Do you ever feel guilty for using your Emergency Fund?
Even when an emergency comes up?! Hopefully none of us have to go through anything TOO crazy, but in life there's always some issue we're dealing with - and it usually involves money.So when these issues arise, are you/were you prepared to pull from your Emergency Fund and put the crisis out?
That's the gist of an email i got from a reader here at Budgets are Sexy. I ofcourse have my own opinion on the matter, but I thought i'd share her email w/ the community so she can get a variety of thoughts on it. I mean, that's why i have you guys, right? :)
Here's what she sent:
J. MoneyFirst off, thx for the nice comments - and you've got some MAD financial skills! 6 months of expenses in an Emergency Fund, no debt, avid 401k investor - talk about a savvy saver :) So okay, she has a great head on her shoulders, but what do we do about the guilt?
I've been reading your blog for a few months now. Thank you for publishing such great content!
My problem isn't as severe as most people out there. For all intents and purposes, I've done everything "right." I've got an emergency fund with about 6 months of expenses. I invest in my 401k. I own my home and am able to make the payments. I don't have any credit card debt and I save every month.
My water heater just broke, which stands to cost me about $1500 for damages and to replace it. When I complained to my coworker about the hassle I had when I discovered it was leaking, she said, "good thing you have credit cards." And at that point, I was so thankful that I have an emergency fund.
My problem is, however, that I feel guilty for using my emergency fund. I don't want to take the money out of my e. fund because then I have to focus on building my fund back up and the money won't be there if I were to have a greater emergency next week.
Please talk me out of my craziness and re-affirm that this is, indeed, what emergency funds are for. Or am I wrong?
Thanks.
That's a tough one for sure. The thought of taking a huge chunk from my own E. Fund would certainly give me the shivers. I mean, we spend mooooooooooooonths building that bad boy up ya know? And in most cases, we (as in the general public) rarely meet our goals before having to dip back into it.
YES you're gonna feel guilty about it, and YES you're gonna have to dip into your Emergency Fund. It's what it's there for :)
The odds that something even MORE serious hits next week is extremely doubtful. And if it does? Whelp, back to the E. Fund again :( It'll suck for sure, but unfortunately it's just one of those things we have to deal with as homeowners. Now, there ARE other options as you hinted about, but they wouldn't be my first:
- You could throw it on a credit card. You've already told us you're against it, and rightfully so - no point in paying all that interest when you have the money stashed. If you'll have to make installment payments anyways, might as well "pay" it back into our Emergency Fund. On the other hand, you COULD use it to delay your pain for a good 30 days and then pay it all off in full.
- You could pick up a Home Warranty. Again, not the BEST option as it's probably too late here, but you never know...i've known a few people to pull it off. You'd basically have to take it right away, and then wait for the 4-6 window to close so you can file your first claim. Be sure to ask about "pre-existing" issues and all too, as that may be an issue. It's DEFINITELY something to consider in the future though! You can never predict this kinda stuff :( Home Warranties can usually be picked up from your Mortgage company, and it'll cost around $400-$600 per year with a $100-$200 deductible - all depending on coverage.)
Labels: advice, emergency funds, reader mail
posted by J. Money at
7:12 AM
16 Comments:
You may want to check with your utility provider. Some Electric/Gas companies will give you low or no intrest loans to replace older appliances with new more effieient models. I have heard of this with hot water heaters and heat pumps.
www.WeLearnAsWeGo.com
I felt the same way when our fridge broke. I really had no choice but to replace it right away. You can only live out of a cooler for so long.
I have these thoughts all the time -- what is a sufficient justification for dipping into an emergency fund? Is it anything that I absolutely can't live without? Is it anything that would be inconvenient to live with out? There are certainly clear examples of what an emergency fund is meant for, but there is a huge gray area there that bothers me... definitely an interesting question
Did she file a claim with her insurance company for the water damage? $1500 is a huge amount for a replacement water heater so I assume that a lot of that is damage that may be covered.
Also, I hope that you weren't suggesting that she buy a home warranty (another form of insurance) and them make a fraudulent claim for pre-existing damage. Please clarify and say that you weren't suggesting that.
J, great post and good thoughts. Here is mine - money is meant to be spent. Otherwise, what's the point? The key is to spend wisely.
One thing that helps ease the sting - homeowners should have a home maintenance fund. Separate from the EF and basically made for this purpose. Lesson learned!
But I like the other comments too - checking out all the options before dipping into the EF is way sexy.
I've had a 3-4 month emergency fund on the go for a few years now and haven't had to touch it. It's really only there for loss of income for any reason, since, as a carless (that's not a typo) renter in Manhattan, the most expensive thing I might ever need on a day's notice is an airplane ticket and I can probably cover that without dipping into the E-Fund. My feelings toward it are indeed miserly though...it makes me feel more secure than I probably am.
I agree, that's exactly what Emergency Funds are for and your's is a real emergency. It's not like you spotted a pair of Christian Louboutin pumps on sale and used your E-money to finance your purchase. So, while it might be tough to dip into your fund, you're doing the right thing and it sounds like you'll have no problem replenishing it soon enough.
Thanks for all your great comments!! This should def. help out the reader :) It's good to get a variety of opinions up in here.
@jamie - never thought of that, thanks!
@ashley - haha...how long did you last?
@student scrooge - yeah, it's def. a gray area. for me, an "emergency" is when i need money and i don't have it in my savings/checkings to cover it. def. a focus on *need* though.
@anonymous - yeah, that's a good point. i'm not sure what encompasses the $1500, everything i got was in that email. As for the "fraudulent claim" - never. i'll have to reword that a bit and clarify.
@paradigmshifted - Oooh i like that! A "home maintenance" fund, very cool idea...although the thought of having yet another fund to contribute to kills me,it's a helluva idea :)
@moneymatekate - "carless"! haha..i was just thinking it may be a mistake till you pointed it out ;) good work.
@youngmoneytalks - Thx for the support! This is exactly what she needs to hear :) And i have noooooooo idea what Christian Louboutin pumps are, but they sound expensive!
Well considering I just apid off my entire Credit Card debt, i had to use about 70% of my emergency fund to do so. It is what it is and you need to do what you have to do. That is exaclty what I did, I figured it would be easier for me to save my money up then try and pay it down and save a little at the same time. You take the good with the bad.
This is a great topic! I'm working to save a £3k emergency fund right now, because I feel that everyone should have one, but I haven't put too much thought into exactly what "emergency" covers.
My initial thoughts were that I'd like 3 months income to fall back on if I lost my job and the money would be for bills and living on. However, I also feel that the E word (for me at least) would cover replacement of expensive household items, for example a washing machine etc. I figure that if I had to replace something or spend money on an emergency sitiuation from my take home salary, then I'd probably spend that month desperately poor.
I suppose each person has their own idea of what an emergency is but this has definately inspired me to think carefully about what I'd justify spending mine on.
In response to your lady's question, you cannot go without a water heater. Paying for it on a credit card is not wise and if paying for it would leave her stretched then she should definitely dip into her fund. In my humble opinion of course!
about that home maintenance fund... it should equal about 1-2% of your home's value (or maybe you should go by the value when you bought it)!
I think it's that unexpected expenses are always upsetting.
My husband is about to switch from his regularly insurance to a state insurance pool -- which means no more dental. And his dentures needed a re-align. So $360ish went out the window. It's worth it, but still frustrating.
@Doctor S - nicely said my friend, as always. and congrats on the c/c payoff! not many are able to finagle that one ;)
@Holly - it's a hard one, huh?! I think 3 months as an E. Fund is a great goal though :) it's hard for me to justify when to use it as well, so i've kinda fallen back to the "i'll used it when i need it" mentality really.
@Paradigm Shifted - haha...yes, better to have the value of when you first bought it ;) thx for the update, this is all great info!
@Abby - ooh, yeah that is def. frustrating! the worst are always the most unexpected :( at least the money was there for when you needed it!
I use the "multiple e funds" model - I have the "OMG, I lost my job" one (about 4 months wages, 6 months expenses), the "Dead Car" fund (for repair or replacement), the "Insurance Deductible" fund (exactly what it sounds like)and the "House fund" (for appliances and upgrades - currently at close to zero, due to a dying washing machine!) The laid off is in laddered CDs so I don't touch it and the other three are in ING sub accounts. I try hard not to raid one for the other.
But honestly, new appliances and a replacement/repair on cars are expenses that you know are coming up - you just don't know WHEN. So those accounts are more like escrow accounts than actual EMERGENCY accounts.
By subdividing the efunds, you can stop the guilt in it's tracks. You are using allocated money for its intended purpose.
I worked on my efunds in order (insurance first, then job) or you can divide your monthly contribution between them (I'm currently dividing mine between the car fund and restocking the house/appliance fund.)
But don't put the water heater on credit (it's ok to PAY for it with a cc, of course. That gives you some consumer protection. But plan on paying it off in full before interest starts accruing.) I find that ccs are a slippery slope down which I do not care to venture again.
that's pretty hardcore! i dig it. that's one of my favorite things about ING is having those "sub accounts"! freakin' genius if you ask me. unfort. i like me USAA too much to expand out into other banks, but i's the #1 spot on my list to go if i ever change my mind :)
I can relate (with a slight variation...). I have been building a savings account for my next -used- car for years. And now I am having more and more car problems, and realizing that the time may be near. And yet it is stressing me out to think I will have to use that account. Having that money there has been reassuring, and mentally I have counted it as part of my "emergency fund", even though I have a little more savings in addition. When you work so hard to save for something, it is really difficult to spend the money! Weird, I know...
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