Two weeks ago, Angelsong wrote me to tell me about how her emergency fund had come in handy recently. I always love to hear success stories, so I asked her if she’d write her story in a post. She did, and here it is!
Last year, my husband and I bought a new home for the first (and likely the only) time. Becoming a homeowner has done much to make me aware of certain attitudes I have about money. I have been reading Being Frugal and a few other personal finance and frugality themed blogs since shortly after we bought the house and made a commitment to living a frugal lifestyle so that we can pay for it in less than the thirty years of our mortgage.
One of the central themes Lynnae and others write about is the importance of having an emergency fund. While the idea of an emergency fund is one I agree with, we did not have one until just a few weeks ago. When the budget is tighter than tight, saving money appears to be impossible. Expenses always seem to expand to absorb the funds available, and then some. Saving, my husband and I agreed, was a nice concept, but in reality, it was not happening . . . until we made a fundamental shift in our thinking.
I’ve always prioritized my spending in what I thought was a responsible manner. I pay the mortgage before buying food, for example. The more I read, the more I realized our priorities were not altogether what they should be. We needed to remember the old adage, “pay yourself first.” If we take money and put it aside before paying any other expenses, we don’t miss it, and it’s money we can put into savings. We also realized we don’t absolutely need to set aside hundreds of dollars each month (although that is an eventual goal). I believe everything counts.
When we were considering options for a savings account, we decided we did not want an account at our local bank, because we do not want the money in the account to be too easy to withdraw on impulse. We opted to open an online savings account with a single ATM card for withdrawals (because my husband is even more an impulsive spender than I am and I didn’t want two cards to double temptation), and we opened the account in mid September with a ten dollar deposit. I already felt great, because the ten dollars was nine dollars more than we actually needed to open the account. We were setting ourselves up to succeed.
Just as we pay the mortgage each month and add “just a little extra” for the principal and escrow because everything counts, we take a little money from the checking account each month and transfer it to savings. We promptly began to ignore the money in the account, except for making transfers into the account each month. In other words, money goes into the online savings account, but it does not come out, unless the need is dire. I soon discovered how valuable the savings account really is.
My job is such that I can work from home most of the time, and I absolutely need my computer to do my job. My employer does not supply the computer, and does not pay for repairs, so I am responsible for ensuring the machine is in working order at all times.
Last week, I was reading personal e mail, and the computer abruptly rebooted for no apparent reason. I thought it was a fluke. It wasn’t. I was at work later in the day, and the computer again rebooted several times without my input. Some of my work is time-critical, and I cannot afford to have delays due to a computer acting up. I realized something was wrong that I could not fix myself. I contacted a computer technician near my home who agreed to have a look at it. Meantime, I contacted my supervisor in the office, and told him what was happening. I ended up borrowing my husband’s computer for several days while mine was down.
The technician found I needed a new motherboard, which was an expense I was not expecting. I was not in full panic mode, only because I knew I had money in the savings account for just such an emergency. The computer is back up and running, thanks to the emergency fund. This was money we had not budget for and would have had difficulty coming up with, had I not been putting aside those few dollars each month.
Do you have an emergency fund? If not, consider starting one with just a few dollars. As Angelsong said, every little bit adds up!
thanks for a helpful blog. A few tips:
1. get money management software. It’s the best investment I ever made. I saved every receipt and logged it every Sunday. That’s how I discovered I was spending $2000 a year on office lunches. I also tracked irregular yearly expenses like computer repair; I figured a monthly amount to save so I didn’t take the hit all at once.
2. Save your change, cash it in and buy a savings bond. $25 buys you a $50 bond. I have about $2000 in bonds and it was painless.
3. Set up a “found money” account. I stash my cash gifts, reimbursements, money from garage sales, and payment for odd jobs. When it hit $500, I bought a short-term CD…3 or 6 months. While it’s accumulating, I continue to add to the found money account. When the CD matures, I add the cash in the “found money” account and buy a bigger CD. Lather, rinse, repeat.
4. One final note. The big advantage to the financial software is that it can track all your accounts so you can see spending patterns and get a sense of momentum about your savings.
We have three accounts…i’ve been meaning to close one for months. I haven’t quite figured out the purpose of each. It’s a checking and savings at two different banks. One is online only and my pacheck goes into there. I keep the checking at 0 and everything in savings because it has a higher interest rate. We pay for most expenses out of there once a month (credit card) and rent & tithe out of the other. I always think we don’t have money because i’m only thinking about what is in the rent account. Then i go to pay the credit card and there is so much that i thought! It’s great.
Good advice. Thanks for the info.
I am glad that you were able to pay cash for the computer part, especially since you need the computer for work.
I do want to point out in addition to an emergency fund we need to plan for stuff like car repairs and computer repairs. Every time we drive our car or as time goes on we are using up part of these items, they will need to be replaced.
I learned from Mary Hunt to have an emergency fund, plus a freedom account. The emergency account is for absolute emergencies (like medical or loss of job.) The freedom account is for things like car repairs and bills that come up but not every month. My freedom account funds:
AAA membership, contacts once a year, Christmas & other gifts throughout year, oil changes, car repairs, my boys birthday parties, and my bi-yearly dentist visits.
I want to add a new computer fund to it as well.
I am a single mom with very little income, but this account has saved me from so much heartache.
I have no debt. We do live very frugally, but peace of mind is so worth it.
This is not my doing, it is all God.
-Becky R in NJ
Great point, Becky. Something that we should all strive for is to include irregular expenses like repairs in our regular budget, whether it be in a freedom account (a la Mary Hunt) or a regular budget category that carries a balance until you need to use it.
But until you get there, it’s nice to have the emergency fund as an option.
Thanks for printing my post, Lynnae. I am very glad it is helpful to people.
Very good lesson. Good advice.
My husband and I have been our house for 1 year and we’ve already had some unexpected expenses and it seems like the money gets tighter and tighter with each downturn. This story does inspire me because even if it’s only $10 a paycheck then in a few paychecks it will be enough to at least help us with anything unexpected.
Does anyone have any suggestions on which sites are better to do an online savings account?
This post could not come at the right time. I just came back from the Dept.Of Human Services. I work on line for a company and was told at H.S. that I made too much money and can`t even get on the pending list for insurance. I had a bypass 2 years ago and you have to go to to Doc at least twice a year plus a nutritionist every month not to mention the various vitamins and I have to take something for acid reflux.
The point I`m making is I have to cut down my hours to qualify for insurance.
What that post did is make me relize that I COULD save money for I had the same expectations of saving hundreds of dollars. So now I`m going to do it!
Isn’t it great to be able to say to yourself, “I told you so!” :)
You knew you were going to some day need an emergency fund, you took the baby steps to get it started, and kept making the additions to it, and Presto – just like ‘magic’ – there it was when you needed it!
Saturday i found out the sewer pipe that runs from my house to the road needs to be replaced…for $4500. Thankfully we have savings so we do not have to finance it.
I’m still building my emergency fund, but I know where I want it to be. It is great to hear that it worked so well for Angelsong