We recently had to use up a significant chunk of our unplanned expense fund. We had a random piece of our roof blow away and, that very same day, my husband’s car battery died.
The events occurred a week and a half ago, right smack in the middle of the holiday season.
This time of year, we don’t have loads of extra cash lying around.
These are the types of issues that personal finance experts reference when recommending emergency funds.
Just about everybody has heard of an emergency fund.
We all know we are supposed to have at least three month’s salary saved up, “just in case.” The problem is, that most of us are hard pressed to save up one month’s salary, let alone three.
That is why I don’t have an emergency fund; I have an unplanned expense fund. Okay so maybe it’s not that different, BUT, my fund is slightly more manageable.
Three months’ salary would be awesome, but you have to start somewhere, and my somewhere is pretty shy of the recommendation.
Basically, if you want to truly break free from debt, you must have some kind of “plan B” savings situation.
My goal is to have at least five thousand available in my unplanned savings fund.
This is still a significant amount of money to me and my husband. Why five thousand? We arrived at this number through trial and error.
My husband and I live in the hot zone for unplanned expenses.
Worried you also live in a hot zone?
If you share three of the five situations below…you are in a hot bed of unplanned expense:
- We are homeowners. Every homeowner knows that you will have AT LEAST one unplanned repair or replacement thing crop up each year.
- We have kids. Kids are not cheap. The end.
- We both work full time. We both NEED to work full time…
- We drive vehicles. Vehicles can break, accidents happen and well, you get the point.
- We have a pet. Pets are similar to kids, because they are not cheap.
The kind of “unplanned” expenses we seem to encounter can typically be covered by three thousand dollars. So, with a total unplanned expense fund of five thousand, we have a two thousand dollar buffer built in. This is by design.
We would prefer to never be at zero in our fund.
The buffer gives us the opportunity to rebuild to our ideal balance faster and, acts as insulation, should another unplanned expense spring up before we have fully rebuilt the fund.
If we get hit with back to back unplanned expenses, there is a solid chance we can withstand the hit without resorting to using credit cards, or not paying a crucial bill.
So how about you?
Do you have an emergency fund or at least, like me, do you have a method to manage unplanned expenses?
We have about 2500 in our emergency fund. Its a must for anyone who plans to win with money!
I could not agree with you more Ken! Thank you for stopping by!
Regardless of what it’s called, it’s still there for emergencies, ooopsy moments, and for needed repairs. Like you, I have a savings account with 2,900 in it. This is a years worth of savings for me. I am a single income supporting a family of five. I’ve worked on Dave Ramsey’s plan and it’s saved my family from financial ruin. We have a mortgage and my student loan left to pay off. I have a retire ment plan through work with a 10 percent holding every two weeks, and a savings account that I am dedicated too. I like having the money there, and it helps me sleep at night knowing that my family is being taken care of. I have a goal of 5,000 dollars, but life happens. As of this being my first year with it, I don’t want to touch it. It’s in a bank across town, no online access, no debit card for it. I did it on purpose that way. We have kids, cars, needed repairs, pets, and life happens.
Debbie, you sound like you have it together! Your plan is comprehensive and ready for anything! I am impressed and appreciate that you shared your strategy with the Team EOD community!
We only have $370 in our emergency fund. It’s hard for me to put more money in to it when we have so much debt.
Yes, it is a much tougher time saving when you are already stretched thin with debt! BUT, you have something saved and that is a victory. Don’t be too hard on yourself, something saved is a lot better than nothing saved and that $370 may be just the thing that keeps you from adding to your debt! Good luck!
$370 is much better than nothing. We have $500 in ours, and while I’d love to have 5 times that, it’s all we can afford right now. You don’t know how many times that $500 bailed us out of trouble, and I’m so thankful that we have left it alone unless it’s truly needed.
Keep throwing spare dollars at your $370 and it’ll pile up before you know it.
I have one pot of money for any unplanned or emergency expense. It’s the same pot I would use if I were to lose my job. It has taken me years to build it up to 8 months’ worrth of expenses. Of that, I keep one month extra expenses in my checking acct at all times just in case.
I believe that one of the reasons I’ve been able to save up this much is that I have been very diligent in ensuring that I plan for infrequent expenses. In my opinion, a damaged roof and a dead car battery are unfortunate, but foreseeable. Things go wrong. I’ve always planned for unexpected car repair and maintenance, and home repairs. If those things ar e budget-busters, then something has to give in the budget so that there’s enough wiggle room to cover these things.
I totally agree with you, these are unfortunate, but foreseeable expenses. Planning for the unplanned is kind of what I have always preached. I am jealous of what you have accomplished and I now aspire to reach your goal! Thanks for providing a great example.
I have a car so that’s one, but my biggest hot zone is that I’m a freelancer, who has dry month. I’d be SOL without some kind of backup plan. That being said, my goal is 15k in my emergency fund.
Now that is a situation I think many people can relate to. If you don’t have consistent income, what do you do to manage those months? 15K is a pretty awesome goal!!!! You guys are making me feel like a complete slacker! geesh LOL
We have both an EF and an unplanned expenses fund. I hate having so much cash sitting there, but we run our own business and it’s well worth the peace of mind it gives us. We have about four months in our EF and working our way towards six months. Our unplanned expenses fund is usually around $1,000 or so, give or take a little bit. We rarely touch the EF, but the other is for minor home repairs and the like.
John you hit on the most important point…peace of mind! Knowing that you have something ready for reserve is a huge relief when those expenses crop up. Thanks!!!
First of all I agree in principle with having an emergency fund. Having said that, we decided in our specific situation we couldn’t conceive of a situation where we’d actually use it, so we now don’t officially have one.
We both work, but live on 55-60% of our take home pay to cover the basics. If the lower salary was lost we can carry on fine on the higher salary indefinitely and unemployment benefits would be a bonus. If we lost the higher salary, unemployment benefits would more than make up the slight shortfall. In addition, having been through 4 layoffs between us over the years, we received a minimum of several weeks salary up to well over a year in one situation. We actually came out way ahead financially with each layoff. The only scenario where we can imagine a job loss causing a need for an emergency fund is if we both simultaneously were fired with cause and received no severance or unemployment benefits. Given our personalities and commitment to our careers there is no way either of us will ever be fired for cause, let alone both of us. In addition we keep our chequing account balance minimum at $1000 so we never pay service charges, so theoretically if we every wanted to we could tap into that.
For other types of emergencies, every payday the lower salary is theoretically “excess”. If there was no emergency, and lets face it most weeks there isn’t, then it all goes to our retirement savings or an extra mortgage payment. If there was an unexpected car repair, appliance replacement, flight to a funeral etc then it is covered by the excess and life rolls on. In the even of a rare emergency larger than the excess of one pay week, then we’d slap in on a credit card and spread it over two pays. It would still be paid before the incurring any interest. It’s not the normal process but when you live way below your income it sure takes the pressure off.
So you don’t have a specific fund, but you do have a system in place that allows you to manage with those unexpected expenses. I think living below your means is a lesson worth sharing and I am glad you chose to comment. There are many ways to make sure you don’t resort to using credit cards and having a savings fund is just one.
Thanks so much for stopping by!
Yes, we used to have funds set aside but realized that because we now have our basic expenses cut down so far below our income, letting that emergency fund sit stagnant made no sense. Instead we’d rather get the excess invested immediately or whack down the mortgage sooner and reduce the interest we pay. Also, living massively below your income is like having an enormous weight lifted off your shoulders – knowing you can manage just fine if either salary vanished, or you had a huge unexpected expense really reduces the financial strain. It’s like imagining what’s possible when you no longer have mortgage payments and can direct all those funds to something fun, or (my preference) move up your retirement date by a decade or so. When the mortgage is paid off in about 3yrs we’ll redirect all our regular payments to retirement and move up our target date by another 7+ months every year.
We’ve had extensive conversations with our kids about the importance of setting aside funds for the unexpected, but also trying to live not just within your means, but well below your means. We’re not suggesting anyone choose to live a miserable existence to maximize savings, but just to skip anything that is counter productive to you personal priorities, no matter what the Jones are doing.
I think that the last paragraph pretty much sums everything up. Living below your means, and don’t worry about what the Jones are doing. Appearances are deceiving, but very expensive once you get to know the Jones.
I just wish the internet had been around when I was young. We used to believe we could get by and put emergencies on a credit card and get it paid off before the next emergency occurred. That doesn’t work in real life, as you know. (Pretty soon, everything is an emergency!) Even $500 in savings can cover a lot of unexpected situations. Better late than never!
@Sassy you are correct, better late than never!
My emergency fund is probably larger than necessary as we rent, but both my boyfriend’s car and my car are on the older side, and we have two cats. I like the peace of mind of having money set aside for unexpected emergencies. I was in between jobs and uninsured when I needed to get my wisdom tooth extracted, and it while it wasn’t as much as I had anticipated, just having the money there made me feel so much better. I didn’t have to stress, wondering how I would afford it.
There is that “peace of mind” comment again…I think that is really important to highlight that the value of having some kind of emergency savings is not just financial. The value of being prepared is a savings in your emotional bank too! Thank you!
Love the article and have all 5 issues. I find as a home owner that 1 house problem a year would be a great year unfortunately.
I have $6000 in a savings account for emergencies. I also have 90k in roths for my wife and myself that I could access without penalty if I had a big emergency.
Thanks~! I know what you mean about the household problems. It seems when it rains it pours, probably because of roof damage lol. It sounds like you are setup to weather those kinds of storms! Way to go!
Suzanne, I was reading your list of hot bed expenses and was nodding my head: Yep, that one applies to us. Number 2 is so true. Oh, and the third, fourth, and fifth. Why is the dog so darned expensive anyway?
My wife and I keep 3 months worth of expenses in an online money market account. It’s not a good investment but that’s not what it is for anyway. Some people would say we are chumps for doing this, but my wife sleeps better because of it. I think that’s worth the lost opportunity cost.
Yes, it is funny how such small things can create such large expenses. I think a money market account would be be perfect for an emergency fund! I think it’s a smart use of a money market. Great tip! It is great too see you btw 🙂
We have a “buffer” account for bills (unexpected and otherwise) that do not fit into the regular budget. We put money in there every month.
We also have a little over 6 months of expenses saved in a laddered CD account for a true emergency–job loss, serious illness, etc…
I like it, the buffer idea! That is a very practical way to adjust for the expenses that can vary and for those unexpected incidentals. Thanks for bringing that tip to the discussion!
Love the hot zone list, Suzanne. We also are paying off a boat load of debt right now, but we still put a small percentage of income into our savings account each payday. We figure it will add up eventually.
The debt really complicates the savings, but you are totally right! Every single bit counts and even $10 in savings could make the difference. Keep it up and it will pay off in the end!!!
My E-fund is at $5,000. I don’t have children, but I also don’t have steady income so I need more of a cushion.
I like how you broke potential emergencies down into “hot zones.” That’s a great way to look at what realistically could pop up to mess up your finances if you’re not prepared. I think some people get overwhelmed by all the blanket-statement advice that says you have to save up 6 months worth of all your living expenses – but I don’t think this is true for every individual. I like this unique way of determining how much you really need!