I’ve been thinking a lot about the family I previously mentioned, the family which was made homeless. In thinking about them, I’ve been reflecting on just what it would take to lose everything (financially). I’ve thought that it rarely is due to one bad event, but usually several large setbacks occurring without financial recovery in between. In this families instance there was a move, a loss of job, illness, severe car problems all within a couple of months. The emergency fund simply couldn’t cope with such a drain.
I’m always amazed when statistics are released about how few people have enough in an account to cover job loss for more than a month, it becomes easy to see just how catastrophic a couple of emergencies can make a family. I know we all think that we have family & friends who would step in, for some that is the case, for others that assumption leaves them in a scary place. I think one of the joys this credit crunch has brought is that people are finally realizing many of those family & friends who had good lifestyles of eating out, vacations, kids in multiple activities and new furniture & toys, well much of that was due to debt or at the very least got in the way of saving.
I used to think that an emergency fund of 3 - 6 months expenses was a realistic figure (for those that have to pay rent, mortgages, utility bills etc). Now I’ve revised my thinking. In the last 6 months most of my emergency fund has disappeared due to sick leave from work (unpaid) at the start of the year, followed by contracts backing out, an employer not paying me, major car trouble (£600 aka $1200), rent increases. However much I feel sadness that the fruits of my labor are now gone, I can see just how important that emergency fund was and even though I need to start again, I could *just* deal with all these difficult challenges thrown my way.
I now have a new plan, it won’t be easy but I really think when relying on one income with rent or mortgage to pay, you really need 9 -12 months of expenses saved, plus as always my mini emergency fund for car troubles, home repairs, dental etc.
Part of me feels scared at having to start all this yet again, but part of me knows just how important it is to not lose everything, not crash & burn, to be able to deal with those challenges that arise!
So you read it here:
New Goals
Mini Emergency Fund £1000 = $2000
Major Catastrophe Fund £12, 500 = $25, 000
Not to mention that adoption goal ;0)
For some this may seem impossible, and looking at my depleted savings I too have moments where I think this will be impossible as a single woman, working for a not-for-profit (charity sector) but really the impossible is made possible with hard work, sacrifice, determination, faith and time.
What about you? Have you thought about financial worst case scenario and how you would be able to cope?
Apparently there was a problem with the comments over the weekend, not to worry I know you’re still reading 
And the big giveaway begins tomorrow!
Over the past few years I’ve given some thought to these issues, both in terms of smaller issues to be dealt with and major catastrophes.
Personally, I currently have enough savings to cover me for at least a year, even if I still need to pay tuition (longer if I’m able to move in with family). Admittedly, I was supposed to be out of funding this year, so saving up that much was necessary for me to live on, and I wanted a bit of a cushion beyond that as well. A new scholarship means that I have another year of funding, but I still feel far more comfortable with a year’s worth of living expenses in the bank in case something falls through, or I need to live off the money next year if I have to finish my dissertation then.
In general, I think a years worth of expenses can an important thing to have, although I know it can be a very difficult thing to build up to. But, it takes off a lot of the strain of sudden financial burdens, and enables you to take care of what needs taking care of with less stress. And even if things don’t need taking care, of it’s very reassuring to know that it’s there.
I think you are right Jenn, it does bring a great deal of reassurance!
our goal after the last bit of credit card has been paid off in a few months is to get to the 6 month savings point and enough to get through 6 months and relocation if things got really bad (though its a goal to move back home anyways), this would be somewhere in the range of $10-15,000 at the moment.
We just reached goal one of our own financial independence yesterday though! (one credit down, one to go – though already cut in half in 5 months)! So this goal is looking more realistic.
Well done you Molly! That is great re your credit card!
Good luck with your new goals, I feel that if anyone can do, you can!
Cheers
Judy in Adelaide
Thanks Judy! There are days I’m filled with doubt but I know I can get there in the end!
Once we buy a home in the near future, our savings will take a major hit and we will need to start all over again to build them back up. Starting from scratch can be scary! But it has been so amazing to be able to handle unexpected expenses (a big medical bill, a new couch) this summer, knowing that we had the money in the bank if we really needed it. Just a couple of years ago, we were barely making a dent in our medical debt.
Good luck with your savings goals! Freedom is priceless.
So true Frugal Chick!
I am trying but have had a dreadful year and am looking forward to better days. Good luck with your efforts.
Suzan I can really relate on the tough days I remind myself it can only get better!
You are correct. Most people underestimate what they need to survive. We live on an austerity budget as it is. We could in an emergency eliminate our Cable and Cell phones to save ($100/month) but other than that we have debt to pay down ($16,000) and its my goal to pay that debt down in the next 3 years. Over that same period of time I do plan to start saving, since our savings accounts never really have much in them.
The way I plan to do this, is to stick to my budget. I am considering going to a cash plan, but I like paying electronically and by check so I might just keep my current budget system. I will take any money left over at the end of the month and split it into 3rds. 1/3 paid to the highest interest debt, 1/3 into savings, 1/3 for the following months cushion. Same with my tax refund and my bonus (should we get one this year) and any cash gifts. It is this way that I will be able to eliminate my debt. Once my debt is eliminated I will be able to start putting more money away, because all the money that is going to debt will be available for savings.
Good Luck.
Tree that sounds like a great system!
I worry about this a lot. People who are insured can go bankrupt just by having a medical emergency. I have an emergency fund but if something truly catastrophic happened I’d be powerless :/
Anny, I listened to an American soldier talk about this on BBC radio 4, it was scary and thankfully not something we have to worry about here. I’m sorry you have that stress, I can only assume that it means in the US you need a pretty heafty emergency fund and the money to pay for insurance privately if you become unemployed!
I am trying to save up an emergency fund, although I find it best not to think of how much should be in there (I know, I just dont focus on it). This is becuase I find it so daunting that its offputting
Jen
Very true DPM, start slowly and it will be amazing!
Good luck, FT. You have been very good at reaching your goals so far.
Thanks RTC!
Very very wise, having been made redundant last year during my maternity leave where I had already depleted my savings by having the full entitlement off (i.e. 6 months unpaid) i was very scared and had to rely heavily on credit cards
still paying those off obviously, and it gets very depressing to know even your essential food shop has to go on the credit card, we had tried very hard to save up enough to cover us whilst i was pregnant, but the redundancy just as i was about to go back to work threw us completely off course and really was a shock. It’s hard to put your hard earned cash away in to savings but emergency funds are so important as you just never know what is around the corner. Right now i too am trying to restock my emergency fund, so good luck with yours too!
I’m so sorry you’ve been through this Mrs Thrift!
Good luck to you on your goal, I will be pulling for you.
Twincapes – Washington DC
Thanks Twincapes!
With Jim’s health problems-we too, have depleted out savings. But we are trying hard to start again. I’m dong a great many small things that add up. For example, I’m hanging out my heavy things that take so much electricity to dry. When Jim takes a shower I have him put the plug in the tub and I use the same water. I make my own laundry detergent. We cut out cable tv . These things along will save about $1oo dollars a months.
Nichole, I’m sorry to hear that you’ve had to use your savings, but I’m glad you found ways to cutback. I’ll be praying for your savings and Jim’s health!
You’ve given me a lot to think about. We’ve been talking about making larger contributions to our savings now that I’m back to work. Though it’s hard sometimes when you want to pay down as much debt as possible.
True Lucid. I think it depends on what your debt is & how many income earners you have!
This is something I’ve thought a lot about too. I’ve commented several times to the wife wondering how we survived all those years living paycheque to paycheque. I realized that we relied on two things.
1. Easy credit and
2. The ability to get a job easily.
Quite obliviously that has changed dramatically over the last year. Over the years that banks have been more than happy to extend us as much credit as we wanted, whenever we had cash flow problems we turned to credit.
Secondly the Wife’s ability to always increase her income played a big part. She’s always been a top income earner (even in the great recession of 2009 she got a decent pay hike)
What changed for us was when we moved to Spain from Germany 3 years ago, we made the decision to forgo credit and move to cash. Not an easy transition, one we are, still 3 years on, struggling with. Over the summer (long story which I’ve been too lazy to put in my blog) we had a ton of expenses and there were times where I wondered how we’d make it to the end of the month, but we did and now are starting to move back into savings mode. The reason we survived was we had a lot of savings (unfortunately we had to drain it over the summer). And for the first time ever we didn’t rely on credit to get buy.
one other point, since you are a Christian (if your not please ignore this comment) but we have been giving tithe (over 3 years we upped it to 10%) and as Billy Graham said “Most Christians find 90% goes further than 100%) and it is absolutely true, inspite of living on less money (90%) I find our money goes just as far!
Yes Rob I’m a Christian!
“Most Christians find 90% goes further than 100%) and it is absolutely true, inspite of living on less money (90%) I find our money goes just as far”
AMEN!
It’s absolutely possible, single or not. It took me years to save up, wading through one disaster and ill-considered decision after another (whether mine or my family’s), but it was ultimately possible.
Of course, I’m now unemployed and using up those hard-earned savings but terribly grateful to have them (and supplemented by some unemployment) while I figure out the next best step.
I might have been a little spendy/reckless in the beginning but am balancing it out with giving as well.