August Was Brutal (for Expenses)

I don’t know about everyone else, but August was brutal for our family when it came to spending, especially unplanned expenses.

As most of you know, August was the first official month where we lived debt free. The first week of the month was also the second week of our long-planned vacation.

Even though we saved in advance for the trip, we didn’t anticipate all the additional (unrelated) expenses that would hit us at once, including:

  • $108 – New phone because my 3 year old broken iPhone 3GS finally became unusable
  • $50 – Campaign contribution (yes, I know this is optional but a friend needs help)
  • $80 – unplanned birthday expenses for friends
  • $125 – dentist
  • $250 – car repairs, unplanned
  • $75 – school supplies; should’ve seen it coming
  • $50 – load up school lunch account

Total unplanned expenses = approx $750

 

$10,000 by Christmas

All these unplanned expenses have me off on the wrong foot in my plan to save $10,000 by the New Year, something I am doing in anticipation of a career change next year. This money would be an emergency fund in the event that I experience unemployment or underemployment.

Plus, it’s always a good idea, after you become debt free, to build up a cash emergency fund of 3-6 months of living expenses.

As I mentioned in the past in my Job Loss Emergency Plan post, I will plan for the event of one of us losing our jobs, but not both. If we both lose our jobs, we are going to need a lot more help than an emergency fund can provide, and will likely just have to get on welfare and move in with family. You will drive yourself crazy trying to plan for the worst case scenario.

 

Why I Never Talk About Emergency Funds

For some reason, I don’t write a lot (or at all) about emergency funds. This is partly because everybody else is doing it, and partly because I never needed one. Our cash flow situation was strong enough that we could weather any unplanned expense up to $2,000 by simply delaying debt freedom by one month. I also have a decent amount of silver bullion coins that I could sell if shit really hit the fan.

For those reasons, we chose just to forge ahead with our pseudo emergency fund and let life happen. In hindsight, there are a number of scenarios that could have happened to us that would have been beyond our cash resources, but I felt it was psychologically more important to forge ahead with paying off our debt.

 

Should You Have an Emergency Fund?

If you are trying to turn your money life around and are living paycheck to paycheck, it is probably a good idea to build up at least $1,000 in an emergency fund before you starting throwing everything you’ve got at your debt.

Having an emergency fund never made it into our 10 Rules because it wasn’t a part of the plan we used to get out of debt. For me to include it would mean I’d be doing it because everyone else was doing it.

To be honest, an emergency fund seems more useful as a tool to stay out of debt rather than one to get you out of debt, which is why I’m focusing on it now, after our debt is paid off.

But if we have too many more brutal months like August, it’s going to be a long road trying to save $10,000 by the New Year.

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21 thoughts on “August Was Brutal (for Expenses)

  1. We have an emergency fund. Mainly because I am extremely OCD about something happening. I also always like to have a large buffer in our account. Not the best personal finance decision but I’d rather be comfortable than worried 🙂

  2. I have an emergency fund and I think they are a great tool. They can save you from going into debt if you don’t have any. It is harder for me to say to have an emergency fund when paying off debt if it is high interest rate debt though. Maybe 1 or 2 grand instead of a few months is enough like you suggest.

  3. I’m glad you said it and I agree…emergency funds are cool but it depends on yoru situation whether you need it and how much shoudl be in it. It’s almost blasphemous to say it in teh pf community — but I agree iwth you!

  4. I think an emergency fund definitely helps people avoid going back into debt or taking on more debt than they already have. $10,000 by Christmas would be nice! We haven’t set goals like this lately and we need to get to it!

  5. I also agree that building up a big emergency fund is best to put off after paying off debt. A smaller emergency fund is just a lot more practical when most of your spare money should be paying off whatever you have owing. Good luck with your $10k goal John.

  6. There were a ton of emergency fund posts out there lately, weren’t there! I’m with you in that I just re-wire my debt payoff and savings toward my overflow in expenses. But the $10K goal I think is pretty good! It certainly wouldn’t hurt to know you’ve got that kind of a layer of protection working for you!

  7. Something that would help with the above “unplanned expenses” is to plan for them with savings buckets. We have had a car maintenance/repair savings bucket and we have a Christmas/birthdays savings bucket so that the money is already there before something comes up. Just a thought 🙂

  8. I like your approach of having a small EF until debts were paid off. Good luck reaching your 10K goal by the end of the year. That’s really impressive.

  9. September is our brutal month. August wasn’t great either. I cannot wait until this year is over.

    Everyone does talk about EFs but for me, I feel more comfortable having more in the bank than most people talk about. That’s just me though.

  10. I agree, you can do your best to build up an emergency fund to see you through trying situations, but trying to plan for the absolute worst case scenario seems overly pessimistic to me. As long as you’ve got some cash in reserve you can still spend some money on the things you enjoy!

  11. I like have an allocated savings account (gifts, vacation, car replacement…etc) and a separate emergency fund. Looks like several of those categories could have been caught with some allocated savings and an oops line in the budget. I’ve been there before many times…we got hit with phone overage 2 months ago and it wasn’t cheap.

  12. I hit my emergency fund goal earlier this year, and now I am saving up a “liberty fund” of $30,000 that can help me overcome any big obstacle or unexpected life event.

  13. I agree that an emergency fund is important…even if you are in debt. It can help prevent you from getting in even further…especially if you’re not lucky enough to have that buffer zone! Bummer about August. That happens to everyone every once in a while, though. It all seems to happen at once, too.

  14. I’m not going to wade into the emergency fund waters here. You can thank me later.

    I’m writing a book synopsis of Suze Orman’s first book for a client. In it she estimates that the average person spends about $1,000 more per month than they think (if they aren’t keeping a strict budget), just on little one-off expenses. If that’s the case, you’re covered for two months!

  15. I have an emergency fund because it helps me sleep at night…but I think it’s a matter of personal preference.

    We had a crappy month of spending in August as well….and September isn’t looking that great either. Maybe things will turn around in October?!?!?! =)

  16. Emergency fund is huge, but anything over 3-6 months is really conservative IMO. You could also contribute to a Roth IRA and pull contributions out tax/penalty free should a TRUE emergency arise.

  17. Those brutal months are so annoying, right? I know how that goes.

    My current view is that in many cases, we have to expect the unexpected. We don’t know what that will exactly mean, but it could be random things like car repairs, home repairs, things breaking, traffic tickets (my own personal dumb move last month), etc. So, I’m factoring in stuff like that happening.

    The emergency fund, the way I see it, is for a “true” emergency like medical bills, truly unexpected job loss, etc.

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