There was a time when we lived paycheck to paycheck, but after our kids were born we became increasingly worried that an unexpected loss of income would put us in a serious financial situation we couldn’t escape. This is our story.
Is It My Responsibility to Set Up an Emergency Fund?
My husband and I have this thing. It’s that we both want to be the carefree one at times. We both want to have time to ourselves to take naps in the middle of the day, we both want to go out to dinner with friends, we both want to spend money on things we want and travel somewhere cool every month. We used to do all of this and anything else we wanted to…before we had kids.
This behavior was all fine and dandy until we started thinking about having a family. As I’ve previously written, we didn’t exactly build up our savings when we were single and carefree. We spent the better part of our twenties living the good life and found ourselves staring at a measly $500 savings balance after three years of working.
I will say that we’ve gotten exponentially better at living within our means after our first foray into the world of frugality approximately 6 years ago (the year before we had our first child…all explained at the link above).
But we’re still guilty of not taking extra measures to protect ourselves financially until we’re forced to do so. Every once in a while, we’ll find ourselves spending too much money and wondering where it all went at the end of the month. We like to tell ourselves, we’re okay because we automatically have a percentage deducted from my husband’s paycheck for retirement and we have some liquid savings.
We realized about 6 months ago that savings, no matter how much we have, isn’t good enough if we consider it money we can touch. When we look at it that way, we make decisions more loosely.
We all have to grow up sooner or later, right?
Setting Up An Emergency Fund & Rainy Day Math
So…we decided to set up an emergency fund that we could not touch unless it was a TRUE EMERGENCY.
We didn’t know how many months worth of expenses to set aside. 2 months? 4 months? 6 months? A year? Being a worrier, I immediately jumped to the 1 year mark. I thought that would be a tremendous savings account anyone could be proud of.
Buy my husband quickly pointed out that if he were to lose his job, I would be able to quickly find accounting work to fill in the blanks while he searched for a new one.
He’s right – we’re fortunate in that regard. Accountants are always in demand. As much as I despise working for the man, I will do if if I have to, for my family. For a little while at least. ;0)
He also pointed out that if we actually had that much money sitting around, it would be foolish to have it in a low-interest savings account and not invested where it could earn a real return. I agreed with him on that, too, only because our personal investment account through Scottrade allows us to get funds fairly quickly – I could probably cash out some stock and withdraw the cash within 5 days if I needed to. We don’t have a ton in this “fun investment” account, but more on that later…
In the end, my husband wanted to set aside 4 months of expenses, but seeing as how I originally wanted to set aside 12 months worth, we settled on 6 months for our emergency fund.
No More Living Paycheck to Paycheck – Where We Got Emergency Fund Cash
I love how this kind of stuff works out sometimes. Remember that time we were so scared about me quitting my job to stay at home that we saved up a billion dollars in a year and a half? Well, we put $10,000 of that into a CD, and just as we were considering setting up our emergency fund, that CD was ready to mature at the 48-month mark.
Pre-emergency fund talk, we wanted to do all sorts of things with that money – put it toward landscaping our run-down yard, replace our stove top (it’s falling apart because it’s original to our 15-year-old house), buy a new couch (we’ve had the same set for 10 years), or make a big dent in the purchase price of a new vehicle (mine is coming up on 200,000 miles and my husband is worried it will break down while I have the three kids with me).
It wasn’t easy deciding to set aside that cash for an emergency fund that we couldn’t touch, but we bit the bullet and did it anyway. Being able to make mortgage payments and continue to buy food for our family in case of an accident or a lost job is more important than anything else. Living paycheck to paycheck isn’t a fun spot to be in when you have three little mouths to feed.
We wanted to put the emergency money in a place where it wouldn’t be comingled with our other money, so I called our banker (I’ve been with the same bank for 12 years) and asked him to open up another savings account just for this purpose. Once that was all set up, we cashed out our CD upon maturity and deposited the entire thing into the new savings account.
Other Ways to Raise Cash for an Emergency Fund
You might be thinking that it was too easy to raise the money for our emergency fund. But, really, that cash was available as the result of scrimping and saving several years earlier.
If I had to raise money for our emergency cash reserves, I would follow some of the same principles as I did way back when. I would start with a goal amount and then come up with a variety of ways to piecemeal that total together.
Here are some things I did and would do again:
- Find part time work – Back then it was teaching online courses after I came home from my regular job. Now that I have 3 kids, it would possibly be a little teaching as time allows, then perhaps writing articles, taking on a tax client or two, and even babysitting (which I could do without taking time away from my kids).
- Hold a garage sale – With all the junk cluttering up our space, I could easily see netting $200-400 from doing this.
- Sell stuff on eBay or Amazon – I could come up with some DVDs, books, and CDs that I no longer need.
- Sell old baby clothes and equipment at consignment sales/stores – I do this anyway whenever my kids outgrow something I will never need again. I could just set this money aside specifically for the emergency stash.
- Redo our budget & cut out discretionary expenses – Just like everyone else, we are guilty of turning luxuries into necessities in our mind. I would start with things that fall into this category like cable and cell phones and eating out. If I really needed to come up with a lot of money, I would then focus on entertainment costs, using coupons more diligently, planning our meals based on what’s on sale, cutting meat out of some dinners, forgoing new clothing unless absolutely necessary, and always buying second-hand. Basically, I would examine every item in our monthly budget and figure out a way to reduce that number.
- Strictly follow my money-saving motto, “Did I need it yesterday?” when faced with a purchase decision. This would stop me from buying things I don’t really need.
What Do We Do With Our Emergency Fund Now?
Absolutely nothing. We made a pact to leave it alone no matter how tempting it is to raid it for a non-emergency. No using it for Christmas presents, a fun vacation, that landscaping that I STILL want, or to buy the vehicle we will inevitably need to purchase sooner rather than later.
In some ways, it’s like forcing frugality on ourselves. It’s hard to know you have that cash sitting there and can’t touch it. But it’s even nicer knowing that we could cover our expenses in case of an emergency.
And I wouldn’t trade that for the world.
Now, I need to focus on building our non-emergency savings so we can more easily cover unexpected expenses as they come up. Like replacing my computer that just crashed yesterday! 🙁
Ultimate List of Ways to Save Money – My ongoing list of ways to save that I’ve discussed (or ever plan to discuss) on this blog.