Saturday, May 10, 2014

The Frugal Fridays.

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I know it's Saturday already and I apologize. This week just flew by, and the weekend is hurrying away as we speak too. I can't say whether this past week was especially frugal or not. In fact, it was quite ordinary. I didn't spend much because I didn't shop much, and I didn't find any deals worth mentioning because I didn't hunt for deals...

But I had a conversation with somebody about emergency funds recently and I thought that it would be interesting to talk about. We all know that bad, unexpected things happen. But it's different what each of us might consider an emergency. No, I don't mean those girls who think that a broken acrylic nail is the end of the world... But we all still have different needs. For some of us, having a reliable car is a must but others can do buses just fine... I could live without AC because that's how I lived most of my life but my husband will probably die from overheating...

The real emergency hit our family when my hubby lost a job last year. It was unexpected, it was scary, it was devastating... We didn't know what the future held and, honestly, we were a lot more optimistic and couldn't even imagine it would take my sweet man almost six months to find a job.

But before it happened, I never really had a plan to save for emergencies. We had a recommended $1000 in a bank and a variety of other accounts that we used to set money aside for many different things. I have to be honest with you, it's much easier to save for a particular item (like a minivan) than for some imaginable emergencies. When it hit us, we consolidated everything we had and created one big "emergency" account. We did not know how far we would have to stretch it but we promised ourselves that we will do our best not to use credit cards. And we didn't. We were lucky that my husband could find a nice job before we completely depleted that account....

And if anything I've learned from this lesson is that $1000 is not enough when the real emergency strikes! In reality, your emergency fund should cover all your needs for a certain period of time, preferably 3-6 months. Start by calculating your fixed expenses every month. These numbers can include mortgage/rent, insurance, car payments, child care and any other regular payments you need to make every month. I like to add to this list an approximate amount of your utilities because your life will become significantly harder if you lose heat, electricity or water. Then calculate the bare minimum you need for variable expenses. That will give you a base and an idea of what your emergency fund should be to cover one month's expenses.

Another important thing that, I think, everybody should know is their medical insurance out of pocket maximum. One of the most common and serious "emergencies" often has something to do with our health. You might not have the whole sum sitting in the bank all the time but at least you can be somewhat prepared.

Now that you have an idea of where you need to be, start saving. Create a plan and set some money aside regularly. It's a lot harder to reach your financial goals if you do it sporadically. Even $25 set aside every month is better than nothing.

Now, I don't think you need to be discouraged when you only have $1000 sitting in a bank. No, it's a perfect start. But don't stop there! Do what you can to bring it to where it can serve your family when a true emergency knocks on your door.

And to finish it up, another important emergency fund that, I believe, everybody needs to have on hand is some cash in a sock somewhere. Quite literally. The tiny earthquake we had a few weeks ago was a rude reminder that natural disasters can happen anywhere. And if they happen, more than likely you won't be able to access the money in your bank no matter how much you have there. You don't need thousands of dollars hidden under the mattress but a few hundreds that  could buy you much needed water and other emergency supplies would do (yes, we all need to do some other emergency preparation too but it's a whole other topic on it's own...).

So what do you think? Do you have a satisfactory emergency fund or are you trying to build one?


  1. Great advice!

    Glad you got through your "crisis" and your husband has now got another good job

  2. Well I do but having just lost my job I don't want to use it! I'm lucky as I can type I am temping at the moment so it's not too bad at all. The money isn't great but it's well above the minimum wage and my OH earns a lot, but I still feel sorry for myself. It's not just about the money to me it's that I feel let down. Onwards and upwards. To answer you question I think about £5,000 is a good amount for an emergency!

  3. We don't have our emergency fully funded but we are working on it. This post is a good reminder of why we all need a healthy emergency fund. Happy Mothers Day, Lena.

  4. Yes, I agree, 3-6 months is definitely a good emergency fund. I admit, we are not there yet, but as you said, it is something to aim for. I never thought about having some cash on hand, but it totally makes sense! I will definitely keep that in mind. Thanks, I so enjoy your blog!

  5. Great post!
    I thought we were doing pretty good with savings until I broke my ankle. I really had no idea that we would have to pay so much out of pocket for medical expenses, and even worse the surgeon was out of network. It has been a wake up call.
    I really want to stock up so that I have 3 months of food on hand too. It seems overwhelming, but hopefully I can add something each week.
    Happy Mother's Day!!

  6. I've just been thinking about this lately actually... Our EF is sitting at $5K, I think I want to work on doubling that. Will take a while, but will be a great goal I think! :)

  7. I think we have a good emergency fund on hand. Luckily, we haven't had to use it yet to see if it really is adequate. I just hope the numbers don't lie.

  8. Dear Lena, I find having 6 months worth of expenses is a must for our emergency fund because my husband is self-employed. Overhead for our small business is quite a bit. The work is sporadic in our line of business and very inconsistent. I think emergency fund amounts differ dramatically depending on what type of work one has. Also, taxes and quarterly estimated taxes have to be paid out of our own pocket - it isn't deducted automatically like someone with a consistent paycheck. We have to make sure we are saving enough money to pay them every three months…not fun!

  9. I often hear this advice to have $1000 tucked away for emergencies, but one routine car maintenance job could wipe that out in a moment! A set of tires when you'd thought you could go six months will nearly kill that fund as well.

    We don't have an emergency fund per se. We do have savings accounts and we do truly SAVE. My perspective came from a major car accident. Three months in hospital and physical rehab, out of work due to injuries, marriage went kaput during same time so I had no place to live when I did get out of physical rehab (was a live in type rehab where you do therapies all day long). I did have some insurance that helped but even so the income was only 50% of what my work income would have been. Then the medical payouts were done quickly and I still owed in excess of $100,000...It was a scary, difficult time. But it all came out okay in the end. And it convinced me that what we see as the end of the world often isn't. We can't prepare for everything but we can make our lives a tiny bit easier by being good stewards of our income, hence my desire to save where I can.

  10. This is a wonderful reminder. It just seems that I can never bulk up our EF enough or fast enough. Life keeps getting in the way.


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