Real-life drama: When emergencies pile up
Sometimes when it rains, it pours, and the emergency fund is depleted. What happens then?
I recently mentioned that my cat had died. Not only was his passing heartbreaking, it was expensive. But, as I said in that post, I was very happy to be able to write a check from my emergency fund and not worry about where the money would come from.
Since I'm still paying off debt, that $800 check represented most of my meager emergency fund. I'll rebuild it over the next few months, but in the meantime I don't have much of a cash cushion. I was just hoping that there wouldn't be any subsequent emergencies.
As luck would have it, there was.
When it rains, it pours
Two weeks after my cat's death, I developed a nerve problem that temporarily crippled my hands. The cause is unclear, but my neurologist recommended some changes to my work routine while he runs tests looking for the root problem.
Suddenly, I was facing medical bills, expensive new equipment and software to enable me to work, plus a vastly reduced workload while I waited for my hands to heal. How was I going to cover this with only $200 left in my emergency fund? Especially the week before Christmas?
If I was ever going to reach for a credit card again, this would seem like the right moment to do it. But I didn't. Instead, I buckled down and followed Katy Wolk-Stanley's excellent advice to "make it do or do without."
Instead of buying a new adjustable-height desk, for example, my husband and I renovated my antique writing desk to turn the front drawer into a hidden keyboard tray for my new ergonomic keyboard. I borrowed expensive dictation software from a friend who had switched computer platforms and no longer needed the Mac version. Though my friends with repetitive strain injury swear by the Alexander technique, I decided that could wait until my finances have recovered a bit.
Borrowing from myself
I still had extra expenses, though. The past few weeks have seen me at a doctor's appointment almost every day. Even my small $15 to $25 co-payments add up to big bucks when I see so many doctors. In addition, I've had to pay for medications and a few pieces of equipment, like protective foam pads for my elbows. That all quickly drained the $200 left in my emergency fund.
Rather than borrow the extra funds I needed from a bank, I borrowed them from myself. I had the money stashed in accounts earmarked for my taxes, my kids' tuition, and our family trips. Those are all priorities for me. The tuition and taxes are essential, large expenses. I couldn't just take the money. But faced with a health crisis and a depleted emergency fund, I borrowed a few hundred dollars from myself.
This month, I'll redirect part of my debt snowball to repay myself. This sets back my target debt-free date, but that's a whole lot better than being unable to handle unexpected expenses at all -- or being forced to take on new debt to do it.
This was the first time I've had to make a choice about what to do if my emergency fund runs dry. In the past, before I managed my finances at all, every month was a crisis. There was no emergency fund, just a growing pile of credit card debt and a sinking sense of panic.
Since starting to manage my money, I've been able to handle any unexpected expenses with the money I had coming in that month. I've been lucky to have minor calamities like car repairs and vet bills spaced fairly far apart. Keeping my emergency fund at $1,000 has seemed like a reasonable choice. Now it seems woefully thin. That thousand dollars was easy to spend fast when a couple of real emergencies cropped up in quick succession.
Will I shift gears and save more in my emergency fund? Probably a little. I still think the debt-snowball approach to paying off debt before building up savings is financially sound. My loans are all "low-interest" now, but even a low interest rate on a loan is several times the interest I earn on my "high-interest" savings account. If I build up savings while I'm still paying off those loans, I'll be paying a premium for the privilege of having money sitting in my savings account.
That's a privilege I may well be willing to buy now. Going through a recent spate of emergencies, especially ones that cost me a beloved pet and affected my own health, has left me feeling fragile. Money isn't only about math, as J.D. Roth is fond of reminding us; it's also -- maybe even primarily -- about state of mind.
I'm working hard to manage my finances mindfully because I want firm financial ground under me as I raise my family. Having only a small emergency fund feels a little less firm to me now than it did a month ago. It's going to take me a month or two to get it back to its old level, and I may just continue making larger contributions to that fund.
That would mean paying my debts a little more slowly, and ultimately paying more interest over the life of those loans. It might be worthwhile to me for a stronger sense of financial security in the here and now, though.
Even more important than the money I spent on my crises this month, I'm taking note of the money I didn't spend. I was raised in a household where throwing money at problems was the thing to do. This time, I managed to take a deep breath and stop the spending whirlwind before it even really got going. My approach kept the tempest in its teapot, turning a potentially expensive set of emergencies into manageable ones.
Next time an emergency crops up, I'll have more than my emergency fund to fall back on. I'll also have the knowledge that I don't necessarily have to spend money to solve every problem, even in an emergency.
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