Emergency funds and YOU!

May 16 |
Possneck, 75 pf,
Notgeld (emergency currency) was issued by German cities, boroughs, even private companies while there was a shortage of official coins and bills. And it's so pretty. Shared by Iliazd. Used under Creative Commons license.
I recently enjoyed Twenties Hacker's letter to twenty-something about emergency funds:

Dear 20-somethings,

Life is unexpected. Things happen every day that we don't expect to happen. A car accident on our route to work making us late for the day. A family member passing away. A car breaking down and needing a fix-up. Situations like this can be very stressful, especially when money is involved. We all know stress isn't good for us, yet we continually feel this way. One of the biggest causes of stress in life is money. But why should it be?

An emergency fund is simply a pool of money saved away usually in a savings account that can be easily accessed in case of an unexpected situation that requires it. The main reason that everyone should have one is in case of job loss, and with this recession still going on, you never know if your job is actually guaranteed.

However, an emergency fund can be used for many other things as well. It would be kind of silly to leave money in a savings account specifically for job loss, and then it never happens. I am personally slowly building mine up, and I've already had to dig into it once to replace my entire windshield after a massive crack went down the middle of it.

Our emergency fund is one of the things I'm proudest of. I'm in charge of our household's money, and I divert as much of it as possible into our savings.

Our fund isn't as big as I'd like it to be right now, and sometimes it's hard to put the money into savings rather than spending it on fun stuff. But our fund has, on SEVERAL occasions, saved my partner and I from giving up on our projects to work a McJob to pay for our lives. Our emergency fund — and forgoing some immediate, small fun in favor of planning for the future — has enabled us to keep control of our lives.

It's saved our butts when somebody stole part of our car. And when I lost my job. And when Scott lost his job. And it'll save our asses again!

If you're considering starting an emergency fund, Twenties Hacker has a rundown of the who what where when and why. My number one tip is this: automate your savings. Make saving money mindless and automatic and something you have to lift a finger to stop. We started our emergency fund with SmartyPig, but now we bank with a credit union which allows me to set up and manage automatic withdrawals. Currently $50 a week goes into savings. Every week. No matter what.

So I'm wondering about you! Do you have an emergency fund? If so, is it fully-funded (good for six months of bare-bones living)?

  1. We weren't as intentional as I wish we were about building our emergency fund… but it happened anyway just by living more modestly than our incomes would have allowed. I'm so glad we have that money set aside because it recently allowed my partner to quit his too-stressful job without having something else lined up. Now he's working a PT casual job while exploring what might be next. In the meantime he's healthier, happier, and has more time for fun. It's such a gift (and privilege, I recognize that) for him to have some time to find the right fit without us worrying as much about meeting our fixed expenses.

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    • this is exactly where we are. we chose to switch to one income so my wife could go to school (and quit her very stressful job). my salary covers our expenses but nothing else (including no saving anymore, which is the one reason i'd like us to make more money in the future).

      but being broke is totally not stressful when you have an emergency fund. 'cause not having money to splurge on stuff? no problem. it's knowing you'd be screwed if any little expensive thing happened that makes being broke awful.

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      • "Being broke is totally not stressful when you have an emergency fund. 'cause not having money to splurge on stuff? no problem. it's knowing you'd be screwed if any little expensive thing happened that makes being broke awful."

        Things I wish someone had told me before we bought our house. Not that it would have stopped us, but it would have been nice to know at least!

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        • Yeah, but if you let yourself feel like you're not broke just because you have an emergency fund, pretty soon you won't have one anymore. I pull this kind of trick on myself all the time – partway through the month, I'll start thinking, "I bet my bank account is getting pretty low right now! I'm probably getting close to not having enough money to cover things!" I won't check, though, unless I know for sure I'm in imminent danger of bouncing checks. At the end of the month, almost invariably, I've convinced myself that I'm too broke to afford any splurges, but I really had plenty of money, leaving me with a surplus that I put straight into savings.

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  2. We started an emergency fund ages ago and have had to dip into it in more occasions than we would have liked to. Now, we are in the process of building it back up.

    Both my husband and I are self-employed and our emergency fund has allowed us to make ends meet when our jobs just weren't cutting it. It has also covered expenses while I was on mat leave, paid our taxes, paid for emergency house repairs, etc etc. I honestly don't think we would have survived this long without an emergency fund.

    My husband gets paid weekly so he puts in as much as he can (anywhere from $50 and up), and I get paid about a month after I invoice…which is usually every month to month and a half, so I put in bigger amounts usually $500 and up depending on business and how much I have had to dip into the emergency fund to cover bills that needed to be paid when I hadn't been.

    We both also keep emergency funds on hand for our businesses, in separate accounts, so that we don't have to dip into the personal one to cover business stuff.

    Its probably the handiest and best thing we have ever done, and we usually keep about 3 months income just hanging around. I used to stress out about money a lot before we had this fund set up and I rarely stress out about money now. :) Its definitely worth it to do!

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  3. Our emergency funds came through for us when my husband was let go. Of course, two years into a nasty economy and that money is gone, even though we are both working. It's hard to get it back right now. Building it back up wouldn't be going without fun stuff. It would be going without food stuff.

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    • I'm in the same boat. Making an emergency fund would do us more harm right now because we are living as a single income house with that single income being exactly what we need to pay everything.

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    • That happened to us, but not through job loss (some other circumstantial expenses). We had an emergency fund but once we got any significant money in there, something would come along that we HAD to deal with and deplete it. Almost entirely. Like within $200 of being gone. Don't even ask about the time my husband's job screwed up his work visa – we live in Taiwan – and we had to buy him a plane ticket out of the country to "prove" his "intent to leave" so he could get a tourist visa to come back and straighten everything out. It still burns me. Or the time our old landlady didn't present us with an electricity bill for a year – despite our asking – and when she finally did, it was about 3x higher than it should have been because she also wouldn't fix the air conditioner, which barely worked but we had to run in order to not die (top floor apartment in the tropics). (We moved).

      So we went quite some time without one – or more accurately, a period of time when every time we started to build one, it'd get knocked down like a sand castle by a wave. This has left me feeling insecure and anxious about money, because it's like IT NEVER STOPS.

      This year has brought improvement – so far there hasn't been anything totally crazy to deplete our fund YET AGAIN, so with a conservative year or two of not traveling we're hoping to get those savings levels where we want them to be.

      1 agrees
  4. The lady & I both put $100 dollars from each paycheck directly into saving, so there's $400 a month going in total. When we sat down & planned I thought it was going to be difficult, but it's been surprisingly easy. It's exciting to watch our little money stash grow! The hardest part has been not digging into it when the checking account gets low. Ya know, you're broke and neeeeed a cheeseburger and there's all this money sittin' in savings!? It's hard not to touch it. But totes worth it.

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    • We use ING for our combined savings. We can move money over to our checking, but it takes a couple days before it's available. Helps keep us from spending it on spur of the moment stuff instead of big, discussed, planned purchases.

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  5. My husband and I have an account where our condo payments and mortgage payments come out of…so we can't touch this account because it's solely for these kinds of things. Each paycheque we deposit a certain amount of money in there, which can range from $75-$200 extra each. Over the last 3 years, this has grown to quite a nice large sum.

    We actually had to use our emergency fund for a couple of months. My husband's job contract ended in January, and was out of a job until March. So we had to dip into our emergency fund to make mortgage payments. Now he has a job and we're building the fund back up again (almost is at where we had it before!)

    We also have an "emergency" savings account. This account is for things like trips. It's hard to save for international travel in our own accounts because of all the personal purchases…but this account is for us to deposit a little money at a time to save up for travel.

    Our next account we'll be opening will be a joint "bills" account. This account will be used for bills (electricity, groceries, cable, etc).

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  6. Absolutely! We have one and can't stress it's importance enough. The summer before we got married, I had a wedding fund and an emergency fund. We experienced 10 separate, unrelated emergencies from medical bills to the washing machine dying to my car needing repairs to his car getting broken into, etc. If it hadn't been for the emergency fund, we would've had to use the wedding fund and had to either change or postpone the wedding (which I realize wouldn't have been the end of the world in the scheme of things, but still pretty emotionally devastating when you're only three months away and have put down deposits on everything).

    It took time to build it back up but now that it's there, I can rest easy again. In between emergencies the money doesn't just give me peace of mind, it earns me interest, too!

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  7. We are depositing about $100 a month into savings but have had to dip into it substantially in the last few months. Myself, hubs and daughter all needed glasses, my car has needed about $1600 worth of repairs, sick animals, etc… We are working on building back up. I have it automatically deducted from our account the day my mid-month paycheck is deposited. That way when I look at our balance it already reflects the money already gone.

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  8. Emergency funds are essential. But you know what else is an essential savings account? Fun! We add Fun into our budgeting so that we make sure that a) we occasionally spend some money on fun and b) we don't overdo it. Works for us! Brilliant post!

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  9. I think we could live for 6 months on our savings. It's very important to me to feel secure, so we live below our means. I think we could even save more, but we like to splurge on things like fancy food, and fun "toys". For me, it's also very important to invest for retirement, and to have a household maintenance budget.

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    • SIGH. We haven't started retirement investing. We're in a weird sitch because I work for myself, plan to continue working for myself, and Scott plans to go back to self-employment, too. In my dreamland, that means we will choose to continue working past retirement age…

      In reality, we should plan for retirement. I think the plan is this: continue building emergency fund. Then eliminate debts (luckily we don't have much there. Okay student loans and mortgage) THEN…retirement planning somehow???

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      • I'm lucky because I work for a large company who can take my money, and deposit it to my 401(k) before I see it. I would never have saved as much otherwise.

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        • With you there. My husband didn't even know he had a 401(k) when he started full-time at his current job; one day we were just getting statements for it. I'm glad it's there; I know nothing about investing and it happens before we even know the money is missing

          We, however, don't have an emergency fund — which sucks, because we're paycheck to paycheck broke with a kid. There's just not extra money. It suuuuucks. It sucks a lot.

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      • IRA, IRA, IRA, do it now! Like with an EF, it doesn't have to be that much each month. Unlike an EF, it will do a little growing on its own and you definitely won't touch it (without penalties) so it will still be there in 40 years.

        My best friend bought herself an IRA for her 22nd birthday present when she graduated from college and decided she would probably be self-employed in the music industry for the rest of her life.

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      • I'm not convinced it's a good idea to have an emergency fund when you're in debt. The interest you're paying on your debt is likely to be higher than the interest you're being paid on your savings, so in the long run your emergency fund costs you money compared to paying off your debt more quickly with the money you'd put into an emergency fund. If you have a pre-authorised overdraft facility or an emergency credit card with a high enough limit, you can use those to pay for unexpected emergencies, then shift the debt into a lower interest form and pay it off with what you'd use to rebuild your emergency fund. Yes, if there's an emergency you build up debt, but you already have less debt in the first place because you've paid it down with the money you would have put into an emergency fund. In the long run, for the same amount of money each month, you pay off your debts and build up your savings much more quickly if you pay your debts off first because you're not paying so much interest on your debts.

        General rule of thumb in personal finance, if you have access to credit in an emergency, pay your debts off first in order of highest interest first, then start saving.

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        • I think the idea is to have quick access to cash. For example, If you loose your job, you can still pay the mortgage and save your credit.

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        • The general rule of thumb in personal finance, according to at least all the famous personal finance writers, is to:
          * Pay debts at absolute minimum balance until you
          * have a $1000 emergency fund (per family, whether there is 1 or 5 of you);
          * then pay off debt as quickly as possible.

          The idea is to get you OUT of the habit of grabbing for that credit card every time something happens.

          Also, "debt" in this scenario doesn't include student loans and mortgages. In the realm of personal finance, those things are OK to be paying off while saving a bigger emergency fund at the same time.

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      • Someone told me once that for retirement stuff, you have to save the percentage of your income that is half the age you are when you start saving.

        So, if you start at 18, you save 9% of your income; if you start at 25, you save 12.5% of your income; etc. For the rest of your working life.

        I don't know if that made it sound more scary or less scary…

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        • I've never heard that before, but it seems to add up and it sounds like a nice, easy way to remember/figure it out.

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  10. I've always been a just in case kind of person, and am now frugal to a fault. We spent alot of our savings on house stuff in our first year of home ownership, and were just starting to really build it back up when my husband was laid off 3 months ago. Thanks to unemployment, my job, and some serious budgeting what is there will stay there unless we have an emergency. I'm so glad that we have it, and now that we know another job won't just be landing in our laps I'm starting to find ways to live below even this income so we can keep adding to the fund. We agreed that each of us would get an "allowance" each month to spend on the nonessentials like drinks with friends, makeup(me), baseball tickets(him),itunes etc. This helps keep us from nitpicking the other person's spending on extras. If you can swing it put the money away little by little. I'm not happy with our financial situation now, but I would be freaking out without the cushion.

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  11. Yes! I love this post. We haven't built up an emergency fund and are really afraid at the moment because it looks like the union we both belong to might be going on strike. We manage a pretty steady budget and live well within our means, but a strike would definitely set us back significantly.

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  12. Unfortunately my 'emergency fund' eventually goes into tuition! But I do think it's really important to live well below your means. As an engineering student, I get paid pretty well for internships and could feasibly allow myself to buy a lot of things and put off the real consequences until later with student loans. But I don't, and with those internships and some scholarships I will graduate with minimal debt!

    Also, my father lost his job in the recession and my parents were able to make ends meet without any significant decrease in quality of life – despite the fact that my brother had been very sick the year before. (This is part of the reason I was so gung ho to pay for my own education)

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  13. My spouse and I just built up a 3.5 month emergency fund, and are now slowly building it to 6 months. I feel very proud of our eFund and would never want to go back to not having one. Last year I had some relatives pass away suddenly, and was able to afford the transportation and hotel costs to go to the memorials with no problems, which was such a help during that time.

    In general, I like having really targeted funds at one bank (ING) so that I can see how much I have for each purpose/goal, but then also see the total balance. Psychology ftw!

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  14. Emergency funds are sooo important! In the past week my husband has gone to the ER twice, stayed 3 days in the hospital, and had emergency surgery to remove his gallbladder. We have really good insurance with a low deductible, but we still might need to dip into our fund. If you had asked me 2 weeks ago I would have said that we wouldn't have any large medical expenses anytime soon. You just never know what might happen.

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  15. The one thing my wife is insistent upon (and I agree) is the difference between an emergency fund and an "incidental" fund. An emergency is a job loss, major medical incident, death. Incidentals are things that you don't necessarily plan on but that are reasonable to expect in the course of a normal life. Car repairs, smaller medical, dental, or vet bills, house repairs, etc. are incidentals. We have both funds, which works very well – the incidental fund is attached to checking and can be accessed immediately, whereas the emergency takes a few days to transfer. We built it up to where we want it and direct savings elsewhere now. If you can afford it, I recommend both funds.

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    • I recommend this as well. My partner and I have what we call the "slush fund," which is used for things like urgent vet bills, small car repairs, and notably, for bills if the tips aren't great one week. We are increasing this fund to about $500 over the summer while tips are good, though the goal is to get that fund to $1000 to cover the short months (January and February are notably the worst for the restaurant business, December can be bad depending on the establishment but of course there's a lot of days off that month-ish leading up to the slowest months of the year!). That's on top of the $1000 emergency fund, for true emergencies–more major car repairs, medical bills, etc. Once debt is paid off, we still want a $1000 slush fund and 6-months of expenses emergency fund before we start tackling saving for a house–but since we're caring for aging parents necessitating a live-in rent-free situation, that's not really urgent anyway.

      1 agrees
      • This idea NEVER occurred to me and just totally blew my mind. We keep trying to get our emergency fund in order and then these exact things (vet bills, to be specific) keep popping up, decimating our bank account every time. I'm going to set up an incidental-specific account asap.

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  16. The thing everyone forgets about savings is… It's still your money. You can still go spend it on a toy or a trip…. But once it's there I can't ever bear to tear it away from it's little friends and that mindset saved up my house down payment

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  17. Thank you for this post, Cat. Two years ago I quit my job in the middle of the recession and didn't really have an emergency fund so I moved back in with my parents thinking it would be for a month or two. Eight months later I finally landed a job and moved out. Once I started working full time again I started saving like a maniac so as to not be in that position again. I have been able to save a 4 month emergency fund in only one year.

    Aside from the Offbeat Empire, I read a lot of personal finance blogs and I was just thinking last night that a personal finance weekly feature would be a good addition to Offbeat Home (raises hand to volunteer). It could certainly be tied to OBB and OBM as well since those two life choices are freaking expensive!

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  18. When we got engaged, we decided to open a joint account and called it our 'wedding account'. All the income from my second job went there and he would put in so much each paycheck too. We were living rent-free at the time, so it grew nicely. But during those two years, fate had other plans and our only car broke down several times, had many emergency vet visits and appliance replacements. We still had the wedding we wanted, but the honeymoon had to wait. Now we're paying rent again, so it's very hard to build anything up in our 'joint' account, but we try. We don't have much (like- two weeks maybe) but it's still better than nothing.

    I'd like to get a better paying job eventually, but that will require going back to school. We'll have to have some huge financial sacrifices for that to happen, and we're not quite sure how that's going to look.

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  19. What we have right now is a mini $1000 emergency fund. This is because our focus at the moment is getting out of debt. The mini fund certainly won't cover anything major like job loss or serious car problems, but it's enough to cover most things that pop up (vet bills, most repairs, medical expenses such as dental work… we live in Canada so we don't need to worry about paying for most medical expenses). We're really aggressively paying down all of our debt (making extra payments first on our credit cards, then once those are paid off on our car loan, and then on our student loans). Only once we're totally debt-free will we start to seriously stash some money away for a 6 month emergency fund. We also make small contributions for our retirement, and we'll ramp those up once we're out of debt and are therefore more financially secure. We keep a spending plan/budget in order to keep us on track, but like someone above mentioned, we're careful to always include some 'fun money' in there too, in the form of a weekly allowance for both me and my partner, and a set amount of money to cover joint activities like eating out or going to the movies.

    Personal finance is something I find really interesting, and one site I find really reliable is getrichslowly.org

    1 agrees
  20. I try to save what I can but as a 24-year-old about to start law school, it's tough. But it really really comes in handy having extra money – I got laid off my job very very unexpectedly (I had been explicitly told I was safe) the beginning of April and managed to use my savings to pay my bills while I worked temp and babysitting jobs. I just started a new job and I'm thankful I had that money to tide me over the month and a half without regular funds. It's really hard as a single person!
    I know I save more than a lot of people my age – the fact that I even try to live modestly is foreign to a lot of my friends. For example: None of them can understand why I don't have a smart phone. Uh. That's because I'd rather put that extra $40 a month it'd cost to have that over my little dumbphone into savings. I worry over a money a lot even though I generally have more than enough to cover my bills – because I'd frankly rather have twice more than I need than the 1.3x amount I currently have.
    Once I move to Chicago and start law school, I'm going to sell my car and put the profits all into an emergency fund- my loans should cover my expenses, but it'll be nice to have that in case something crazy happens – or to tide me over during the summer if I find a sweet job that doesn't pay enough or something. But yeah, I consider an emergency fund a necessity – I try to put money in my savings every chance I have.

    1 agrees
  21. I have my emergency fund in an ING Direct Account because it gets relatively high interest. I have an automatic withdrawal set up from my checking account for the same day as I get my paycheque.

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  22. I have some saving accounts with another bank that are for travel and moving out. I have an Emergency Fund attached to my everyday bank account that equals my car insurance excess. When I had my car accident in May 2011 and wrote my car off, it was very handy to have that money instantly accessible. I use this money to pay for any incidentals like a big phone bill or the new tyre my car needed.

    I worked out how much my car costs to run per year for registration, insurance, roadside assistance and servicing – then I turned that amount into a fornightly sum that I put aside into a separate account just for car costs. Rego is due? Covered.

    I was saving money aside for a long term emergency fund but the chance to visit my sister overseas for half the price it would have been had I waited until later arrived. So I chose to go. Sure, I'll be busting my gut later to try and replenish those funds before my boyfriend and I move out but you only live once.

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  23. I'm struggling to build up an emergency fund. I have sooo much debt (new grad!) and whenever I have money sitting in savings I think about how little interest it's earning and how much interest I'm paying on my debt. I'm working on both, but it means everything is taking so much time.

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  24. My SO and I sort of loosely follow Dave Ramsey's plan, which involves a $1000 emergency fund while paying off all debt, then a 6-month expense fund. We're still in the paying off debt stage, but the $1000 has saved our butts multiple times, and kept us from using a credit card or something to pay for problems.

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  25. i've learnt the easiest and best way for me to save money is to simply not be able to access it myself. so, all my savings go straight into FH's high-interest savings account. He also has the only credit card in the house, which is a debit card so it's never money we don't have. This stops me from impulse purchasing online since i have to ask for his card, giving me a few hours and a chance to hear myself say "i need $200 for lego" BEFORE i click "add to cart" XD
    we're about to move and that's probably going to drain most of our funds, but i look forward to filling the account again!

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