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A comfortable “rainy day” fund is a key component to most personal financial plans. The experts don’t agree on the exact amount to keep in an emergency fund — advice ranges from three to twelve months’ of expenses — but they do agree everyone should have one. An emergency fund is self-insurance: It’s a way to cope with the unexpected without resorting to debt or other expensive options.
But what happens after you use your emergency savings? That’s what Sarah wants to know. She writes:
Over the last few months, we have been hit with several large, unexpected bills (large car repair, change in our county’s taxes, those sorts of things) which put a dent in our savings account.
We live a debt-free lifestyle — no mortgage, no car payments, no credit card debt or student loans — and this has freed us up to have one stay-at-home parent and one working spouse with a very moderate income. This low-debt/low-cashflow situation means we live fairly modestly, but also that we don’t have a lot of extra money to save. At the rate we save, it could take almost two years to replenish the money spent on these recent bills.
My question is: What do you do when your emergency fund has been used for its intended purpose? Do you just keep saving at your normal rate and assume things will catch up eventually, or would you try and ratchet up your savings to catch up quicker? Saving at a faster rate would mean we’d really have to cut back on most or all of our fun things or splurges, which might be hard to sustain for very long, but not catching up makes me anxious.
I suppose my second question is: Is it normal or even healthy to feel anxious after using one’s emergency fund? Or should I rethink my attitude and accept that situations like this are exactly what savings are for?
I think it is normal to feel anxious after depleting an emergency fund. Since building one of my own, I haven’t had to deal with not having one. I can’t say what it’s like to have it go away. But Kris has always been a saver, and I’ve seen how anxious she becomes when she has to use her savings. (She once had to bail me out when my car was totaled. That made her nervous for years until she was able to rebuild her savings.)
At the same time, it’s important to maintain perspective and balance. Sarah and her husband have made smart choices in the past. There’s no evidence that they’ve lapsed into any bad habits, so a certain amount of even-headedness is required here.
But how should they go about rebuilding their emergency fund? If they want to rebuild their emergency fund in less than two years — which is probably wise — then some temporary “juice” may be needed:
- Cut back on normal indulgences. Using myself as example, if my emergency fund were depleted, I might need to cut my comic-book budget from $50 a month to $25 a month. I might need to eat out one night a week instead of two.
- Take a temporary part-time job. I don’t say this often enough: I believe the best way to build savings (or to pay off debt) is to increase your income. In Sarah’s family, the stay-at-home spouse might take a weekend job for a few months. Or the working spouse might ask for overtime.
- Sell some Stuff. When I need a quick cash infusion, I look around to see what I can sell on eBay or Craigslist. That’s more difficult nowadays (because I’ve already sold much of my Stuff), and it may not be applicable to Sarah’s circumstances. But it’s probably an option for many folks.
In many ways, these are the same tactics one might use to get out of debt — just on a smaller scale. To repay debt, you might have to cut back most of your splurges for several years. Here I’m suggesting cutting back on some of the splurges for a few months. Essentially, I think Sarah’s family should boost their cash flow for a short period of time. If they do this, they should be able to rebuild their emergency fund in much less than two years.
Have you ever tapped your emergency fund? How did it make you feel? What did you do to restore it? Do you have any advice for Sarah and her husband as they rebuild their savings?
Photo by Indenture.
This article is about Ask the Readers, Savings Friday, 24th July 2009 (by J.D. Roth)
I guess my question is what did Sarah use to build the emergency fund it to begin with? If she were using a debt snowball, then redirected that snowball into investments or other things, it would be time to channel all or part of that money back towards the fund. That, at least, is the idea I’ve always had in looking at it.
Also, we don’t know how much is “enough” in the fund. That’s ultimately for Sarah and her spouse to decide. But if they still had a few thousand for real emergencies, then letting the fund grow again over time isn’t that bad. But if they’re down under a thousand, it’s a different story.
I can feel for Sarah, I too have had a number of things go wrong and need replacement/repair (washing machine, AC, toilets) and just as the fund starts to get up there again, wham, down she goes. I’m still hurting from the last incident and just yesterday the master brake cylinder on my car went out. I’m guessing this will hurt, and given the mechanic is saying there’s a number of other issues with the vehicle, it’s likely to hurt pretty bad. I’m redirecting my debt snowball at this point to build up the fund again rather than pay off debt.
So to answer Sarah’s question, I would personnally ratchet things up to get my emergency fund back to a place I’m at least somewhat comfortable with it rather than wait two years for it to “fill” up again.
Funny timing of this post…my wife and I had over $20k in our emergency savings. The way the economy is going right now (and after running some numbers) we decided that money would be better spent on paying down half our HELOC then sitting in ING.
We didn’t use all of it, but a large sum. Even though I know it was the “smart” thing to do for our situation - I still had that anxious feeling after wards like Murphy’s Law would strike us since we just spent our emergency savings. So far so good…we decided we will just put aside the same amount we have and hope we can get the savings back to where it was within the next two years.
Good post. Makes me feel better knowing I’m not the only one who felt this way after spending our emergency $.
An interesting problem to have. After beginning my personal finance maturation it wasn’t long before this cropped up in my own realm. I was enjoying the ability to save at a reasonable rate, had an emergency fund, and lived frugally while still having plenty of comfort items.
I was suddenly hit with two medical issues in the same year that would have drained my emergency fund enough that I would need nearly two years to get it built back up. I chose a hybrid approach to getting things back on track. My main hang up was that after being responsible and living on a very restricted budget for three years as I got my finances in line I felt like I was (actually I still feel like I am) entitled or at least deserving of the comforts and luxuries that I did work back in.
First, I used my fund to get healthy. I did cut out several items from my budget immediately. I had a vacation and a church mission trip planned for the upcoming months. I called off the vacation and used that money to cover some of the expenses.
I initially was upset about digging into my emergency fund because I have grown to LOVE having it. It took a nudge from a friend to remind me of WHY I have that fund. I concluded not to give myself a hard time about dipping into it.
I was left with $2,000 to replace when it was all said and done. I did sell some things as I had acquired plenty of no longer needed items despite my new lifestyle but this wasn’t the fire sale that I did years ago. As soon as I recovered I sought out a few friends who needed to have their houses painted and made them an offer.
I could have taken a couple of years to build things back up but managed to do it in about 6 months because I have developed some new habits and skills in the area of personal finance. Also, since my emergency fund was of the 6 month variety I still felt safe having a reduced fund for a few months.
I absolutely believe it is normal to feel anxious having a depleted emergency fund. Like the other posters, we have gone through some emergencies, but I can tell you it didn’t hurt as bad as if it had to be put on a credit card. We are out of debt except for our house and just my husband works, but he has the ability (often forced) to work overtime. We are also having a garage sale and will be taking some of the kids clothes to the resale shops. Anything to build it back up. I am much happier and relaxed knowing that money is there, safe and sound.
We’ve had our own scenarios, but in our case the more logical option was to cut back in some areas to rebuild the fund. Since it sounds like they are living a pretty frugal life, I agree their best bet would be to find some way to boost their cash-flow temporarily, at least enough to get their emergency fund partly restored.
I think the other thing that needs to be considered is if any of these unexpected bills will continue. She mentioned taxes, is it due to an increase that will be permanent? Is the car repair bill due to an aging vehicle? Sometimes they really are just one-offs, but in some situations it may be indicative of a need to adjust the budget. I’ve definitely found that about half the time that we have to hit our emergency fund, it was because our expenses had increased without our noticing until we started to fall behind. (In an area where expenses come irregularly, like car repairs.)
Yeah, last year I had a round of car repairs on my aging car that nearly drained my emergency fund. (Think $500+ in car repairs, every month for six months. It was crazy.) I paid for what I could out of cash flow, but my emergency fund finally got down to about 1.5-months of expenses. At that point, I decided that it was time to buy a new car — because if I didn’t, the repairs would eat up the rest of my emergency fund, and I wouldn’t even have a downpayment if the car died.
Pulling nearly all of the money out of my emergency fund for that downpayment terrified me, but it was definitely the right move. Without the unpredictable and crippling repair bills, it took me about six months to resave all the money I had in the fund before the car started going. (Even with a new car payment and higher insurance!) Now I’ve got room in my budget to really focus on saving a 6-month emergency fund, which I don’t think I could have done before.
So I guess my advice would be to look at *why* the money had to be spent, and figure out if those expenses will be coming up again. If so, is there any way to make them stop — even if it involves spending a bit more money now? Could you contest the county’s assessment of your house? Can you get a trusted mechanic to look at your car and give you an estimate of upcoming repairs? (I really wish I’d done that last one.)
Building a savings fund takes so much work and time that it’s natural to feel uncomfortable when you suddenly have to use it. But of course, “suddenly have to use it” is the nature of emergency funds.
In the past, I’ve drawn mine down to $200, an alarming development. My strategies to rebuild:
* Continue to deposit the usual monthly amount to that account.
* Also deposit every after-tax penny of freelance income (side income from the day job) into the account.
* Take a part-time moonlighting job and save every after-tax penny from that.
When you’re doing all three of these things at once, it’s surprising how fast you can rebuild your savings. Or maybe it’s just that time passes so fast when you’re having fun, you don’t realize how long it takes…
What a timely post!! I recently was laid off and needed to tap into my EF for some unexpected expenses. I felt guilty at first; however, my common sense took over quickly and I told myself “that’s what the account is for”.
I had to dip into my emergency fund when the company I worked for went bust. It was a horrible feeling! Luckily, this was before the economy also went bust so I was able to find a job quickly and get back on track.
I hated it, but I learned this fear-factor was a good thing. It made me think long and hard about how much money I needed and what the fund should be used for. I also learned not to think of my emergency fund as part of my net worth. It’s money that’s there to be used, and retirement savings and other savings are not to be touched at all!
You must rebuild that fund as quickly as possible, no telling when the next emergency will happen. Spending less AND earning more is the only way to do it fast. Since several unexpected bills quickly depleted your emergency fund, the fund did not contain enough money.
Rising taxes and car repairs are not really emergencies, they are unwelcome facts of life. You should be saving for these looming expenses in addition to an emergency fund.
This could not have come at a better time. I had emergency vet bills, car repairs, and the dryer just broke. This answered some of my questions that have been bouncing around in my head. Thanks!
I’m a longtime reader, first time commenter.
This post struck a cord with me. My husband and I just spent about $11,000 to replace the failed sewer line of our 90 year old house. The sewer pipe was located under our driveway, so removal and replacement of all that concrete was a big part of the expense. We had more than enough in our emergency fund, and there is still 2 months living expenses left in that e-fund and another 2 months of expenses in a car replacement fund (if we really needed it).
We did it. We saved for an emergency, an emergency happened, and we paid the bills. I should be happy; HOWEVER, the aftermath of watching that e-fund balance go down has been heart-wrenching and depressing! On a practical level, I know we did all the right things, but on some other crazy level I think that my previous ignorant life would have made this easier on me. In my previous life, we would have opened a HELOC and charged the bill. Ignorance would have been bliss.
Of course, I know that we’re better off now and I know that ignorance and lack of planning are NOT bliss. I also know that we need to work on building an even bigger emergency fund!
As for replenishing Sarah’s family’s emergency fund, I think your advice is spot on. Cut out any fluff and increase income. My husband and I both work full time, but when I was a SAHM, I worked one all-night shift each weekend at a local college library to build savings. I also tutored children for pay (I’m a teacher). Slow and steady wins the race!
My emergency fund isn’t designed to support car repair or an unplanned tax. That’s what regular savings are for.
My emergency fund is for the stuff you truly can’t expect at all, like the roof caving in or your house catching on fire, or to cover my insurance deductibles in some other case.
The reader has placed too much importance on the stay-at-home model and needs to get a job if they can.
Sarah,
It sounds like you’re also currently saving for some other things. Could you possibly halt those savings for a bit and redirect to the EF? Or did I read that wrong and everything you are saving is going directly to the EF?
I’d say it’s normal to feel anxious after using emergency funds because the “emergency” isn’t really over until you’ve replaced those funds in your emergency reserves. When you experience a financial emergency (an unplanned expense that exceeds discretionary income and that that must be met), most will go into “emergency mode” and cut back on other expenses to minimize the impact to the emergency fund. But, once the emergency expense has been met, it really makes sense to remain in “emergency mode” with unnecessary expenses cut back until you’ve replenished your emergency fund.
The purpose of an emergency fund is not to be able to skate through emergencies all happy-go-lucky. It’s to reduce the chances that a financial emergency could turn your world up-side-down. So, even with an emergency fund, there will be a certain amount of anxiety and personal sacrifice involved, just less than if you didn’t have an emergency fund.
I know how the reader feels. We too are doing all we can to put the $ back into our emergency fund and keep me at home. The balancing act is tough! We are starting to define “emergencies” as more drastic all the time and cutting back even more than we thought we could. Still tough to get $ to stay in the emergency fund. But there is some there - and that’s the start we need.
Sarah - even if you have a “splurge” $ month every 2 or 3 months and save the rest the other months it will help put $ in savings and give you a little money to spend. Ratcheting up to replenish will play off dividends later.
Sarah’s situation sounds ideal for temporarily boosting income. They don’t have much to cut out of their budgets and what they can cut will remove joy from their lives. If the stay at home parent could work even 10 hrs or one day per week they’d quickly find their peace of mind again as their savings increased. Aside from the savings benefits, I’m all in favor of changing up the routine for a while and to see what we can learn from it. Maybe the SAHP will find s/he enjoys being out with other adults for a while, maybe they’ll reaffirm their commitment to their current lifestyle, maybe their kids will learn that there’s more than one solution to a problem and that either or both parents can work, and they’ll all be reminded of their resilience. The other parent will also have regular, additional time as the primary caregiver for the kids, which provides insight into the spouse’s daily life. Both parents and kids will learn from mixing this up, too.
We used about half of our emergency savings for medical bills a couple of years ago and it renewed my motivation for saving and staying out of debt. We’ve not only replenished the savings, we paid off completely a small home equity line and accelerated our mortgage payments. Having the money available when we needed it was such a great feeling that it balanced out the anxiety caused by spending the money.
I do think that Weakonomics brings up a very important point in the comments. Everyone does need to have ‘regular’ savings that plans for ‘unexpected’ expenses like an increase in taxes, or car repairs or a new appliance.
Those are all examples of expenses that we know will happen eventually - even if we aren’t sure of exactly when it will happen. They are also the kind of expenses that used to trip us up all the time. It seemed like every other month or so one of those kinds of expenses would come up and we would be scrambling for how we would pay for it.
Once we got serious about changing how we managed our money and committed to true financial responsibility - we set up several different savings accts. The first one was a planned ‘unexpected’ savings acct. Like our quarterly taxes, property tax bills, car repair. Stuff we knew would come up but was also easy to forget because it wasn’t part of our monthly expenses. The first year we estimated those costs like car repairs and by the second year we had receipts we could truly work off from. We also added saving for Christmas in that acct, money for gifts, etc. That gave us a bit of wiggle room because if something like the car repairs came in higher, we already had a bit of a buffer with the gift/holiday savings that was there. It made us aware that the holidays might need to be leaner in plenty of time to re-adjust our plans.
The next acct we set up was the emergency fund. We ultimately want to have 1-2 years of income saved in that acct so we are only 30% of the way saved in that acct. It is slow going at this point but we have automated the payment into it so it now just happens.
The next savings accts we opened were for our personal savings. A little bit goes into those accts (husband, me, and our three children). We each fund our personal accts from our monthly “allowances”. My husband and I ‘match’ anything the girls choose to put into their accts (with their understanding they must put something in their acct every month -even if it is only a dollar). I am a bigger saver than my husband so my personal acct is a bit bigger than his - but these accts are funded by our individual allowances so it really is up to each person.
Now, all of these accts are completely separate from investing choices. But we found it easier to save more if our savings weren’t consolidated into 1 or 2 accts. We had an inflated idea of what we actually had saved when we only had a couple of accts and we routinely overestimated what we cold afford based upon that. We now save more than ever before and yet are so much less likely to go over budget on monthly expenses. And feel like our children are learning more about how to healthily budget and used money.
It takes time to put this kind of system into place. And getting to those first milestones can take a while. But then momentum really takes off and you can see your progress. And taste the freedom of truly savings enough of your income to give yourself some security.
Good luck!
Of course the simple answer to the question is to hurry up and replenish that emergency fund!
I wrote about the concept a while ago of refilling your emergency fund with a sort of service charge or ‘bank fee’ when you use it. That sort of ads a real-time adjustment quality to the emergency fund- i.e. you use the fund more so you have to pay more in fees thus increasing the funds available for next time. It’s really just a gimmick, but some people really liked it.
I would feel nervous, too. We have three months (almost a year, if we still had one salary) of living expenses saved, and right now we’re saving for a house, but eventually I want a year of expenses in our EF fund.
I don’t think she has “placed too much importance” on being a SAHM. All she said was that being debt-free allowed her to stay home. Everyone has different priorities, and her desire to be a SAHM is no better or worse than another woman’s desire to return to work. There are benefits to both, for the family and for the bank account.
Sarah–If you want to avoid returning to work, maybe you could provide childcare services for one or two kids of friends, neighbors, or relatives.
The first thing that came to my mind was feeling anxious is normal. I would cut expenses even more to get back in savings fund where I was before. The other thing I would do would taking a part-time job to get back.
JD,
Something you said in this article has me curious: You said you’ve not had to deal with not having an emergency fund, but that your wife had to bail you out from her emergency fund when you totaled your car. Do you and Kris still keep separate emergency funds? Did you pay her fund back? My wife and I keep all our finances together…what’s mine is hers.
My husband and I used up our entire emergency fund this spring. We’re still paying off debt and therefore only had a $1,000 emergency fund but hubby lost his job and we used that $1,000 to pay bills while we waited for unemployment to be approved. Yes, it was scary. Yes, I didn’t like using up all our savings. After all, Ramsey says women have a big “security gland” and I have to agree!
When my husband found a job (6 months later), we made sure all of our bills were caught up. Then we threw everything into rebuilding the emergency fund. We now have a fully funded baby emergency fund and are back to snowballing towards the debt.
I didn’t like spending the emergency fund, but that’s what it’s for! If there was no emergency fund, we’d be in even larger debt today than we were six months ago!
The two things mentioned by the writer are kind of worrying. A large car repair can be worrying, but thinking longer term, are you saving money to replace this car, paying cash for the replacement? Do you not have a line item in the budget for maintaining the car? As the old adage goes, “maintenance is always cheaper than repair”. All of these things may be in process, but when repairs on a vehicle start cropping up, one should really begin thinking about how you are going to pay for it. Also, if the items repaired were something that was expected to wear out or were on the maintenance schedule (brakes, tires, timing belt), then you need to know about what those services cost and budget for them, as they all can be fairly easily estimated (from both the perspective of money and time).
For the uptick in taxes, that’s going to be an ongoing expense that isn’t going to go away. Tax rates always seem to rise, they fall considerably less often. While an unexpected tax bill can bite you once (and require payment from the emergency fund), it shouldn’t bite you again — it should be added into your budget at the new level. Yes, it sucks, but there isn’t much you can do.
I would encourage a look not only into the stopgap measures mentioned to refill the emergency fund, but also long-term fixes that will add more security. For example, could more education or training improve the ability of the person who works outside the home to have more income? It can very easily take a year or two to apply for and complete some programs, so it would be a good idea to get going on this as soon as possible since the car will require repair again and the taxes will cost the same (or more) next year.
Wow. Especially excellent comments today. Thanks, everyone!
JB (#22) wrote: Something you said in this article has me curious: You said you’ve not had to deal with not having an emergency fund, but that your wife had to bail you out from her emergency fund when you totaled your car. Do you and Kris still keep separate emergency funds? Did you pay her fund back? My wife and I keep all our finances together…what’s mine is hers.
Right. Maybe me time-line is unclear on this. I didn’t build an emergency fund until 2007, and since then I haven’t had to use it. My car was totaled in 2000, long before I had emergency savings (or savings of any kind, really).
Kris and I do keep separate finances, even today. I explain why at that link. (Short version: It’s what works for us.) As a result, when I borrowed money from her emergency fund, I did pay it back.
I figure that frugality is the best option. Me and my husband eat out twice a week and now we are trying to cut it down to one evening out. Which would save us close to $30. In one month, this may save close to $100. I read somewhere on GRS about saving $1 each day. I have started doing that past 2 months and my husband saves $2 each day. We now have saved up $180 which we did not even miss. One has to slowly and steadily increase the savings. I also feel that investing the funds allocated for emergency savings, should be saved in a reward checking account, which is the best bet right now. We got one at a local bank here at the rate of 4.6%:).
These are just something I would do.
I think it’s normal to feel anxious when you’ve worked so hard to build your nest egg. Feeling anxious means that you probably won’t ever spend that money on something frivolous. I think it’s actually a very good thing.
As far as replenishing the account, I agree with J.D.’s suggestions. Look through the house to see if there are things you can sell. You or your husband may want to consider a part-time job just until you can replace the fund. I, personally, feel so much better having an emergency fund. Therefore, I would do anything I had to to make sure that I could put it back in place as soon as I could to get that financial security back. It may take a bit of sacrifice for a little while but it will be worth it.
I think it is very normal to feel anxious when we use our emergency fund but I don’t think it’s necessarily healthy. You build the fund to cover things that are emergencies or unexpected. That doesn’t mean you’ll skate by just because you paid for it(as others have mentioned) but it should give you peace of mind that you aren’t hurting yourself.
We get anxious because we’re used to having this sense of security that the emergency fund gives. But really there’s no difference in our circumstance now from before the fund. We’re still just one major disastor away from ‘ruin’. If when you started saving you had $100 and now you’ve spent down to $100 you are still in the same place. But now you have the tools to save and grow that emergency fund again. You have just as much leisure time to grow the fund as you had before. This is why I believe it’s not healthy to worry about it. First, you probably weren’t worried before. Second, you can’t predict the future any more than you could before so there’s no sense to worry about it. Taking precautions isdifferent from worry. Preparing is different from worrying. You do what you can but don’t trade your peace of mind because you have to do what you have to do.
My wife calls me out on this, sometimes as much as I call her out. She resigned from her job in May because it wasn’t the right fit. We used our emergency fund to pay back the tuition reimbursement she received when she started. We began preparing for this in Dec/Jan because we knew it was coming. Since then, she is deciding what to do (part-time job and go back to school, part-time/full-time job, etc) and building relationships that she couldn’t when she was working before. We’re young and have plenty of time to ‘bounce back’. Sometime I tell her not to worry and sometimes she tells me. We are still using our emergency fund to suppliment because we both have student loans that almost as much as our rent. So we are looking through options and doing what we can to get by without going any further into debt. But one of our goals is to not worry or be anxious and to deal with the circumstances as they come and prepare as best we can.
Great, timely post!
I’m fortunate to remain more or less securely employed and have a very comfortable emergency fund of +/-$20k. I keep adding to my emergency savings while I don’t need it. When I reach another $5k mark I transfer it into an HSBC online cd, creating a laddered cd program. Some of them are paying 4%. The remainder stays in their liquid, online savings account.
I say never, ever stop saving for a rainy day.
Living debt-free is great, but having a child is the biggest debt you can have.
Not only did we recently deplete our emergency fund, but we also had to max out a credit card to cover expenses above and beyond what our income (one of which was non-existant due to recovery from a surgery) could cover. Yes we had debt before, but had been working to get rid of it. But we had an unexpected twin pregnancy (after a tubal ligation) after months of my husband’s slow season, was followed by my husbands eye surgery during what should have been busy season at work, and that was quickly followed by a need for the twins and I to have surgery, and then a $600 vet bill.
There wasn’t much to cut out. We had already cut things as much as possible.
We have survived. It has been the most helpless feeling but I’ve relied on the promise that God will care for our needs. We recently sold a vehicle and are selling other items to begin to replenish our savings and pay the medical bills.
I wanted to add that I’m another fan of multiple savings accounts. I have a slush fund that covers nearly all irregular expenses (taxes, insurance, car repairs, holiday gifts, vacations, new computers, workshops, etc.). The slush fund is at my main bank so I can get money quickly (necessary, since sometimes my company doesn’t pay my expenses in time and I have to use my own money to pay the credit card and cover for a few days so I don’t get charged interest).
My main emergency fund is at a different bank entirely, and I’ve only dipped into it once, for the car downpayment. I’m working to get this one up to six months of expenses. Having the separate slush fund makes it much easier to really focus on building the emergency fund.
great responses -
we may have to dip into our emergency fund - and our 6 month salary stash - my husband was recently, quickly forced into retirement from the air force. yes, retirement check - no, it doesn’t even cover the basics.
just yesterday i felt anxious about using our savings as well. it took a long time to build it up.
but as a few posters have mentioned - we structured our savings wrong. we never saved for the inevitables - like car maintaining, small house upkeeps, etc.
the good thing is that we are already talking about how we will restructure things when he has his new job. one big thing on my list is saving for weddings. i have 2 kids coming of marrying age soon. we won’t roll out the red carpet - but i don’t want to cut bait on them either.
Since my husband got laid off a few months ago we’ve been trying desperately NOT to dip into our (albeit small) emergency funds. Your tips for rebuilding are exactly what we’re doing to avoid having to cut into them. My husband is great at e-bay so we have been selling stuff to get some quick cash. He’s also been selling plasma twice a week! Eeek! And then I’ve been taking on as many freelance jobs as possible - which lucky for us my work has been steady and awesome. We’ve both been focused on not spending, too.
Thanks for the great post!
@lauren Is it usual in US that parents pay for their child’s wedding?
Here (in the Netherlands) we pay for our own wedding ;). That caused a lot of damage to my savings ;).
We have so BTDT - many times. What works for us when that happens is to work extra hard to save. This means having a “no spend” month (I gave myself $25 a week for a month to get perishables at the grocery store only) and we added $800 to our EF. Other times we have sold things that we no longer needed or used. Other times we have worked extra to bring in more income. Sometimes we have done all of those things. Personally I get paranoid and just have to do whatever it takes to bring the balance back up. Good luck!
I also get nervous if I have to use the EF.
IMHO, if your surplus income is so low that re-building the EF is a burden, you might think about seeking alternative ways to increase your household income. Can the SAH parent get a part time job?
I was laid off in May, and just this week have dipped into my emergency funds. I’ve had one car repair after another including a huge transmission overhaul (that’s over $2000). I’ve put it on my credit cards hoping that I can get a job an pay it off soon. Unfortunately no luck in the job area, so I’ve dipped into my savings to start paying off the cards and not let the interest take over and run away.
When that money runs out…I have no idea what I’ll do.
I guess I don’t see most of these things as “emergencies”. My emergency fund is for use in case of illness, job loss or emergency travel to care for or retrieve a family member. I have separate funds for car maintenance, home maintenance and so on. A change in my civic taxes would be something I surely would have noted when the budget came down 6-12 months earlier, although I *might* see that as an emergency if it was so huge that I had to dip into emergency savings.
If I didn’t have the money to repair my car, I would walk, bike, carpool or so on. I don’t see a car as a necessity.
If I did exhaust my emergency fund, I would pick up a second job or turn to consulting. In fact, I’ve done that throughout my life. The consulting eventually turned into my f/t work.
Our emergency fund…? Long gone, I’m afraid. It was a huge relief to have the savings when we needed it, but building it back again is impressively difficult. You can probably relate a little to this — my husband and I work freelance as letterers in the comics field and have for many years. I can tell you that that business is one of the lowest paid, least forgiving of any I can think of. We do own our house, and we have no consumer debt, aside from our mortgage. I’ve been trying to find outside work for some time, though the job market in our area is amazingly tight. Having a life savings in the low 4 figures is scary. We just carry on, saving what we can, and I know that eventually it will build up. We already have sold our items of value. I’m looking at finding another career, but education for that is beyond our reach just at the moment. Our “strategy,” like many others’, is to cut back wherever we can, and hang on.
@ J.D. I’m very curious about the whole separate versus together emergency funds for couples. I know a few women in my mother’s generation that had emergency money of their own set aside in case something happened to their husband, or, worse yet, the marriage got so bad they had to leave suddenly.
I suspect it was because husbands were generally the main breadwinners and controlled the finances, but I wonder if that approach still makes sense today? I don’t think I would ever keep money hidden from my spouse (when I have one), but I think I would be more comfortable with a little emergency fund of my own.
Lois, could you not turn to graphic design? You can start by getting some clients through elance and similar sites and then, once you have a portfolio and testimonials, you can move up into higher paid work.
If you have a crisis and need to use your emergency fund, you do it and be thankful you had it for such a time, even if you have to deplete it.
As far as rebuilding it, you’re back at square one, and you just have to start over and redo what you did the first time around.
One thing though, some experts advise a limit on the EM (3, 6, 12 months) but I disagree completely. If your goal is six months, I think you keep going even when you hit that level. Pay your debts as you have before, but build up enough money in reserve beyond six months that you can payoff a credit card or other loan completely by writing a check to get rid of it. How good will that feel?
We can say six months and invest the rest for better returns, but life has a way of throwing just one more crisis at you, one more big expense. I like the idea of having the money to pay for what’s needed, then being able to transfer money when the balance gets too weighty. It kind of keeps you ahead of the money drain (which never seems to get plugged).
@Elizabeth:
I can’t speak for JD (obviously) but I know that my mum had a savings account of her own, whilst my dad didn’t. When she went back to part-time work, her earnings went into a separate savings account that they used to pay for our university education, plus nicer holidays, a new bathroom etc. I think that savings account was in her name only as well.
I guess that it was because she gave up a lot of opportunities when she married my dad and had kids - she had no career at the time, so she would have had less to fall back on.
@JD
I love the way you summarise a whole post in 5 words. Very concise.
Oy I hate using my savings. Mostly because I have yet to save very much before something comes up. First I took my dog to the vet, which is usually cheap, but then I took all their suggestions for flea meds etc. without asking questions or shopping around. About $250 I didn’t need to spend. Since then it’s been the car, one thing after another.
We are in a similar situation that JD and Kris used to be in: I’m the saver he’s the spender. Anything that needs to be done with the car I must do, and he reimburses me for some. I don’t use the car much anymore, and I’d be happy to just get rid of it but he needs it. I’ve told him that if he wants a new car then he must do it himself - I paid for this one after all, before we were together - but realistically that will never happen. Unless my husband decides to do what JD did!
It’s one thing to APPLY for the jobs. It’s another thing to actually be HIRED into one. Looking for a job is not the problem, it’s GETTING the job that’s the problem. There are too many people up for the same temporary part-time jobs, and it’s a crapshoot, NOT a guarantee. No matter how badly you might WANT one of those jobs.
The issue is, the blasé remarks like “well, just sell some stuff, cut back, and get a part-time job” is insulting to me. It assumes I haven’t already done all of that.
Oh, it’s so EASY. Sure. That’s why I’ve been looking for and applying to and practically begging for work of ANY kind for MONTHS, during which I’ve cut everything down to the bone (only basic utilities and food, no insurance, no “fluff”), have been living on cash only, no debt, unable to pay the mortgage, unable to sell the house because nobody wants to buy real estate, unable to sell extra stuff because nobody wants to buy it because they are in the same boat, and the emergency fund?
LONG gone. As are savings, retirement funds, you name it. Because I’m unemployed, I can’t get a loan to save my life. Because I cut up the credit cards long ago after becoming debt-free, I don’t even have one, and can’t rely on it to temporarily bail me out.
What you don’t seem to understand is that despite their best efforts, there are some people out there whose resources are gone, and who are out of options regardless of how hard they are trying to fix it.
After running the public assistance gauntlet in a failed attempt to find help, I don’t know whether to say thank God I’m single, childless, capable, and white, because there are no children affected and I’ll someday be able to take care of myself again; or dagnabit, because if I had children, or was disabled, or was a race other than white, or was over a certain age, I wouldn’t be discriminated against.
That’s right. The government we single, childless, college-educated, hard-working capable people pay taxes to is discriminating against that same person by denying them assistance in a time of dire need.
That’s how I feel. Thanks for letting me vent.
I never knew how much it would make me anxious to take a loan from our emergency fund… until I actually had a nice-sized emergency fund from which to make those loans! To combat the gnawing feeling in the pit of my stomach whenever we have to use this money, I’ve come up with a couple psychological strategies…
Our first strategy has been to set up some tiered emergency funds, similar to what a couple other posters have mentioned. Essentially, we have a generic “emergency fund” where the bulk of the savings rest. Then we have so-called emergency funds to cover specific kinds of expenses that aren’t quite predictable in the way semi-annual bills are predictable–for example, we’ve been building up funds to cover the deductibles on our insurance (car, homeowner’s, etc) so that should someone hit-and-run our car or if we have a “minor” visit to the ER, we’ve got the cash available to pay for the deductible without having to dip into our generic emergency fund right away.
Second strategy: When we’ve had to take money from our emergency fund (as in, we’ve not been able to build the deductible fund back up and s#!t, the car’s been hit *again*) I’ve taken to treating it as a loan to ourselves–meaning I charge us some interest and I set up a bill/automatic transfer from our everyday checking account back into our savings account that lasts until the bill is paid off. This is in addition to whatever we’re usually allocating to go into our emergency fund (that is, if we were contributing $75/month before to the EF, we’re now contributing $75 to the EF plus repaying a “loan” at 3% interest spread over the next 6 months.)
I figure we’d be having to pay a lot more if we’d put that charge on a credit card, and we’d still be on the hook for a monthly payment. By thinking about it as a bill rather than “replenishing the EF”, it is easier to prioritize the necessary scrimping to set that money aside. For the record, I usually look carefully at our budget in doing this and set a repayment period that allows for a reasonable monthly payment. So, if we loaned ourselves $6000, I definitely wouldn’t be trying to pay that off in 6 months!
Finally, by charging myself “interest” at a rate higher than what I’m currently earning on my “high-interest” savings account, I figure that over the long-haul of paying off the loan, I still come out ahead.
On the subject of coming up with funds when there’s not much wiggle room in the budget… I concur that some part-time work and/or offering your services as a “drop in daycare” for a while might help out. And instead of eviscerating your already-tight budget for the next 2 years, why not plan to trim down the budget for the next 2.5 years and then build in a couple “no spend” months? That way you’ll have a few moments of really beefing up the savings/EF repayment, but not consigning yourselves to an uber-spartan existence for the foreseeable future…
@JRB (#47)
You’re always welcome to vent!
Just remember, though, that the advice on this post and comments isn’t really geared toward your situation. Don’t take offense at at advice that isn’t meant for you.
If you had a $0 emergency fund and had to take on a lot of debt, how would you pay off the debt?
Get back up to your previous EF levels using the same method. If that means putting more into the EF, so be it.
Nobody really anticipates using their Emergency Fund for an emergency. Mentally, the EF is generally classified as savings, so it is always hard to use the EF when something comes do.
How does one differentiate between their savings and an EF? Was the EF created so that people with no savings are scared into savings? Whatever works I guess.
When the EF is used, just go back to doing what you were doing to build the EF in the first place.
The biggest emergency is not doing everything possible to constantly build one’s network and skills in this market.
Rgds,
RB
RB (51)–Excellent point. In the end, savings are finate and will run out, but skills and networks represent our ability to replenish.
Yes, have savings, have investments, have an emergency fund, but ultimately, skills and abilities are the golden goose that all else flows from.
This was incredibly timely for me, J.D. My husband is our sole breadwinner (I have been a stay-at-home mom for 25 years; four kids now; and I home-school as well). He is a building contractor and things have gotten really hairy this year. We actually had to use $1300 from our emergency fund recently just to pay the bills for that week. I had increased our contribution to savings at the beginning of this year to cover vacation and Christmas funds, so I had more in there than usual (still not a lot) - so I had been feeling really good about it until this happened (we also have an HSA that we haven’t touched this year so that is also a kind of emergency fund). Anyway, to hear how others have dealt really helps me. I am going to start thinking of ways I can rebuild the fund rather than in just one chunk. Again, great timing!
We have a similar strategy for paying back our ER as Leanne. And frankly, this is the reason you should always be contributing to an ER, even after you have 3,6, or 9 months (or more) saved up. We consider our ER to be our own personal bank. We “borrow” from our bank, and have to pay the bank back ASAP after borrowing from it. Granted, this can take a long time, but we’ve been at this for 21 years now, and when we were younger, the amounts were much lower then. Gradually and consistantly, we contributed monthly. But like I said, even when you have what you may consider a huge stash…a huge expense may come up and wipe you out. AS for rebuilding, all I can say is to put back whatever you can and perhaps get it in your head that you’ll always be saving for that Proverbial rainy day (or opportunity fund, if you prefer to view it that way!).
I forgot which personal finance blogger said this but he/she said something about a 360 month emergency fund. That hit me pretty hard and I totally agree with him/her. With an emergency fund that big you won’t have any worries. Something to strive for wouldn’t you agree?
feeling anxious is normal especially with the depletion of an emergency fund before its time. So my suggestion is that why don’t they try to increase their income by starting a small business in line with the things they seem to enjoy? instead of saving up again which will take a very long time?
financial freedom will get rid of the money worries long term. instead of a quick fix formula look into entrepreneurship and enjoy long term freedom
Replenishing seems a no-brainer; the very nature of emergencies is they don’t happen only when you can afford them. We find it helpful to conceptually subdivide the fund into a large core, which tap only during the financial equivalent of arterial spurting blood, and a smaller slice, to be used until we figure out what to do next.
Here’s a longer look at the question I did for a free lance client this morning. http://www.kansascity.com/business/story/1344944.html
If I used up my emergency fund I would pull out all stops to restore it ASAP.
An emergency fund is enough liquid money for *necessities*( rent, car, etc) until you can tap into your less liquid savings/investments.
The whole point of an emergency fund is to have it for emergencies — for situations that would *HURT* if you didn’t have the money.
Emergencies don’t happen on a schedule so it makes sense to prepare for them as soon as you can.
We’re trying something you might want to consider as you rebuild. I can’t say for sure whether it will make the emergency fund easier to put back together or not, but I know that since we started it, I’ve felt less tense.
Since the amount of money we’ll need for a 12 month emergency fund seems so enormous, we put away a part of that in what others above seem to be calling a “general” emergency fund. The amount wasn’t a huge percentage, it was more a gut-level decision on “what is the smallest amount I feel safe having?”
But, I think we could just as easily made the decision based on how much we could save by a particular date.
Since the beginning of this year, we’ve taken everything we would have put into the emergency account and created monthly one-year CDs. The thing I like about it is that every month next year, I know that we’ll have a few “extra” hundred dollars available if we really needed something beyond our monthly cash flow.
A side advantage that I’ve noticed is that in months when things have been very tight, the goal of starting that CD with a specific amount was very motivating. Much more so than just putting the funds in another account.
I don’t know if the mental tricks that worked for me will be helpful to you. Good luck, and I hope you have smooth sailing as you rebuild after this rough patch.
After an emergency is probably a good time to reconsider the amount in the fund, and refresh enthusiasm for having it.
Sarah needs to work out if what she has left in the fund is enough for now, in which case she can build it up more slowly, or if the next emergency is likely to wipe it out completely, in which case she needs to be more aggressive in building it up.
I suppose the next stage of an emergency fund is to have enough in it so that even post-emergency you can sleep at night…at least for most emergencies…
We have been facing this issue as well. We have been trying to build an emergency fund and it has been going very slowly. We had save close to 5K, but in the past 2 months had 2300 in medical bills and 900 in car repair bills. We’ve been able to pay all but 2000 off without touching the emergency fund, but 2K is now on our credit card. Emotionally I want to pay what I can on the credit card and leave the e-fund alone, even if means I’m paying interest for a couple months. The logical thing is to take the difference from the e-fund to pay off the cc, but I find that demoralizing. I have about 3 weeks to come to a decision before the credit card is due.
Partgypsy (61)–Just a suggestion, but maybe you can play divide and conquer, by paying the $2000 cc balance over three or four months instead of paying it off completely.
Yes, you’ll pay interest on the cc, but at least the em will remain intact. If you’ve had experience paying off debt in the past, taking care of the credit card will be more of the same.
Just from a psychological standpoint, it seems most of us find it easier to pay bills, than to set aside money for savings. Maybe it’s because savings have no immediate need or due date. But this is also something to keep in mind when deciding what to do.
(Not to hijack!) post #62 Kevin I agree; I’d rather just let it sit on the credit card because I would be more motivated to pay it off. It has been alot more difficult to increase our e-fund than to pay off bills, so I know that is a weakness.
@part; I don’t agree. You build that emergency fund, for EMERGENCY’s, and it sounds like you’ve had one. How lucky, and fortunate, and well planned you are to have had an E-fun in place to pay for such things.
Use your E-fund, pay for your emergency. Instead of working hard to pay off more debt, work hard to build that E-fund back up again.