1000.

So car… cost less than $300 to fix. Okay? Okay then.