Firstly, thank you for all the comments & emails on the post about giving up tv, it was amazing and encouraging to read how many people are tv free! Okay back to this post…
For the month of November I set myself the little goal of reading one financial planning book/guide a day! So far I’ve read about 21 so I’m ahead of schedule! One thing I have noticed is that some books do not seem to value an emergency fund, or at least feel you only need a small one. I have to say I completely disagree based on my experience.
The rationale some of the authors used was that it was too tempting to spend the money. I have to say I am amazed at the number of blogs I’ve read where people mention pulling from their emergency fund for holidays, clothing, concerts etc. However, the villan is not the emergency fund, it is the spending habits and lack of financial savvyness! I would imagine that those people have a hard time saying no to holidays/vacations, temptations, concerts and therefore they would always find a way even if it meant going into debt!
It is true that there is money there, sitting in an emergency fund, that isn’t too much hassle to get to. But if you really want to take control of your finances, I honestly believe that an emergency fund is good training in financial obedience!
This year I’ve had to use mine, I had 6 months worth of expenses in my emergency fund and it is now almost gone. I had to use mine because not just one emergency cropped up but three emergencies in a short space of time! I also faced a large move and I experienced unemployment. While it isn’t nice knowing I have to start again, at the end of my unemployment I should have no debt whatsoever and have been able to pay my rent, bills and relocation costs (which were huge).
Seeing how quickly six months of expenses has gone, I’m even more determined to beef up my emergency fund system especially as I near motherhood. My most important goals related to my emergency fund are the following:
1. Have a mini-emergency fund of $1000 which would cover any unexpected car costs, emergency services etc.
2. Have a fully stocked emergency fund of $30,000 which would cover 1 year of unemployment
I know everyone’s situation is different, I’m single so there is no other income to pay for the necessities if I lost my job, I’m it. Perhaps if I was married a 6 month emergency fund would do, but what I need to do is make financial choices that are right for my situation and in my stage/season in life! So while many books might say 12 months isn’t needed, for me, in my particular situation, it really does give me peace of mind!
How about you? Do you have an emergency fund and how much do you keep in it? What’s your rationale for the amount you feel you need?
p.s. My new post is up at the Simple, Green and Frugal Co-op, thanks to yesterday’s post as inspiration, we’re discussing tv watching!
You’re nearing motherhood? Congratulations!
By: Rachel on November 19, 2009
at 8:40 am
LOL Rachel, when I say nearing motherhood I mean a year or two or three!! The reality is I think it takes a lot longer to be financially ready than I anticipated, hope that makes sense?!
But thanks nonetheless!
By: Frugal Trenches on November 19, 2009
at 8:42 am
It is so important, and it give such peace of mind to have one. Mr Chiots and I have several “emergency” funds. We have personal, as of right now it could cover a year of bare-bones expenses. we have a business emergency fund to cover 1 year of business expenses (very important if self-employed).
We also have smaller emergency funds and saving funds for other “non-emergency” things. We have a car fund, house fund, health fund, misc fund, all to cover expected maitenance expenses that are associated with living. Your car breaking down isn’t really an “emergency”. If you own a car you know it will need to new tires, or break down. You should set aside some money each month into an account to cover these expenses. Same with owning a house, a blown furnace, not really an emergency, you should be saving for these itmes each month. It’s part of the cost of owning things.
Emergency funds should only cover “emergencies”, which is defined as: a sudden, urgent, usually unexpected occurrence
Unexpected being the key word here. I know when Christmas is each year, I know I’ll need new shoes, I know my car will need tires and my house will need a new roof someday. These are not emergencies.
I’m amazed that more people don’t save up for planned and unplanne expenses. I’m confident that we can weather just about any storm because of my financial decisions, this peace of mind is far more valuable to me than seeing the latest TV show right now and having designer clothes.
By: Chiot's Run on November 19, 2009
at 8:43 am
Hi FT I have just caught up on your posts and just wanted to say that I hope you are feeling better and thank you for your wonderful blog which is a constant source of inspiration for me. Hugs, and I hope you are feeling better.
BTW have you flown across the pond?
By: Dreamer on November 19, 2009
at 9:00 am
I completely agree that an emergency fund is vital, and the bigger the better I think. When my hubby was laid off a while ago (I stay at home with the kids, so my work is unpayed) it was the only way we got by. It is so reassuring to know that you have some money in the bank to get you through regular bills etc. even if the future is uncertain.
By: Jennifer on November 19, 2009
at 9:27 am
I absolutely agree that an emergency fund is hugely important – I feel so much better with mine in place, and the larger it gets the better I feel. As you say, I think there’s a large tendency to use emergency funds for things that aren’t really emergencies. I’m seeing this with an almost-family member right now who also doesn’t have a clear idea of needs versus wants (which is why she’s now in the trouble she’s in). i wonder if this is something a lot of people run into – if everything appears to be a need rather than a want for some people, I imagine dipping into the emergency fund seems to make sense.
By: Jenn on November 19, 2009
at 10:34 am
at present we could go for 3 months of unemployment and be ok. not enough really I don’t think. and we have no savings apart from this. however we have only the mortgage as a debt at present too. so we are much better than we were.
By: mo on November 19, 2009
at 11:42 am
I’m also single; my job is very stable, and I could get by on unemployment, so I’m not being extremely aggressive about building my emergency fund. Right now I have 2 months’ expenses in it and want to double it. After that I’ll reassess and see if I want more – 6-9 months would feel much more comfortable.
By: bethh on November 19, 2009
at 12:56 pm
Good luck building it up! I agree, the more you have the more comfortable you feel!
By: Frugal Trenches on November 19, 2009
at 5:37 pm
I have 4-6 months salary put away and am always adding to it every pay. I also have a day-to-day account which I put extra money in for birthday gifts, car maintenance, school fees, etc. so even with Christmas approaching I don’t feel stressed as I’ve been contributing to my “freedom account” as I call it all throughout the year. Even if an emergency does come up I can borrow money from my freedom account and pay it back over time. I write up an IOU to it LOL. It may sound funny but it really works and I never have to pull out Mr. Visa.
Some people simply don’t get that their spending choices are a HUGE part of their savings situation. Where I work we have been having layoffs now since Jan ‘09 so really no ones job is safe. I work with a single mum who is terrified of losing her job (which is understandable) as once she pays all her bills she only has $100 left over. Now saying that she buys starbucks coffee every day, goes out for a bought lunch 2-3 times a week, has already gone on 3 holidays this year and has her daughter in dance which costs $5000 a year. If she had a year or even six months of cutting back she could save thousands.
FT thanks for your blog … it inspires me and I look forward to reading it! ♥
By: Amanda E. on November 19, 2009
at 1:42 pm
Amanda, you are too kind!
By: Frugal Trenches on November 19, 2009
at 5:38 pm
I guess I’m in a very fortunate position in that we have a freehold house, have (what I consider) a substantial amount of money in the bank and I have a very stable job so I’m very fortunate and I accept that. Having said that though, we are in our late 50’s and my husband doesn’t work so we aren’t rushing to rip the funds out of the bank for any little thing. We are very careful with our money so I’m confident we would be okay even if the worst happens and I lose my job. I do agree though that it’s really important to have access to funds for emergencies and I’d love to see my adult children embrace this idea but unfortunately while I’ve tried to talk to them about the importance of this idea, I don’t think they have got it yet! When they were younger and lived at home we probably weren’t quite as careful with our money and so we most likely didn’t teach them well, it’s only as we have become older that we realise that there may not always be the opportunity to work and earn good money. I’d certainly like to go back in time and do things differently back then, but then again, we are all wise in hindsight!
By: Judy Yates on November 19, 2009
at 5:02 pm
I have no emergency fund. There, I admitted it.
I also have had to call Dynorod for my drains to be unblocked tonight at a cost of £175. This will quite simply have to come out of my overdraft.
Every penny seems to be accounted for though at the moment…….
By: Anna on November 19, 2009
at 5:31 pm
Anna, please don’t worry. Loads of people have been where you are, and eventually do get the money together by little tiny bits and pieces. Eventually it adds up to a lot of peace and tranquility!
By: Frugal Trenches on November 19, 2009
at 5:36 pm
I think *lots* of people are where Anna is – and shifting those people from using credit to having an emergency fund that gets depleted repeatedly is a big positive step.
By: Rosa on November 20, 2009
at 11:36 am
Oh goodness, I would be a nervous wreck and a half without my emergency fund. It’s been years in the making, with plenty of steps forward and back, but at the time I really truly need the safety cushion, it’s here!
Well worth all that toil and hardship early on trying to make enough to store away, I can hardly remember how miserable those times were and am enjoying the fruits of that labor now.
By: Revanche on November 30, 2009
at 9:48 pm