If you’re one of these people who walk around in a cloud of optimism thinking that nothing bad will ever happen to them, and that a safety net of $1,000 or so should suffice, I’ve got some bad news for you…
You’re going to need A LOT more emergency cash. And I mean A LOT more than you think!
Let me tell you what happened to us over the Christmas break.
It’s a pretty funny story – funny for you to hear, but not funny to me at the time.
All I can say is start saving! You never know when something like this is going to happen. But its inevitable that it will!
Here’s my story…
On the last day of work before our official Christmas break started, I drove my wife’s GMC and noticed some pretty weird things going on. There was a faint but pungent burning smell in the cabin. When I got home at night, I also noticed some steam coming up from the hood.
That can’t be good!
So the next day we took it into a dealer to have it looked at. It turns out the problem was pretty major. Apparently oil and coolant were leaking into the cylinder heads and causing the engine to misfire.
The solution: Replace the whole front engine cover! A quick look on the Internet and I found the part alone is over $900!
On top of that:
- The O2 sensor was malfunctioning.
- They also noticed that the brake pads were really worn. (They also showed us, and they were getting pretty bad).
Altogether the cost for repairs: $2,200!
Fortunately the dealership was able to work out a prorated figure since we are very close to still being covered by our drive-train warranty. So the final cost will be closer to $1,100.
But still! A hit of $1,100 to our emergency fund is no joke!
Not Long After That:
About a day before we were supposed to get our GMC back, I started up my other car only to discover that the blower motor for the HVAC was not working. No heat for me!
I was hoping that this one would just be an inexpensive fuse or bad resistor.
No – why would it?
The whole blower motor had to be replaced!
Final cost? Another $300.
Kicking Me While I’m Down:
Oh yeah, we’re not done.
So while all this business with car repairs is going on, we were hit with a raging winter storm that knocked out power for most of the people in our area.
We started to wait it out, but after about a day we became very concerned about pipes freezing, food going bad, etc. So to keep our house from running into any problems, we found ourselves with no choice but to rush out and purchase a gas-powered generator.
The cost: Another $800!
In case you’re keeping track, that’s $2,200 in emergency cash straight out of pocket so far ….
A Bad Year of Very Expensive Car Repairs:
2013 was not a very good time for me and my automobiles.
In case you missed these prior disasters:
- The sunroof had a slow leaked where rain water eventually short-circuited our entire dashboard! $2,200
- Almost right after the sunroof / dashboard thing was fixed, both my wife’s vehicle’s back tires blew out. It was pretty close to being time to replace all of them anyways, so we ended up getting 4 new tires for $1,200.
- Just a few months ago we noticed a pink puddle on the floor on our garage. It turns out that it was a bad water pump that needed to be fixed. $400.
- And now this issue with the front engine cover. $1,100
Altogether, that’s a total loss of $6,100 in emergencies over the past year!
Holy crap! That’s a lot of money! We could have taken two full exotic trips to Mexico for that price.
How Much Emergency Cash Do You Think You Need?
After hearing about my bad luck, how do YOU feel about the integrity of your own emergency fund? Could you have weathered this storm of “surprises” without going into debt or using credit cards?
If your answer is no, then perhaps you have some planning to do.
So often we hear about financial advisers recommending that we have 3 to 6 times your monthly living expenses that it unfortunately becomes passé going in one ear and out the other.
I’ve noticed a lot of bloggers recommending that all you need is $1,000 (which I believe originated from Dave Ramsey). However, put yourself in my shoes. How long would $1,000 in emergency money have held up?
That’s right – not long at all…
But what other alternatives do you have? Get yourself into credit card debt? Payday loans?
Unfortunately even though it can be a hard pill to swallow, coming up with 3 to 6 times their monthly living expenses is probably just about where you want to be. This is a pretty universal target that almost all working individuals can identify with. Even if you receive irregular income as freelancer or contractor, there are still plenty of good ways to calculate your income so that you can estimate what this target should be.
But nonetheless coming up with a chunk of money that size can be a pretty challenging task. So where are you supposed to find that many funds to build up your emergency money? Try:
- Income tax refund
- Annual windfalls / bonuses / profit sharing
- Diverting the percentage of your raise from work into a separate savings account
- Credit card bonuses
- Creating automatic monthly withdraws from your checking account (basically treating your contribution to your savings like any other bill)
- Taking on small passive income or side jobs
- Using the dividends, interest, or capital gains from your non-retirement investments
- Using your Roth IRA. (However be forewarned that this can have serious implications on your retirement planning).
Whether you’re ready for it or not, trouble is coming for you!
I didn’t count on any of this bad stuff happening to us last year. I’m also hoping that no more bad things happen to us this year. (How can it when it feels like we just about fixed everything?)
But I KNOW bad things will happen. It’s inevitable. And to protect ourselves, we’re going to need to make sure we’ve got plenty of emergency cash on the side ready to go.
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