Emergency Savings: When it Rains, it Pours

Emergency Savings: When it Rains,  it Pours

Have you ever had “one of those weeks”? Well, I’m having one right now… Within the past week, we discovered that our minivan needs major repairs, and I also learned that I need some major dental work. The grand total will wind up being close to $4k, though our dental insurance should knock that back a bit.

Shifting gears

For starters, we drive a 2004 Odyssey with roughly 125k miles on it. Despite having stuck to the recommended maintenance schedule, we’ve had warning lights and error codes over the past six months that have revealed possible transmission trouble. Swapping out the part that triggered the original warning light helped temporarily, but the warning light ultimately came back on.

We ended up replacing the transmission fluid (even though it wasn’t due for a change) and that seemed to solve the problem. Phew. Score one for the good guys, right? Wrong. On Mother’s Day, the check engine light came on and a quick trip to the local auto parts store (where they check engine codes for free) revealed a problem with the torque converter.

On Monday morning, I took it in and learned that our transmission is shot. Our options were to have it rebuilt or to replace it. We opted for the rebuild, which means we’ve been without our minivan this week. Since there are six of us, and we can’t all fit in my car, we had to rent a replacement. Despite my best efforts to find a cheap car rental, we ended up having to spend around $250 for the week.

All told, this little adventure will cost us around $2750 – $2500 for the rebuild, and $250 for the car rental.

Crowning glory

As if the transmission troubles weren’t enough, I somehow broke a tooth last week. I have no idea how it happened, but it did. One minute I was eating cereal, the next minute I noticed a sharp edge on the insider of one of my molars. During an emergency trip to the dentist, I learned the bad news – I need a crown. Yikes.

Beyond being unpleasant, having a tooth crowned is also quite costly. The estimated total is around $1200. While our dental insurance should cover 80% of that (once we meet our deductible), I either have to wait for pre-approval, or I need to pay up front and wait for a refund. Fortunately, we’re in a position where I can do the latter and get it taken care of right away.

The value of an emergency fund

If you’ve ever questioned the wisdom of having money set aside for emergencies, I’m hoping that this post will change your thinking. We’re paying for these expenses from cash on hand. Sure, our savings account will take a bit of a hit, but we sure as heck won’t be racking up credit card debt to cover the costs.

What about you? Are you in a position to cover unforeseen expenses such as these? If not, what are you doing to change that? Do yourself a favor and start building up a cash cushion. It might take awhile to get there, but you’ll be glad you did when that rainy day inevitably comes along.

14 Responses to “Emergency Savings: When it Rains, it Pours”

  1. Anonymous

    Luckily (or unluckily), when I was laid off several years ago, I was able to bank a bunch of my severance package. We have used this for the emergency fund should anything huge happen.

    I also have an account at ING where I am able to separate into sub accounts. I have an account for medical expenses and car expenses and I transfer a fixed amount to each every month. Since I do not have these expenses each and every month, they build up a decent balance.

    When I do use them, I just let them build back up from the transfers and if I do have a medical or car expense before they get filled up again, I just take the money out of my main emergency fund.

  2. Anonymous

    I have 10k in a savings account that\\\’s considered our emergency fund. We are aiming for 11k to put us at 6 months of expenses. (we are right now a one income so we\\\’ve cut our expenses down and our additional money right now is going towards our wedding)

    We also keep around 2k in our bank accounts as padding to avoid bounced checks or if there is an issue with payroll one week.

  3. Anonymous

    Kevin R) Great comment! The way I treat my e-fund, is that if I do ever have to use it (because an emergency), my #1 priority is to get it back to fully funded.

    For someone trying to build an e-fund (not fully funded yet): treat it as a bill. I would be making reasonable ‘payments’ into it every paycheck, until it is funded — just like any other bill.

  4. Anonymous

    Conventional wisdom is three months expenses (which long predates Dave Ramsey), thus if single it would be a lot less than is married with children. As a rule of thumb, I think that is correct.

    One bit of psychology I’ve noticed in myself is that the large the fund the more likely I am to use it. I ended up in a credit card debt trap when I had the fund to cover the initial costs. I’ve found that I’m very willing to use savings if I’m over that three months amount. However the closer I get to that threshold the less willing I am to tap into it — for me the solution is simple, do a slow grow build over of that amount.

    @ John Neil — The fiscal reasoning would say pay off credit cards first, because interest on saving is so low and usually credit cards are >10% APR. My take is more psychological and do both, meaning at least put a token something into saving every time (even if $5 or $10 as I did), then maybe as the payoff is a few months away slide slightly to less payment and more savings to prepare for the transition of life after payoff because in my life I’ve noticed that handling money well is more good habits than monetary calculations.

  5. Anonymous

    Last summer we had an unplanned trip for my husband due to a family medical emergency which ended up costing a couple thousand dollars The week after he got back something popped as I was driving my ’03 Highlander and suddenly the accelerator and AC weren’t working. I could have lived w/o the AC but the problems were connected somehow and one couldn’t be fixed without the other – that was another $1200 bucks. Thank goodness we had the emergency fund or I’d still be up to my ears in interest.

  6. Anonymous

    Yeah, I’ve been going through a lot of the same. My 165k Toyota is in the shop now for $750 worth of work plus I need 2 fillings plus I had to replace HVAC plus DW spent a week in the hospital. All of this in the last few months and it sucks for wealth building, but I\\’d be in crazy trouble without the emergency fund.

    Time to build it back up once the bills are paid.

  7. Anonymous

    I can top that. Brace yourself for my string of bad luck…

    First, our dachshund needed back surgery for a ruptured disc. She was basically paralyzed in her hind legs. We didn’t consider for one second not having the surgery. But it cost $3500.

    Then two days later, someone crashed into my car. I’m fine, but since my car is a 1997 (but still in excellent condition), the damages were more costly to repair than it was worth. Totaled. Now we need a new car. Luckily, we had been saving for a new car for me, anyway.

    A week into my rental, my rental car got hailed on in a bad storm. $500 deductible. Lovely.

    On our way to pick up my new car a few weeks later, my husband’s car about quit on us. It’s a 2000 model. The engine lights came on, and it started jerking. The transmission was going. Now he needs a new car, too. For three weeks, we had to be a one-car family. That was a pain.

    Six weeks later, our dog can walk again. We have two new cars in our garage. And a hefty chunk of our savings has been taken away. But we had about a year’s worth of expenses in savings so we’re OK. I can’t stress enough how important it is to have savings. Everything else is secondary.

  8. Anonymous

    That is a real bummer to happen to your minivan but it does have a lot of miles on it so at least you have been making it work. Good thing you have enough in the E fund to cover the repairs you need so that you did not have to scramble for a credit card.

    It hurts to see all of your savings go up in one session but you can rebuild it and have the peace of mind that you are not paying out in fees.

    @ John…I think you can work on both at the same time. That is what I did with my budget. I set up credit cards as an expense and also set up savings as an expense. The amounts do not have to be equal but you just need to be consistent. When I started off I was putting more into paying off debt and was only saving $5 a month in my emergency fund.

    As time went by and I paid off credit cards I was able to increase to $6 a month, then $10….but I made sure to work on both goals simultaneously. It was slow going but I made it work!!!!

  9. Anonymous

    @ John:

    It depends on the interest rates and terms of the credit card as well as your level of discipline. If you are paying a huge interest rate on the card, having a large amount of cash on hand is costing you money. If you keep a small e-fund and use most of your money to pay off the high-interest debt, you may have to borrow money on the card again in the case of a “perfect storm” situation. The key is recognizing a real emergency and avoiding unnecessary expenses that will force you to resort to the card again.

    If keeping the card available will lead to more spending, then you may need to destroy the card and keep your e-fund in savings. The extra cost of paying interest on the CC debt is less than what you would spend if you had the card available. Personal finance is more about controlling our own behavior than managing available money in the best possible way.

  10. Anonymous

    I am self-employed and our paycheck is different each month, and so an emergency fund is extremely important for my families’ peace of mind.

    Question for you? Do you think it is more important to pay off credit card debt or to set aside some money each month for a rainy day fund?

  11. Anonymous

    I am single so I don’t feel that I need quite as much e-fund as a family. I keep at least $1k in completely liquid savings, but I usually have more than this. I could put every penny I get into paying off debts, but at just over 4% interest I’d rather have the flexibility in case some unexpected costs arise.

    I drive a 2002 pickup. Driving a vehicle with some years and some miles on it will save you money in the long run, but you have to be prepared to lose the use of it in case of major repairs. Right now my pickup is in the repair shop. I do most of my maintenance and repairs myself, but in this case I don’t have the tools and knowledge to complete the needed repairs. fortunately I also have a motorcycle that I can use for backup. The expenses that Nickel is dealing with right now are costly, but they won’t make very many new car payments either. Transmission repairs always seem to be the most expensive most people ever deal with.

    My truck has 130k miles on the original clutch. This will need repaired probably this summer. I try to do anything major in the summer while the bike is viable transportation. I’m going to wait a bit though because the current round of repairs is going to end up being well over $500. I’ll let that soak into the financial background before I tackle the clutch.

  12. Anonymous

    We have a healthy e-fund now, but we didn’t always. Interestingly, a broken tooth and car repairs were two of the four items in our perfect sh*tstorm a few years ago that caused us to re-evaluate our financial practices (replacing a leaking home heating oil tank and expensive radiator parts were the other two).

  13. Anonymous

    My EF is 20K, but I like keeping it that way. (And my dentist is quoting $1800 for a crown! Insurance will only cover 60% of what they think a crown should cost, which is much less than the quote.)

  14. Anonymous

    Nickel: man that sucks — but am glad that you had the e-fund to cover it all! Our e-fund would have covered it too, but one always hopes you don’t have to dip into it…

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