I don't know about everyone else, but August was brutal for our family when it came to spending, especially unplanned expenses.
As most of you know, August was the first official month where we lived debt free. The first week of the month was also the second week of our long-planned vacation.
Even though we saved in advance for the trip, we didn't anticipate all the additional (unrelated) expenses that would hit us at once, including:
- $108 – New phone because my 3 year old broken iPhone 3GS finally became unusable
- $50 – Campaign contribution (yes, I know this is optional but a friend needs help)
- $80 – unplanned birthday expenses for friends
- $125 – dentist
- $250 – car repairs, unplanned
- $75 – school supplies; should’ve seen it coming
- $50 – load up school lunch account
Total unplanned expenses = approx $750
$10,000 by Christmas
All these unplanned expenses have me off on the wrong foot in my plan to save $10,000 by the New Year, something I am doing in anticipation of a career change next year. This money would be an emergency fund in the event that I experience unemployment or underemployment.
Plus, it's always a good idea, after you become debt free, to build up a cash emergency fund of 3-6 months of living expenses.
As I mentioned in the past in my Job Loss Emergency Plan post, I will plan for the event of one of us losing our jobs, but not both. If we both lose our jobs, we are going to need a lot more help than an emergency fund can provide, and will likely just have to get on welfare and move in with family. You will drive yourself crazy trying to plan for the worst case scenario.
Why I Never Talk About Emergency Funds
For some reason, I don't write a lot (or at all) about emergency funds. This is partly because everybody else is doing it, and partly because I never needed one. Our cash flow situation was strong enough that we could weather any unplanned expense up to $2,000 by simply delaying debt freedom by one month. I also have a decent amount of silver bullion coins that I could sell if shit really hit the fan.
For those reasons, we chose just to forge ahead with our pseudo emergency fund and let life happen. In hindsight, there are a number of scenarios that could have happened to us that would have been beyond our cash resources, but I felt it was psychologically more important to forge ahead with paying off our debt.
Should You Have an Emergency Fund?
If you are trying to turn your money life around and are living paycheck to paycheck, it is probably a good idea to build up at least $1,000 in an emergency fund before you starting throwing everything you've got at your debt.
Having an emergency fund never made it into our 10 Rules because it wasn't a part of the plan we used to get out of debt. For me to include it would mean I'd be doing it because everyone else was doing it.
To be honest, an emergency fund seems more useful as a tool to stay out of debt rather than one to get you out of debt, which is why I'm focusing on it now, after our debt is paid off.
But if we have too many more brutal months like August, it's going to be a long road trying to save $10,000 by the New Year.