Emergency Fund
Heading interstate for this funeral has highlighted to me the importance of an emergency fund. Some time ago, as part of my quest to sort out our financial situation, I came across Dave Ramsey’s website. I wouldn’t say that I’m a 100% Dave Ramsey fan but he makes some points which I do agree with. One of which is the absolute importance of having an emergency fund.
In fact, the first thing he recommends that everyone do, even BEFORE tackling consumer debt, is to sock away small amounts of money until you have $1000 set aside labelled “emergency only”.
Now $1000 might sound like a lot but believe me it doesn’t go that far these days. It cost us almost $1000 to head away for the funeral we went to last week. By the time you have travel costs, accommodation and food, the expenses can add up really quickly.
How would you go? Could you find $1000 quickly if you needed it? Believe me, it was an absolute BLESSING to have that money sitting there, ready and waiting for a moment just like this. We didn’t have to even think about the cost of going. We were just able to do so.
I’ve heard Dave Ramsey describe an emergency fund as “Murphy Insurance“. In other words, having a bit of money set aside “just in case” actually seems to help stop Murphy in his tracks. At least if something does go wrong, you’re not left in a financial hole quite the same and therefore Murphy can’t “kick you while you’re down”.
You Must Be Loaded to Have a Spare $1000 Sitting Around
I don’t believe we are loaded. We live off one income which is becoming rarer and rarer these days. Admittedly our single income is higher than the minimum wage (most years) but achieving our emergency fund was more about determination than having a surplus amount of cash. I could come up with a dozen or more justifiable ways to have spent that money. But our belief in it’s importance was higher than our desire to spend. In the end I’m really glad we achieved it.
5 Steps To Help You Get an Emergency Fund Started
1. Open a Separate Bank Account
If you see it, you’ll spend it. If you keep it in cash, you’ll spend it. Look for a bank account that will give you a little bit of interest. If you’re worried about extra bank fees, consider an online account. Often you can get reasonable interest on money at call through those types of accounts. Sometimes the only amount I’ve been able to add to my emergency fund total for the month has been the interest on what I already had. That’s okay, it’s all PROGRESS.
2. Do Not Consider Any Amount Too Small
Lots of little amounts add up to bigger amounts. It is surprising how much at times. Put aside your silver change, forgo a coffee every now and then… there are MANY different ways that most people could find to add a dollar or two here and there to an emergency fund.
3. Be DETERMINED
It really is AMAZING what we can do when put our minds to it. One thing I learnt a few years back was the saying “it’s not what you earn but what you DO with what you earn that makes the difference”.
4. Think in Babysteps
It’s easy to get overwhelmed and think that $1000 is totally out of our reach. Do what you can with what you have. Maybe you’ll never make it to $1000 but then again, maybe you will. You won’t know until you try.
If it helps, break it down into hundreds. Aim for $100 in the account, then $200 and so on.
5. Start TODAY
It’s easy to put these things off thinking we’ll get around to it sooner or later. Even if you can only find $10 this MONTH to put into an emergency account, it’s $10 more than you would have had if you’d left it in your purse.
Make a commitment to start today. Run around the house and see what change you can gather up to get things started.
Blog about it and perhaps get yourself a ticker to keep yourself accountable (if you do this, let me know and I’ll come over and be your personal cheer squad 
).
You won’t be doing this alone. I have some replenishing of our own emergency fund to do.
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I have an emergency fund exactly as you’ve suggested, and I’d like to add a few more suggestions to your list.
1. Never spend coins. Put them in rolls and take them to the bank. I’ve saved hundreds of US dollars this way in just the past four years.
2. Never spend relatively smaller bills. I spend US ones, tens and twenties, but put away all fives. They’re small enough not to be missed.
3. Put the money in a certificate of deposit or similar account. The interest is decent and there are significant penalties for early withdrawal to deter you from invading it cavalierly.
I sooo agree with this line of thought.
My emergency fund got depleted really quickly after the separation, and it’s left me feeling really unsettled, which has meant I’m not sticking to my budget….weird psychology thing there.
I have just got a credit card (first time in probably 10 years), I don’t really agree with credit, but it helps to know that if something happens (like it has been :-() I won’t be left in the cold IYKWIM.
In the mean time, I will keep slowly stashing what I can back into my emergency fund, and hopefully, with the peace of mind of having a back up if need be, I will stop feeling anxious & deprived and start sticking to my budget a whole lot better.
AND NOT use the credit card.
K
feefifoto - thanks for your thoughts on the subject.
Kirstie - I agree, I spend more when I feel like we have less. I think an emergency is excellent for peace of mind which can definitely lead to less spending. I know I spend a lot less when I’m feeling secure and comfortable.
This is such a great idea. Hubby in particular hates carrying change - I reckon I could get to the target quite quickly just by collecting the piles left around the house.
Mind you, it would mean diverting those piles away from my bonus scrapbooking fund
Great advice though.
“Murphy” is most likely a reference to “if anything can go wrong it will go wrong”.
Another way to think of it might be to have a month’s salary rather than a specific figure (given that different people spend money at different rates)
A very timely post. I just had to come up with $900 for our 2 year old to have surgery for a lump (very unexpected). I just had to put on the credit card and will have to battle the budget. I do have some money in savings but that is currently earmarked for our Queensland holiday in a few weeks. Yes, I know, not quite how an emergency fund is supposed to work.
Actually I’ve just been reminded of our change tin - I reakon there might be a couple of hundred in there which will certainly help things.
Thanks again for the great post.
Libby
Its been good to be reminded exactly why I have an emergency fund! I know that sounds funny but I am so used to the money being direct deposited into our ” extra savings ” account each fortnight that I dont really remember its there till I get a statement.
Not long ago we decided to try and be more strict in our budget in an attempt to save for private high schooling next year, another car if hubby ends up being shifted to Mawson Lakes in the next 6 months,,, etc etc,,,, and sometimes it ends up on clothing etc and a drum set for the older one but its so nice to know you have already saved it, earnt some interest and can reward yourselves by having it there and not having to take out a personal loan.
I know another mum who pays a bit more off her mortgage each pay but then when she needs it and once she has $1000 she can redraw some of it. This is another way of having some self control in this area I guess.
It sure takes away the thought or need of having a credit card - not that there is anything wrong with credit cards….. just a different way of thinking!
Cant wait to read others comments. I think its fantastic discussing the “taboo” subject of money….. many keep it so private , maybe because they dont have goals or plans… mmm… Any thoughts?
Like Libby I have change tins, they’re sealed tins with a slot to drop the coins through. I have one almost completely full of 50 cent coins and one about half full of $5 notes. Other cans have 20, 10 and 5 cent pieces, these get used if we need them, but if there’s a build up big enough to take to the bank I exchange them for a note which is then stashed away. I’ve no idea how much I have, but I’d like to work towards enough to pay for moving if the landlord suddenly decides to sell our unit. That would mean moving costs as well as bond for a new place so I’m squirrelling away whatever I can.
Great post! That was the first thing I did when I first started following Dave Ramsey’s advice - it’s been a godsend at times. It gives you such comfort when it’s there, and you feel very insecure when it’s not!
I am so lucky that I had a tax refund come through in September last year, and tucked it away in an unused bank account. To fly thousands of kilometers for dad’s funeral cost us a fortune on such short notice. Plus the hire of the car, living expenses, etc while we are here. Your plan is a good one and something I am going to focus on when I get home.
I totally agree that having a bit put away in savings for a rainy day is so important. We started small, just 25.00 automatically taken from hubby’s paycheck each two weeks, but it has really snowballed! Now we put away extra money when we have it in addition to some taken from every paycheck. It’s so gratifying to watch the account grow and it’s so nice to know it’s there if we need it.
We are terrible when it comes to saving back money. I don’t know why we just don’t do it. I know we should. I remember several years back though when we did just about pay for a small vacation for the family with change we saved. We would come home every day and put any change we had into a container and not spend it for anything. I also got to the point of not wanting to spend change from my billfold during the day. I would bread a bill instead of using change. So I know it does work.
Great thinking Batman !!!!!
We have a fund but it isn’t at the $1000 mark yet.
I use my mortgage to keep my emergency fund. I pay extra off the mortgage every month, at the moment it is just over $100 per month, and get excited by how much it is growing. It is just a bit over $5,000 at the moment. I can access it whenever I want but it costs $50 to draw the money down. This is a real disincentive to touching it for frivilous purposes.
When I had to replace my lounge, I “borrowed” it from my mortgage payments in advance & then repaid it as quickly as I could, just as if I had borrowed from a finance company (and yes, I know it is from a bank but I have saved a fair bit of interest by keeping it there rather than in a lower interest earning account). It is nice to know that if the fridge stops working I can immediately replace it, or if the kids need to have some surgery or similar it can happen.
I also have a joint savings account with DBF which we both put about $40 per fortnight into. We also both use this as an emergency fund - I borrowed from it to get my car serviced when it cost substantially more than I expected. And once again I paid this back asap. This is heading up towards $1,000 at the moment, but will probably be used in OCtober when we head to the Flinders Ranges for a couple of weeks. Again it is nice to know it is there if needed.
I love the idea of emergency funds…
Kelly - LOL about the scrapbooking. Sadly some spending somewhere generally needs to slow down in order to establish an emergency fund. Perhaps you could go halves? Half toward scrapbooking and half toward the emergency fund. Remembering that something is always better than nothing.
Stuffy - yes, working on months salary is a good idea. What I’m talking about here though is a more basic emergency fund rather than replacing a salary. Most people’s emergencies cost similar money even if their living expenses differ. If you look at Dave Ramsey’s babysteps to financial freedom he talks about a more established emergency fund being 3-6 months salary. We’ve been working on that but it takes a while. Especially during a drought. LOL.
Libby - I hope you can work things out with the budget. It sounds like you’ve been through some trying times. {{{HUGS}}} Hang in there.
Lynette - private highschooling? Ouch!
Yes, money can sometimes be a rather taboo subject although I think we’re getting better about changing that.
River - yes, those change tins can add up amazingly quickly!!! I have one I use each year for a few treats around Christmas time and to help us through the summer school holidays.
Kez - yes I seem to remember you were a great cheer squad for me when I was trying to build ours up.
Alice - Tax Refunds can be a great way of socking away an emergency fund.
Jenn - It’s amazing how you don’t miss what you don’t have isn’t it. I bet that $25 could easily have been spent without you realising it if you hadn’t removed it that way too.
Bobbie - I think it’s hard at first but you can get into new habits financially. I know because we did it.
Widdle Shamrock - ooh!!! I’ve never been a super hero before! Why, thank you.
Sounds like you’re doing well.
Kelli - paying extra off the mortgage is a great way if you can redraw it (and have discipline).
I have had $50 taken out of my weekly pay and put into a high-interest net account since forever. It’s actually held by the same bank as my main account so it’s only takes a few seconds to transfer money rather than the few days it takes with ING, etc which I think is important if there’s ever a real emergency.
When I worked full-time for a few months last year/beginning of this year I completely forgot to account for that $50 in my weekly budget and by the time I realised I’d saved several hundreds of dollars. I think by the time I went back to one day a week of work I had around $1000 saved. It’s probably a little bit more than that now, I don’t really know but I do know if something dire happens I at least have that $1000 sitting there. It’s a great peace of mind isn’t it.
I should mention that I now count that $50 into my weekly budget since I’m working so litte - Peter’s covering all the househould stuff but I still have personal bills and savings goals to meet!
This is an excellent subject.
For the last 3 years my hubby and I take all of our change and throw it in a bucket. At the end of the month we deposit it into our savings account. It is shocking how much all those dimes and pennies add up. We normally deposit $100-$120 just in change every month!