Despite the fact that I’ve been saving money since someone trusted me with money as a wee one, I’m horrible about having an emergency fund.
This feels contrary to everything I’ve learned, but I just can’t seem to leave money alone. I’m excellent at creating savings accounts and funding them with a monthly debit. However, I am also excellent at finding reasons to drain any and all savings accounts in my possession.
With my current financial situation, I keep telling myself I need to being working toward having at least 3 months’ worth of expenses in a savings account for e-mer-gen-cies. At roughly $2500-$3000 per month, that’s a lot of cash to just be sitting idle in a savings account. At current interest rates, it’s easy to justify putting money elsewhere. In an effort to outwit my savings account centric brain, what kind of emergencies are we talking about?
If I go Kaboom right now, I have a $3000 deductible with a max out-of-pocket of $5500 on my insurance. If, like a dear friend of mine, I get sick on Christmas Eve and am in the hospital through New Year’s Day, that’s $11,000. That’s a serious emergency.
How will I pay for such an emergency? My HSA. I started it last year and maxed it out! My goal is to reach a minimum of 2 years of deductibles for both me and Hubs.
That’s $6000. Currently Saved: $4000.
2. Car Expenses
Both our cars are new Civics. Mine is 2012, his is a leased 2014 (I know, the shame). Instead of saving for the expenses of a beater, or replacement car, we are spending on new cars. My car will be paid for in 2.5 years and then we can figure out what to do with Hubs for transportation.
If there is a BOOM! Accident, my car insurance deductible is $500. As for maintenance, I’ll need to buy tires in the next year or two. I expect that to be roughly $500.
That’s $1000. I currently have $325 for Car Expenses.
3. Housing Expenses
I rent. I have renter’s insurance. If the water heater breaks, I don’t have to pay for it. The only things I can foresee paying for would be the what ifs and intermediary expenses should the building burn down. I have a $500 deductible here.
This is our big unknown if we plan to move in 2 years. We will be on the hook for the water heater, or the roof, or the AC unit. I do plan to build it up over the next two years to prepare for the unknowns of homeownership.
4. Job Loss
This is a big one. If Hubs or I lost our job, that would put a major drain on our finances. Thankfully, we work in two completely different industries, so the chances of both of us losing our job at the same time is pretty slim.
Our incomes aren’t equal, but they aren’t horribly skewed either. Should one of us lose our jobs, the other’s income covers or nearly covers our monthly expenses. If the worst happens and we both lose our jobs, Hubs was kind enough to save money away from my sticky fingers.
Currently saved: $10,000
5. Other Considerations
Nearly all my family now lives within close proximity. If a family emergency arises and I have to be there, my biggest expense would be an extra tank of gas or two. I can’t even imagine a case where I’d need to get a hotel.
This wasn’t always the case. I used to have family in Hawaii. My cousin died unexpectedly a few years ago. His funeral was in Hawaii in March, during peak Spring Break Travel season. It was a tough decision not to go to the funeral, but thankfully, I was able to make the decision based on the non-financial factors. Not being able to go based on purely financial reasons would have been a heartbreaking pill to swallow.
We also don’t have any dependents, so at this point, we don’t have to worry about an unexpected vet bill or kid expenses.
What do the Experts Say?
The Personal Finance Experts have various things to say about emergency funds.
- Dave Ramsey says: 3-6 months of expenses
- Suze Orman says: 8 months of living expenses
- An Unknown Source: The current unemployment rate in months of expenses.
Using the rough figure of $3000/month in expenses (shooting high!), the experts say I should have:
- Dave Ramsey: $9,000-18,000
- Suze Orman: $24,000
- Unknown Source: $15,000 (based on 5% unemployment)
Based on everything outlined above, I’m comfortable with what we have saved. Thank Goodness, Hubs intervened and saved a few (thousand) dollars. If you add up all of our emergency funds together, we’re fully funded!
- General Expenses: $10,000
- Medical Expenses (HSA): $4,000
- Car Expenses: $300
- Total: $14,300
Have you calculated what your emergency fund should look like? Do you do anything more exciting than stash it in a Capital One 360 Savings account (referral link)?