When Disaster Strikes: The Importance of an Emergency Fund

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health insurance, health expenses, fibromyalgia, medical expenses, unexpected expenses, emergency fund, saving money

The following post is by MPFJ staff writer, Kelly Gurnett. Kelly runs the blog Cordelia Calls It Quits, where she documents her attempts to rid her life of the things that don’t matter and focus more on the things that do. You can also follow her on Twitter and Facebook.


We all know it’s important to pay down our debt, build up our savings, stick to our budget, and all that other practical personal finance advice. But, sometimes we let it slide.

            
That vacation we really want to take this year trumps our retirement plan savings.  (Retirement’s such a long way off, and you’ve got your whole life to plan for it, anyway.)

            
Enjoying that new raise a little (haven’t we worked hard for it?) trumps putting that extra money away into our emergency fund—at least for now. We’ll do it later, for sure. And really, how likely is it we’ll suffer some devastating tragedy?

            
But the unfortunate truth is that disaster can strike at any time, and in any form—illness, job loss, unforeseen home repairs. Successfully clearing expenses each month may seem like enough as long as long as things are smooth sailing—but should the unexpected happens, you could find yourself wishing you’d put aside more of your money while you had it.

            
I’ve learned this firsthand recently.


Losing Half Our Income

My husband has Fibromyalgia, a lifelong, often debilitating neurological disorder that manifests itself in a myriad of unpredictable symptoms: constant body pain, nausea, sensitivity to heat, and exhaustion. It has steadily been getting worse over the past couple years, and we had a feeling that at some point down the road, disability would be something he’d probably have to consider.

            
We assumed it would be years and years down the road—we’re both only 31. Turns out, the timeline had its own plans.

            
My husband stopped working earlier this month because the symptoms just became too overwhelming. He’d been pushing himself to the limit and beyond for months without saying anything, not wanting to worry me, and finally, his body couldn’t do it anymore. 

And just like that, with no warning and no adjustment period, we went from being a two-income household to a one-income household. (With half of my income coming from freelancing, which means Uncle Sam takes a hefty chunk out of it quarterly for self-employment taxes.)

            
Before my husband lost his job, we thought we were doing pretty well, all things considered. We hadn’t been personal finance pros in the past, but we were fixing things now, and it looked like we were on the path to financial stability. I was just about to finish paying down my credit card debt through a credit counseling program, after which my husband’s debt would be next, leaving us both credit-card-debt free by the age of 35. We were putting a little bit aside whenever we could (we had accumulated an emergency fund of around 1 month of expenses). Things were a bit tight since I’d recently switched to part-time freelancing, but we were doing better and better each month, and we had a plan in place to keep the growth going. It was only a matter of time before our ship righted itself once and for all and we started coming out ahead of the game.

            
Then that ship crashed. And we weren’t ready for it.




Batten Down the Hatches While You Can

If you think balancing a budget is hard in general, try it when you’ve just lost half your income, with no time to plan for the drop-off.

            
The good news is that there were some things we were enjoying in our old lifestyle that weren’t necessities—a nice cable package, dinners out on the weekends, a second car. (No need for that anymore now that only one of us is working.) We weren’t living the high life by any means, but we weren’t depriving ourselves, either. We were your average middle of the road, middle class couple. Meaning, there was a little fat that could be trimmed from the old budget. Everyone has some.

            
The bad news is that, even after slashing those unnecessary items from our expenses, it still wasn’t nearly enough to cover the difference of an entire lost salary—especially considering my husband was also the one carrying our health insurance coverage. (Did I mention that applying for disability benefits is a process that, on average, takes 2-3 years to fight out?)

            
What I wouldn’t give to travel back in time a few years and tell myself to start squirreling things away ASAP—anything, everything, even if things already felt a little tight. But hindsight is always 20/20. That’s why I’m sharing mine with you—not to make you feel sorry for me (we’ll find a way to make this work), but so that you don’t feel the need to go back and warn your past self.

            
We will make it through this. People make it through much worse all the time, and thankfully, our financial house was already getting back in order before we took this hit. But it could have been less difficult. We could have given ourselves a little more security.

            
So if you keep telling yourself you’ll start working on that emergency fund “later”—don’t. You are never too young to start (and it’s also never too late). You can’t predict what’s coming down the road, so do your future self a favor and prepare for the worst. Hopefully it will never come, but if it does, you’ll be o.k.

            
How about you all? Do you have an emergency fund in place? If not, what could you do now to start putting something aside for one?


Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/76657755@N04/6881502016/

Comments

  1. I'm really sorry to hear about your husband's illness.

    I agree with you – it's an emergency if you don't have an emergency fund. I'm FI and retired now, but when we first got married, we built an emergency fund right away. It allowed me to sleep at night.

    You may be able to look at this as an opportunity to drastically reduce expenses by moving, selling or downgrading cars, etc. Think what life would be like if you could create a lifestyle that relied on only one income, but eventually you had two incomes. You could save a lot of money.

    Good luck!
    My recent post New Feature – Asset Allocation Calculator

    • CordeliaCallsIt says:

      Thank you.

      That's exactly what I'm hoping we can do. We've cut our budget in half (if only we knew we could have lived off half our budget when we had 2 incomes! Think of how much we could have saved!) I just got my certificate in the mail that I've completed my credit card consolidation payments, and I'm now credit card debt-free. Should my husband be able to pick up a small part-time job down the road, or my freelance business picks up, we could actually be better off than we were when we were in a much higher income bracket.
      My recent post QUIT: The Day Job (!!!)

  2. This topic is really a great thing to discuss, and one that I've spent several hours pondering over in constructing my account hierarchy priority order (see link below).
    http://www.mypersonalfinancejourney.com/2010/01/w

    For example, it can be very tempting when people are in debt to just build up a small emergency fund ($1000 for example, per Dave Ramsey's system), and then go right along with paying off their higher interest debt.

    However, I generally feel that people should have a little more emergency fund savings built up before continuing on with their debt payment, because of the extreme importance of having access to cash in the event that you become injured.
    My recent post When Disaster Strikes: The Importance of an Emergency Fund

    • CordeliaCallsIt says:

      Exactly. You need to safeguard yourself against the unexpected, because even if you're making headway in paying down your debts, if emergency strikes and you can't pay for it, you're just going to be moving backwards again. Now that we've gone through what we've gone through, I am definitely prioritizing saving much more than I did in the past.
      My recent post QUIT: The Day Job (!!!)

    • myfijourney says:

      I've started thinking about this and it doesn't make sense. If you have $1000 laying around, use it to knock out your high interest debt. So you don't have an emergency fund, but what are the scenarios?

      If you need emergency money, just charge it. Your debt situation goes back to where it was, but the emergency is resolved.

      If you don't need emergency money, then your debt is paid down faster and you pay less in interest.

      Assuming no prior suspicions of an impending emergency, the odds are way better that nothing will happen over something happening.
      My recent post Grow Your Career to Achieve Financial Independence Faster: Part 1

      • It's definitely true that an argument can be made for both ways of handling the emergency fund issue.

        For now, I'm siding with the camp that argues to have a higher emergency fund since not everything can be paid for on a credit card.
        My recent post When Disaster Strikes: The Importance of an Emergency Fund

      • CordeliaCallsIt says:

        You're certainly free to handle your finances whichever way makes the most sense to you. For me, it's the “if we don't have the money, we'll just charge it” mentality that got us into so much debt to begin with.

        I prefer a balanced approach, where some of your extra money goes towards paying down debt and some goes towards building up savings. That way, you're taking care of the present and the future without leaning too heavily in one direction or the other.

        We focused largely on paying down my debt, which was great because I just got my certificate in the mail that my cards are 100% paid off–just in time for me to start opening a new card because we can't afford to live off one salary. I'd much rather have put aside a little in case of emergency, because all this is doing for me now is putting me right back at square one.
        My recent post Link Love & Cordelia Around the Web (5/13/13)

  3. Life happens. It's as simple as that. By having an emergency fund, you help cover yourself when life happens.
    My recent post A Guide to Pre-Pack Administration for Your Business

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