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Well Crap…Extra Expenses

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Isn’t this just Murphy’s Law? Anything that can go wrong will go wrong? Especially when a HUGE goal is just on the horizon, mere weeks away!

So I guess this is just life but I’ve got to report to you all with some disappointing news today. News that may impact our January 2016 target date for becoming consumer debt-free. Sigh.

We’re going to have some big unanticipated expenses this month.

First (and the smaller of the unexpected expenses)….I broke part of our dishwasher, and almost caught our house on fire in the process. I really can’t explain it well because I don’t know what all the parts are called, but I tried to take apart some of the inside pieces in the dishwasher to clean them. When I put it back together, apparently I didn’t do it correctly. The next time I washed a load of dishes, the part came apart and landed on the heating mechanism, which caused the dishwasher part to melt (and smell like an electrical fire!!!) Luckily, I caught it in time before major damage had occurred and the dishwasher isn’t totally ruined. However, to replace the broken part it cost $100!! What the heck!? Seems like price-gouging to me, but it’s a necessary replacement.

Dishwasher fix = $100

The second (and larger) expense really, really bums me out to have to talk about. Basically, hubs was in a car accident. It wasn’t terrible, and no people were hurt. He was driving home and stopped at a red light with cars in front of and behind him. The car behind him plowed into him and pushed his truck into the car in front of him. From hubs’ perspective, the entire wreck was the fault of the person behind him. But the police officer who responded to the scene cited the driver behind hubs for causing the incident (not sure what the official citation was) and cited hubs for being too close to the car in front of him. So, ultimately, the person behind hubs is responsible for the damages to our vehicle and we are responsible for the damages to the vehicle in front of hubs.

Deductible = $1,000. We had $250 in our car repair account. This leaves $750 to be paid out of pocket.

Vehicle fix = $750

Can you say OUCH?

And now I’m left doubting myself. We’ve had this super thin emergency fund. It’s continuing to be stripped so we now have no buffer in our car repair fund, only a couple hundred in our annual expenses fund (should be revolving closer to $500ish), $400 in our dental/health/vision fund (should be revolving closer to $1,000ish), and that’s basically it. Still some small balances in other various accounts (pet expenses, birthdays, and travel/Christmas – though the Christmas fund will be depleted this month), but very little buffer between us and disaster. That was all well and fine when I was hoping to be consumer debt-free this month and start re-building our savings in January but that’s no longer going to happen.

In fact, with these huge expenses (particularly the vehicle one), we may not be able to hit our debt free goal in January either. And now we’re talking about pushing back these dates far enough that I start to be nervous about not having a good EF security net.

Also, I’ve been working on some projections for 2016 and am a little disappointed in myself. Even if we hit the consumer debt-free mark in January, it would take us probably an additional 2-3 months to re-stock our savings to a level where we feel comfortable. So we’re talking about being nearly a third of the way through the year before we’re really able to start wailing on some debt again.  I wish we had big Christmas bonuses or something that could really jump-start the savings and get us back into debt-reduction mode faster, but neither of us has a job like that.

Soooo, yeah. I’m a bit torn. Continue on our current path, pay these new debts, and try to become consumer debt-free as soon as possible (January or February at the latest, knock on wood), or sloooooow down just a step so we can get some Emergency Funds back into our bank account so that we are better equipped to deal with any unforeseen disasters.

Also, as an aside, pretty sure our insurance is going to go up. Boo!

But all this being said, I like to count our blessings. We have done a kick-butt job this year with paying down debt and we are proud of our hard work! We’re in a great position for 2016 to be our year! Becoming consumer debt-free, building up some savings, buying a house (!!!) and starting to tackle the student loan mountain. It should be a great year!


Why It’s (Sometimes) OK to Have a Small Emergency Fund

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I’ve mentioned that I’m keeping a very slim emergency fund (just under $1,000) from now through the New Years. Instead of beefing it up right now back to a place where I feel comfortable (which, for me, is about $4,000ish), I’m putting it off until the New Year.

Last week Matt posted about how his emergency fund (EF) has also taken a dip down to right at $1,000. A couple readers commented on how dangerous and foolish it is to allow such a low EF, and the importance of having a reasonable EF in general (side note:  read the comments, as there were some really great points and an interesting discussion).

I whole-heartedly agree that an EF is of the utmost importance. When trying to get out of debt the first basic step is to stop accumulating more debt! The best way to do that is to pay for things in cash and have a bit of a safety net for any possible “uh oh” situation that would otherwise cause one to take on debt.

What one considers to be an “acceptable” level differs by person. For me, my preference is to have one full month worth of expenses in the bank (about $4,000 for our family’s minimum expenses). I know many financial gurus suggest 3-6 months worth of expenses or even 6-12 months. But, some of those same gurus admit that these figures are after debt has been paid off. While still in the trenches working to eradicate debt (some of) that money is better spent paying down debt! Dave Ramsey suggests that while in debt repayment mode to only have a $1,000 beginner EF. For me that’s a little too low for comfort (again, I prefer one month worth of expenses). But to each their own.

All that being said, I think it’s okay to have a meager emergency fund sometimes.

Here is my reasoning and logic for why I’m sticking with a very small EF right now:

  1.  It’s for a limited period of time. I would not feel comfortable with my current level of EF (under $1,000) forever. But I’m not suggesting I keep it that low forever. I’m just trying to get through the rest of 2015. I have some pretty big financial goals to achieve and I’m working my butt off to try to hit them (or come as close as possible!) I’m planning to beef back up my EF in January 2016, so we’re really only talking about a month and a half of our super slim EF.
  2.  It’s motivating. If you have a slim EF, you work that much harder because you’re motivated to be able to build it back up quickly. It’s uncomfortable to know that you have a super small financial security net, so you may be more likely to cut back further (to save additional money), find things to sell (to make more money), etc. All around, I find it motivating.
  3.  I have a steady paycheck. This is a big one because for multiple years we had a VERY variable income. During that time I would have never allowed our EF to stay at such a small level. But we also depended on our EF for our basic livelihood rather frequently. The situation is different now. I have a secure job and steady pay. If we were to experience an emergency that completely wiped out our EF, we’d still be okay because we continue having a steady paycheck! It would just mean that any funds originally earmarked to go toward debt would be diverted to pay for the “uh oh” situation. I feel a lot of security in knowing I get paid like clockwork every two weeks.
  4. We rent. One of the points brought up in the comments on Matt’s post was that renting is inherently less risky than owning.  Anyone remember the Great Flood we experienced last year at this time? I can’t even imagine how costly that was for our landlord. If a roof needed replacement, an A/C went out in the heat of summer (or heater went out in winter), or some other major expense came up, it could cost many thousands of dollars for repair/replacement. We aren’t in that situation right now, so we don’t need emergency funds to cover any of those hypothetical home-ownership-related problems.
  5. I have other savings. I really love how easy it is to have separate savings accounts for different goals with Capital One 360 (<refer a friend link! If you join, let me know how you like it!) Some people are “groupers” and some people are “splitters.” I’ve always been a splitter. You should see my desk at work – I have a different pile for each task I’m working on ; )  Anyway, I’d hate to have to do it, but if an emergency arose that we were unable to cover through our small EF or income, my next step would be to raid other existing savings. We have savings in all kinds of categories:  Christmas fund, semi-annual fees, dental/health/vision, vet/pet expenses, etc. etc. etc. If something big came up and we needed liquid cash immediately, I’d dive into these funds in order to cover our butts. Yes, I don’t consider them part of our EF (and I prefer to keep them totally separate). But, let’s be real. It’s cash money sitting in the bank. If we need cash, it’s an easy place to go.
  6.  I have credit cards. I know this is controversial because some people are big proponents of cutting up and throwing away credit cards. If you have had credit card addiction problems, then by all means get rid of them! But I’ve been pretty safe on that front in terms of being able to charge something credit and pay it off right away. I still prefer using debit cards because it’s easier for budgeting purposes. However, I use a Wells Fargo credit card for our monthly preschool tuition because of the reward points it earns, and I use a Target credit card anytime I buy gifts (wedding, baby, etc.) because I save 5% and get free shipping (remember, I live in Arizona but most of our friends/family are in Texas so almost all gifts I purchase have to be shipped back to Texas). In addition to that I have 2 more credit cards I never use (they sit in a safe in our home).  In all, I have probably $15,000 worth of credit available to me. This would be a last resort, but if a big emergency came up and we didn’t have the cash (or income, or additional savings) to cover it, I could put it on a card and pay for it the following month. That allows us an extra month to get the money together without it actually being new debt (and it would be paid off before any interest accrues, etc.)

Those are my thoughts on the matter, what are yours?

Have you ever had a small EF for a period of time? If so, how did you handle emergencies when they came up? How much of an EF have you kept while in debt-repayment mode? What’s your minimum threshold? 


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