Without an Emergency Fund, I’d be in Debt

By Aaron Crowe

Check out my guest post on Aarons’ site here.

After living expenses, funding a retirement account and any unexpected bills, it can be difficult to fund an emergency fund on a regular basis.

Just the unexpected bills that pop up each month — making them an almost expected expense, such as a vet visit, dental repair, car breakdown or a sudden auto body shop bill or home repair, to name a few — can be enough to make an emergency fund impossible to have money for.

And just like life insurance and other forms of insurance like onesureinsurance.co.uk for example,  can cause a paranoid person to buy too much insurance and insure everything in their life, an emergency fund can become another bank account that needs your monthly attention. I already try to save monthly for retirement, vacations, property taxes, home maintenance and medical expenses because they’re regular expenses my family already has or will sometime down the road.

An emergency fund, I’ve come to realize over the years, has saved my family a few times, and was especially helpful after graduating from college. It can be a low priority on the list of goals to save for, but it has become a necessary safety net in my life.

How I’ve used an emergency fund

The first thing that got me to think about creating an emergency fund was a few years after I graduated from college and my used car had broken down a few times.

The final straw was when I had to call my credit card company from an auto repair shop so I could ask to have my credit limit increased because I didn’t have enough credit to pay for the repair and I didn’t have enough money in my checking account. The credit card company gladly increased my limit, and it took me months to pay off the debt.

It was the first time in my life — other than a small student loan in college — where I was in debt. I hated paying interest on that credit card bill, and vowed to start saving for the next big expense that would inevitably come up.

Later in life, buying a house and having a family gave me a lot more reasons to contribute regularly to an emergency fund. Unfortunately, it gets dipped into too often and it’s used for things that should be saved for elsewhere — such as vacations,

property taxes and home repairs.

For example, it has been used a few times to pay for plumbing emergencies, and most recently for a new air conditioner when ours gave out. Without the emergency fund, we’d either go without those repairs or would likely be in credit card debt to pay for them.

Our emergency fund also has a simpler purpose — peace of mind. When I got laid off as a newspaper editor in 2008, our emergency fund had enough money to allow us to pay our living expenses for about six months. Luckily, I didn’t need to dip into it for such costs, but knowing it was there made being unemployed and underemployed a lot easier.

How much should an emergency fund have?

Everyone’s expenses are different, but a good rule of thumb is to have six to 12 months of living expenses in an emergency fund. And that seems to be the most common reason for having an emergency fund — to keep you afloat for six to 12 months if you lose your job or a medical emergency happens.

One of my main goals for an emergency fund is to have enough money to pay the rent or mortgage for six months in case something drastic happens. The fear of my family being homeless is a big motivator in getting me to save.

But for a single person who is renting an apartment and has a few student loans to pay, having enough money set aside for three months of groceries, rent and paying the minimum amount due on student loans may be enough.

For a dual-income family with children, a home and two cars, six months of living expenses is advisable. You want to keep a roof over your family’s head and have a working car to get to job interviews if one person loses a job.

For a single-income couple with a child and home, saving for nine months of expenses may make sense. With only one income, they may need to save more so they can have more time if something goes wrong.

My goal is to have an emergency fund with six months of living expenses. The money is in a regular savings account that we can easily access if needed. It’s tied to our checking account, and money is automatically transferred from the checking account to the savings account each month.

I see the bank statements every month so I know how much of an emergency fund we have. But then I put it out of my mind. It’s a fund I’m glad we have, but for the most part it’s something I don’t want to think about until we need it. And we will need it.  Like a surprise visit to our Florida car accident attorney .Life’s emergencies always seem to happen, whether you’re prepared for them or not.

Aaron Crowe is a freelance journalist who specializes in writing about personal finance. He has written for AOL, US News & World Report, Wisebread, AARP, and many websites aimed at consumers. He also owns three personal finance blogs, including CashSmarter.com, where he often writes about family finances. He can be found at AaronCrowe.net and on Twitter @AaronCrowe.

Image courtesy of adamr at FreeDigitalPhotos.net

*Part of Financially Savvy Saturdays on brokeGIRLrich and Femme Frugality*

8 thoughts on “Without an Emergency Fund, I’d be in Debt”

  1. I think it’s terrific to have a 6-9 month emergency fund, and it certainly helped us out when I lost a job. BUT, getting that much together can seem really overwhelming to a lot of people, particularly when they get started. If you’re putting 10% of your pay away in an emergency fund (not a bad rate for a beginner), it’s going to take 9 months to save a month of expenses.

    Even a baby emergency fund of a few hundred bucks can help you deal with unexpected expenses: copays after an injury or illness, a shredded tire, an emergency trip to see an ailing relative. And it will help someone get in the habit of saving and living below their means.

    1. I agree. Setting up an emergency fund when you’re young is difficult. But even a small amount of $100 a month can help with a big car repair bill down the road. If automated, it should be money you won’t even realize is out of your pocket.

    1. This week my family is deciding on health insurance premiums for our health plan for next year, and we need to set up a fund to pay for co-pays throughout the year. The rates are going up, so another “emergency fund” is now going to be part of our daily lives. At least we can put the savings in a pre-tax fund through an employer.

      Congrats on having the fund to cover medical debt this year. You were ahead of the game.

  2. I’m aiming for a full year of expenses in my emergency fund, but I’ve been building it in steps – I hustled and saved like crazy to get it to $1,000 as quick as possible. Then I set a goal to get it up to $5,000 in a year, so I had to save about $350 a month to do that. Then I took the next 3 years to get it up to $10,000 – which for me, is pretty close to a year of expenses.

  3. Thanks for writing this post – I always enjoy hearing about what other people are doing, with regards to savings, debt, and making their lives better.

    I’m still working on getting out of debt (only £3500 left out of roughly£6500), but I really need to work on an emergency fund.

    Due to recent financial issues, balance is at a shockingly low 28 pence, so I’ve taken a side-hustle as a cleaner to try to get some cash in there.

    It’s been hard work, and I’ve definitely got a long way to go, but I’ll get there!

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