Big Honkin (who recently introduced himself to readers of No Credit Needed) has written an article about the value of having and Emergency Fund. Big Honkin is a “real life” friend of mine and he’s just started to get out of debt and organize his finances. I think you’ll enjoy Big Honkin’s article and you can check out his new, non-personal finance site, Geek Out Online, where you can “immerse yourself in total geekdom”.
The Value of an Emergency Fund (and the Tragedy of Not Having One)
Today I put some things on Ebay. Things that I never thought I would sell. I knew that I could potentially get a few hundred dollars from these items, but I hated the idea of parting with them. BUT…I had to. Why? No emergency fund.
One of the first things NCN told me when I started to get serious about getting debt free and saving money was, “Save up an emergency fund.”
My first thought was, “If I had money, I’d save an emergency fund.”
Then…I had to learn the hard way. There I was driving the 17 mile drive from my house to my work when I looked down at the gauges on my dashboard and noticed that my temperature gauge was pegging out. I pulled off the road into a convenience store parking lot and attempted to let the engine cool down. Much to my chagrin…nay…my horror, when I went to crank my vehicle up again it was making what can only be described as god-awful noises. I tried to limp to town, (Yes, even though there was a convenience store I wasn’t in town) only to break down on the side of the road about four miles from the store. A guy in my church who is a mechanic went and pulled the vehicle back to his shop and then delivered the bad news…I was going to need a new engine. Imagine my horror when I realized that I had to come up with roughly 1,000 dollars.
Thankfully, my church stepped up on my behalf and took care of the engine as long as I handled the labor. I still had to pay out 450 dollars to get my vehicle fixed. Suddenly, I realized…I needed an emergency fund.
The money I paid to get my vehicle repaired set me back and caused me to be a little behind on a bill or two, but it also sparked my resolve to never be caught in this position ever again. In the weeks following, I had several conversations with NCN about how to get started with a budget, how to get caught up, and what I needed to do. Again, he mentioned an emergency fund.
Now, I was listening. I started to build a bit of an emergency fund. I didn’t have much at all. In fact, I only had about fifty bucks held back. I was still (read that “am still”) trying to get everything caught up and get to the point where the budget I have set up is working for me. All of the sudden on an Thursday morning, my vehicle wouldn’t crank. I called my friend from church…he said two words that didn’t seem to be a big deal, but they would be a big deal before all was said and done…he said fuel pump. A fuel pump that cost me nearly $400 dollars to replace.
What have I learned? Have an emergency fund. In fact, (and NCN may disagree with me on this) I would say, build an emergency fund before you really start throwing money at your debt. (NCN Edit: I could not agree MORE! See below!) At this point, because of my experience, I would say build yourself an emergency fund by any means necessary. If I had an emergency fund, a new engine would have been a big deal, but it wouldn’t have set me back so much. A fuel pump would have been a pain, but it wouldn’t have stressed me out so much. Emergency fund, emergency fund, emergency fund! Can’t say it enough. If you are new to the world of Personal Finance blogging or you are like me and trying to get things headed in the right direction, SET UP AN EMERGENCY FUND! You’ll be glad you did.
See? I told you you’d enjoy the article. Just a few comments. I built up my emergency fund BEFORE I started to get out of debt. Twice, I had to use the money in my emergency fund and, both times, I rebuilt my emergency BEFORE I resumed debt repayment. Before getting out of debt, I always tried to keep at least $1000 in my savings account. Now that I am debt-free, I have 12 months worth of expenses in my savings account.
I couldn’t agree with you more. We had to use our emergency fund recently, too. My husband was making pretty good money, and we had just finished saving what we thought was an adequate emergency fund when he lost his job. He was unemployed for two weeks and then took a commission based job, where the base salary wasn’t enough to live on. So we needed to use the emergency fund for another month before his salary came up to a reasonable level.
You never know what can happen. If you have an emergency fund, you don’t have to go back into debt to fund the emergency.
I am in the process of building an emergency fund, due to a minor emergency (irony insists on periodic visits) it will be a few more months before I get to my initial goal. I have also instituted some “probable expense” funds. Specifically, I have a small fund built up for dental expenses (just paid a bill with it) and am building up another fund for small medical surprises. As these are expenses that are not really emergencies, but will insist on happening now and then, I am isolating them from the emergency fund. I am also examining my past finances for similar patterns to see about other mini-funds to set up.
If you have a house the best emergency fund is to take HELOC out of your house but draw it only for emergencies….
Sure hope you were able to give your church back some of the bucks they so generously gave you or at least intend to someday. I personally would have walked first before I let my fellow church folk even KNOW I had not a penny and had got myself into such a predicament. That’s something people don’t forget about. Man, ya gotta have a few bucks put by. I don’t get people these days, the younger folk in particular (I’m 52). Where’s the pride, for pity’s sake??
Nobody is ashamed these days of not having some savings or at least trying to maintain a bit of a bank account like they ought to have in case something goes wrong. Daddy and mommy won’t always be there to back you up so don’t buy what you can’t afford to maintain. Or at least be willing to take the bus or ride a bike. (Yes, I was young once but was taught to always have a quarter in your pocket for a phone call among other things, ha-ha. Or at least plan ahead a bit).
How is life different after losing 100 lbs.? Brooke counts the ways, laughing:
She can sit down on the floor to lead a reading workshop with her first-graders,
and then pop right back up without groaning! Dressing is an enjoyable exercise in self-expression instead of a dispiriting,
doomed attempt to camouflage fat. And her social life has changed, too.
She has actually learned to turn someone down without hurting his feelings. Because today,
when a guy shows interest, odds are he wants to ask out Brooke not one of her friends!
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