Obviously, the whole point of frugality is to have money around for when things come down the pike.

Tim and I have yet to get on a firm financial footing (say that three times fast) via an emergency fund.

We certainly shoulder a good chunk of the responsibility there. No doubt. We eat too much fast food, and we enjoy a hobby that’s pricey. (Though we’re currently cutting down on the former and taking an all-out break from the latter.)

So, yes, if we were more frugal and better with our financial management, we’d have had more money put aside when things got rough. But I’m not convinced that’s the only factor at play.

A commenter recently pointed out that everyone has “unexpected and even terrible things happen.” In his case a $6,000 new roof and a $1,400 plumbing repair job.

He, however, was more careful with his money. So he had the funds in abeyance when the fit hit the shan, as they say.

So is that all it is? If we’d had a “real” emergency fund, could we have been able to take things as they come?

I totted up the memorable expenses since last August. Here’s the ones worth mentioning:

  • $250 for movers
  • $500 for a fridge for the new house
  • $450 for the guest house stove
  • $450 in plumber repair bills
  • $200 to fix the A/C
  • $3,200 for the car repairs
  • $650 to stock up on eczema products being discontinued
  • $1,600 for an Orkin termite plan (eradication & protection)
  • $300 to demolish the shed (required by the termite plan)
  • $800 for my root canal
  • $150 to fix Tim’s dentures
  • $350 for doctors bills from my miscarriages
  • $1,850 for ER bills from November trip
  • $500 to replace the too-cat-pissed-on-to-save sofa
  • $2,800 for ER bills from May trip
  • $1,700 for two yearly car insurance bills

That’s just under $15,750 in 15 months.

We also put $2,500 on the card for Tim’s parents’ moving expenses, but that was paid back over the course of five months. So I figured it didn’t really count.

So where does that leave us?

With $1,800 on the credit card, $2,100 in ER bills (on a payment plan) and a $1,500 emergency fund. Net -$2,400.

So what if we’d had a healthy emergency fund?

“Healthy” is a relative term, I’m afraid. And given the ups and downs in income, expenses and not-frugal-enough spending… It’s hard to get a realistic idea of what we could have saved up.

So I’m going to ballpark it and say $5,000. That seems like a relatively healthy EF given our history, I think.

Looking at our expenses vs income over the past 15 months, I decided we could have realistically/reliably have put away $800.

Using those numbers — drumroll please — we’d have $365 in an emergency fund and $2,100 in ER bills remaining. Net -$1,735.

Total difference? $665.

Don’t get me wrong, $665 is nothing to sniff at. But it’s also a far cry from the kind of security most of us think a $5,000 emergency fund would provide.

I guess the obvious question here is why there isn’t a bigger difference between the two numbers. I mean, if you start $5,000 ahead then logically you should end $5,000 ahead.

But the psychology of saving vs debt is tricky. It’s easy to keep your nose to the grindstone when you have a credit card bill looming. It’s harder to justify going at the exact same pace once you have a little breathing room.

That’s not the healthiest of dichotomies, but it’s one that I struggle with.

So what’s the point of all this conjecture?

If enough things go wrong and enough expenses hit you on a regular basis, being prepared only gets you so far. It’s important, of course. But it’s not the guarantee that most of us want.

Of course, I’m sure the commenter has more than $5,000 in his account. So maybe he would have been fine.

The thing is, a $6,000 roof and a $1,400 plumbing bill in one year probably seems exceptional to him. (I’m assuming it was in the same year. He didn’t say.) Those kinds of numbers aren’t so surprising to us.

I know for a fact that 5 of the 6 years we’ve been together, we’ve dealt with/paid down $10k or more in debt/expenses. Probably all 6 years, but I’m a little hazy.

And, hey, for all I know these kinds of numbers really are just average. For all I know, other people deal with this much (and more) year in year out, too.

Please let me know if that’s the case. I like to know when I’m just plain rationalizing.

Certainly, none of this has stopped me from working on our EF. But, short of an inability to pay rent/utilities, I also think that an EF is more of a safety blanket than actual protection.

 

What do you guys think about emergency funds and peace of mind?

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Emergency fund: How much is enough? | I Pick Up Pennies
November 10, 2012 at 3:02 am

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