Emergency Fund Going in the Wrong Direction
Wed 24 Oct 2007, Written by Eden
Categories: Emergency fund
October is turning into a difficult month for our emergency fund.
First, we had minor unexpected expenses when my wife came down with a sinus infection- about $50 for prescriptions, a copay, and a few over-the-counter things we had to buy.
Then the big emergency hit- I had to spend $659 for emergency dental work and a prescription.
Now the oven stopped working. Strange problem because the broiler and the range work, but it won’t bake. I can’t figure it out and I don’t want to get too involved with trying to fix a gas appliance on my own so we scheduled a service call for this Saturday. It’s $65 just to get someone to come look at it, so I’m hoping the parts and labor won’t add too much to that.
It looks like we are fast approaching $1,000 worth of emergencies. Thanks to budgeting and doing extra work on the side, I can handle the expenses and refill the emergency fund at the end of the month, but it does mean less money will be going toward debt, which is a little disappointing. This also has me wondering if a $1,000 emergency fund is enough. $1,000 is a rather abstract figure chosen only because it is what Dave Ramsey recommends in his debt snowball program. It’s certainly not my long-term emergency fund plan and not even close to 3 - 6 months of living expenses. I may start bumping it up to $1200 - $1500, but I don’t want to keep cutting my debt payments either. I will see how things progress and maybe start by adding an extra $50 per month on top of the $1,000 base. I hope this is it for emergencies for the rest of the year!
October 24th, 2007 at 1:57 pm | Victor said:
I suggest an emergency fund of 6-9 months worth of expenses. I was in an auto accident and out of work for a few months. I had enough to cover what I was not making, but extra appointments, copays for doctors and medicine, and another child born (YAY!) caused some financial tightness around the waist.
October 24th, 2007 at 2:04 pm | Frank said:
@Victor- I hear ya and I’m glad you were able to get through that. I definitely want to get to that level of a really nice emergency fund cushion. Unfortunately, I have to choose between building that and handling my heavy debt load right now.
Did you build up your emergency fund while you had debt, after your were debt free, or work on both at the same time?
October 24th, 2007 at 6:50 pm | dawn said:
Even though it might sound counterintuitive to put money into the emergency fund while paying interest on your debt … you really should. That’s truly what will help you from increasing that debt load in the long run. None of us know what tomorrow will bring … so being prepared for those “what-ifs” can be a stress-reliever in it self. You’ve got to figure out what ratio for allocating funds towards debt or e.f. account. But you definitely should keep working on it. It’ll save you in the long run.
October 24th, 2007 at 8:47 pm | Frank said:
I am definitely leaning toward boosting my emergency fund before I am debt free, though I will probably wait until my credit card debt is paid off. That debt really bothers me- I only have it because I bought stupid stuff that I didn’t need. The student loans and mortgage were at least taken out for good reasons.
I’ll probably start with minimal additions to my emergency fund for now and then bump that up nicely in the future.
Thanks for the great comments!
October 25th, 2007 at 10:42 am | Danielle said:
Hey, just think, if you didn’t have that $1000, you would have had to charge it. then the debt load would get worse, etc.
I love Dave ramsey, but when we moved south and cleared extra $$ from our house, I put it in the emergency fund rather than towards our student loan debt. I just sleep better at night knowing we are all set for 6 mos.
October 25th, 2007 at 11:58 am | Frank said:
Hey Danielle,
I agree. When I started this process saving $1,000 seemed like a lot of money- because I never had saved any money before! Now that I am facing a reality of not using credit cards and knowing that a bigger emergency could happen it doesn’t really seem like enough.
It does make sense that more peace would come from a nice emergency stash than from a smaller student loan balance. Good point!
October 25th, 2007 at 2:14 pm | Danielle said:
Frank, what rate are your student loans at? We have 36k @ 2.85%. It is like “almost free” money since the interest is deductible. But we are making double payments on it now as part of the debt snowball (we recently paid of my old student loan w/ house rpoceeds) even though our mortgage percentage is higher (6.375%) I know number wise it makes more sense to put the extra $$ towards the mortgage, but I want the student loan GONE! we have no other debt btw.
Oh I love the weigh ins too, I am joining WW tonight as I have a few pounds to drop myself. Keep it up!
Danielle
October 25th, 2007 at 2:29 pm | Frank said:
Danielle,
I’m starting to realize that I have really bad student loan rates- over 7%! I guess I need to look into a new loan, but I fear my credit is rather weak right now. My mortgage rate is about the same as yours, about .5% higher.
Good luck with WW. I know someone who just started that recently and likes it so far. I think the concept is similar to counting calories, the point being to just put some sort of limit on what you eat (just like budgeting really).
I count calories because I’m a nerd and don’t mind taking the time. I think the WW points system is probably easier to keep up with.
October 25th, 2007 at 6:02 pm | Danielle said:
I don’t think it is necessarily a bad rate, we consolidated at the lowest of the low rate time (2003) so I doubt that rate would be around anymore. In fact, when we moved we “gave up” a 5.3% mortgage for the new one since rates had gone up. ugh!
seriously should I shift the extra $$ to the mortgage?????? I am such a dork, I want it all gone now!
oh and this is my 3rd time on weight watchers. The other times I got pregnant and dropped right before reaching goal. ugh! But we are done having kids so I tihnk I am in the clear now!
October 26th, 2007 at 8:49 am | Frank said:
Danielle, interesting problem. I imagine that for most people the mortgage is always the lowest interest rate. I guess you have a tough choice there, but maybe splitting extra money toward extra payments on both the student loans and the mortgage is the way to go.
Good luck again on the WW system- feel free to share your progress here if you like.
November 5th, 2007 at 11:39 am | SingleGuyMoney said:
It’s good to have an emergency fund but it sucks when you actually have to use it.
November 5th, 2007 at 11:43 am | Frank said:
@SingleGuy
You’ve summed it up perfectly!