The kids came running up the stairs today to tell me that the washing machine is on the fritz. My ever-resourceful 19-year-old son looked up the code that the washer was displaying and said, “I think we need a new pump for it, mom.”
I’m normally pretty resourceful, myself… but I’ve had a heck of a week. The back child support that my ex-husband finally started getting garnished for was transferred from Arizona to Idaho enforcement… and during the 90-180 day gap, he isn’t being garnished. Which means I’m not receiving that money. It wasn’t much (especially considering the fact that his back child support debt is over $180,000) but it was enough to matter.
We’ve already lost 100% of my husband’s income this year, making me the sole breadwinner for a household of seven. So, when I sat down with my paycheck and the bills that needed to be paid… I’ll admit it. I cried. I cried a lot. And the news about the washing machine? It certainly didn’t help.
Luckily my best friend pointed out a few different things that could cause the same error message and my son is going to do some more troubleshooting tomorrow night… you should always have someone in your life who you can be real and honest with and fall apart in front of… chances are they’ll be thinking more clearly than you will!
I don’t have an emergency fund right now. I’m not proud to admit this, but we’ve had a major move plus some really devastating circumstances which depleted all of our easily accessible savings. We still have savings, but it’s in my 401K… so it doesn’t count as an emergency fund.
What Is An Emergency Fund?
An emergency fund is an easily accessible stash of money that you can use in, well… an emergency! This is not your “I’m really craving pizza right now” stash. This is your “the washer broke down” fund. It’s your “my daughter had to go to the emergency room twice this month and we have $400 in copays” fund. (Yes, that happened this month, too!) And, in a worst-case scenario, this is your “I just lost my job” fund.
If You Aren’t Saving… You’re Not Alone
Americans are notoriously bad at saving money. Most of us are living paycheck to paycheck… and it doesn’t matter what income bracket we are in! According to a 2017 study by GoBankingRates.com, 57% of Americans have less than $1000 in savings! That’s down from 69% in 2016, but it’s still a pretty scary statistic.
That $1000 is, of course, the recommended first step in Dave Ramsey’s famous Baby Steps to Financial Peace.
Sadly, the number of respondents who had absolutely nothing in savings went from 34% in 2016 to 39% in 2017.
(If you’d like to see how your state stacks up, check out the slideshow here…)
How Much Do You Need In Your Emergency Fund?
There are probably as many answers to this question as there are financial planners!
- Dave Ramsey suggests starting with a $1000 emergency fund. Once you have your debt paid down, he recommends building up to a fund that covers 3-6 months of living expenses.
- Suze Orman says that the minimum you need to build up to in an emergency fund is 8 months of living expenses… and a year is better.
- Kimmie Green of Mint.com recommends setting aside 25% of every paycheck for savings. Now, she isn’t talking about specific amounts for just your emergency fund… but it’s still a goal worth looking at.
I plan to have more than one emergency fund. I’m soooo sick of having that awful feeling in the pit of my stomach when these types of things happen. Dave Ramsey has commented on some of his podcasts that his poor financial decisions earlier in life have made his wife so security-centered that he has an emergency fund for his emergency fund! That idea resonates with me.
Fund #1 – $1000 emergency fund. This is my first goal and the fund I will be building first. All other goals go on hold while I get this fund established. This fund will probably remain in my credit union savings account. It won’t make much in terms of interest here, but this is not an investment.
I’m going to celebrate (non-money spending celebrating! LOL) for each of the following mini-goals:
- Mini-Goal 1: $250
- Mini-Goal 2: $500
- Mini-Goal 3: $750
- Mini-Goal 4: $1000
Fund #2 – Secondary emergency fund. This one will start out in a second credit union savings account but will eventually be moved to a money market account. It will still be accessible but not quite as easily as the $1000. And I won’t put all other goals on hold here… I will be working on debt reduction at the same time. (We don’t have a ton of debt… but enough that I want it gone.)
I’ll be building this fund in stages, too:
- Goal 1: One month’s expenses
- Goal 2: Three month’s expenses
- Goal 3: Six month’s expenses
- Goal 4: One year’s expenses
Yup. I want an entire year’s worth of expenses stashed away in that fund. Maybe that seems extreme… but if you’d lived through the past decade that I’ve lived through… you’d understand.
Ideas for Funding the Emergency Fund
Sometimes you just have to get creative! Here are some things you can try to cut expenses so you have more available to build your emergency fund…
- Stash the coins! Whenever you use cash, pay with bills, not coins. At the end of the day, dump all of your change into a container. Those coins go into your emergency fund at the end of the week. There are also some debit cards that will do the same thing… round up your purchases to the nearest whole dollar and then transfer the extra into your savings account. Ask your bank or credit union!
- Change clutter to cash. Look around your home… Certainly, there are some things that you won’t be using. If you have enough you can have a garage sale. If that’s not feasible, try listing it on Craigslist or Facebook marketplace. (I prefer Facebook marketplace because you can know more about the person you’re going to interact with.)
- Do some microjobs. I love Swagbucks. It’s not a fast way of earning big bucks… but if I’m going to waste time watching cooking videos (which I love) I might as well get paid a few pennies for watching them. They also have some good surveys you can do. Once you earn a few dollars you can get paid in PayPal cash vouchers or Amazon gift cards. I usually get paid in Amazon cards and use them for birthday and Christmas shopping… but the PayPal cash offer works, too. Or you can get paid in gas cards… use them for your fill-ups and stash the cash you would have spent in the emergency fund.
- Cut unnecessary expenses. Do you actually watch TV or Netflix? In our case, the first answer was, “No” and the second was “Yes”. So… we ditched our expensive cable package and use the streaming only Netflix instead. $9.95 a month is so much nicer than $54.95! Just make sure you actually stash the difference into your emergency fund each month! And look around for any other subscription type services that you aren’t actually using. They add up quickly!
- Check your dining options. Are you taking the family out to dinner once a month? Dinner at a decent restaurant will cost our family a minimum of $100. I can’t even take this crew to McDonald’s without plunking down $30-40 dollars. Or… I can grab a couple of pizzas from Little Caesars for $10-12 and we can spend the evening (if it’s nice) at the park… or (if it’s snowy) watching a DVD together or playing board games.
- Watch your movie costs. Yeah… the movie theater is another place where it’s a minimum of $100 for the whole family. There are very few movies that I care enough about to spend that kind of cash. (I will admit, anything by Marvel is probably going to see me saving up for it.) Wait and watch it on Netflix (did you know all the Disney movies go to Netflix as soon as they’re out of theaters?).
- Watch DVD costs, too. Instead of spending $24.95 for the latest new release, check out the discount bins at WalMart or other retailers. I love finding old movies that I loved as a teen and sharing them with my kids. (Sometimes I look at them and think, “My mother let me watch this???” but normally they’re good.) The kids get just as excited with a new $3 movie as they do for a $24.95 one.
- Cut the coffee shop. I used to be a severe Starbucks addict. When I finished a travel nurse contract once, the local Starbucks baristas actually wrote a “We Will Miss You” note on my cup! (Seriously!!) Learn how to make a decent cup of coffee at home and you’ll save big bucks every week. Or, just ditch coffee (and tea, and soda) and start drinking…. gasp… water! It is better for your health and you’re already paying for water every month. If you don’t like the taste of your tap water, it’s still cheaper to get a Brita or other filtering pitcher. And try it really cold…. sometimes that’s enough to make it taste better!
- Shop around. Are you getting the best rates on your insurance? Car, home, renter’s, health, life… there’s always competing companies out there! Make sure you call around and check some online quotes. You don’t have to switch if you don’t find a better deal… but if you do, that’s money in your emergency fund!
When Do You Use Your Emergency Fund?
You use your emergency funds for those expenses that are unexpected, necessary and urgent.
Christmas is not unexpected. It’s on the calendar every year and you need to be setting up a savings plan for getting through it. The same with birthdays, anniversaries and back to school shopping. Not budgeting for something is not the same thing as it being an emergency. The car breaking down can be an emergency… especially if you use that car to get to work! Your child needing stitches… that’s an emergency (on a few levels!)
Repairing the car so you can get to work is also necessary…. Upgrading your cell phone is not necessary. Repainting the kitchen is not necessary…. don’t touch the emergency fund for “want-to-have” items.
And even my “emergency” of the busted washing machine isn’t urgent enough to qualify for an emergency fund expenditure… at least not for a replacement washing machine. I may not like having to use the laundromat a couple of times if it takes too long to get it fixed… but it won’t kill me. I might dip into the fund to purchase a new pump (if it comes to that) but I have options rather than running out and buying the first washing machine I see.
Any other emergency fund tips you think should be on here? Or any questions you’d like to ask? Please comment below!