What Emergency Funds are For

milo tail 3It’s been a rather long week for us.  Hours at work have been crazy (7am to 10pm crazy) and on top of that, we were hit with an expense we weren’t planning for.  $1,079.67 of expense to be exact.  One of our cats tried to sneak out of a closing door which opened a four inch gash that says he wouldn’t have been a good side-kick for Indiana Jones in the Temple of Doom.

Off to the emergency vet we went.  Vet staff whisked him away while handing me papers asking for my profession and driver’s license #, and if I would be able to authorize pain meds if he needed them.  Of course the answer was, “yes”. Whether pet or child, anyone who has a living being in their own protection has a responsibility to provide at least basic standard of care.  Also, immediately addressing a health situation is a smart way to control/prevent future expense.

In the 3.5 hours before they started providing care — by the way, we were upset when we found this out!– we did have to negotiate our way down from the utterly ridiculous $1,500 “gold-standard care” payment quote, but we weren’t worried about finances because we have an emergency fund.

WHAT IS AN EMERGENCY FUND?

An emergency fund is your backup stash of cash or assets that is immediately disposable if you need it.  Your savings account and stocks are good sources of emergency funds because they are both “liquid” and easily exchanged for cash and/or payment.  Your house itself wouldn’t be a good source for emergency cash because it probably couldn’t be liquidated at value in a short amount of time, but if you have a home equity line of credit, you could draw from that immediately if needed.

HOW MUCH SHOULD YOU HAVE?

This number is widely debated across the inter-webs.  Some say a 3-month emergency fund, and some say a full year (maybe due to the recent economic crisis).  Ultimately, you’ll have to factor in your personal needs to come at the best number for you.

(example:)  Are you the primary breadwinner in your household with one or more dependents to look out for?  If so, you’ll probably want to target 9 mos to a year’s worth of monthly expenses.  Did you just graduate college and have a backup support system (parents/grandparents/siblings) to fall back on if things don’t work out?  You can probably manage with just a few months worth of expenses to get you by until you can move back home or otherwise remedy the financial crisis at hand.

WHY DO YOU NEED AN EMERGENCY FUND:

I estimate roughly 200 reasons (just kidding :)) you might need an emergency fund, and here are a few to get you thinking:

  1. Personal injury to you/spouse/child/parent/etc. that needs medical attention
  2. You hit another car and insurance requires you to pay damages
  3. Dang washing machine broke and caused water damage to your house
  4. Expensive car repair is required (like when I needed a new tire because I drove the edge of my car into a ditch)
  5. You lost your job and need a few months of living expenses or ability to pay off debt until you can find a new income source
  6. You need to make an urgent trip to see an ill family member
  7. Your cat slammed his tail in the door and you promised Kitten Rescue you would be willing to pay any and all medical expenses he would require.
  8. Any debt emergency that needs to be handled in the short term and that could ruin you financially if you are unprepared.

Emergency funds are NOT for: (1) that new Hermes bag, (2) so you can buy a new car when you already have one or public transit can get you to your job, (3) to make a down payment on the house you want.  NEVER spend an emergency fund on items that are not an emergency!

Pro tip: a vital key to having a fund available when you need it is learning to stay hands-off on this money.  Step one is to open a dedicated savings account for it that is completely separate from whatever daily accounts you use. If it helps, put your stash in an account at another bank so you’re less likely to see the money on a daily basis or be tempted to transfer it into your checking account.

LESSONS LEARNED

milo and jazz

Our little dude is doing fine.  He needed 7 stitches, a cone of shame, and antibiotics but he’ll otherwise heal just fine.  I started building an emergency fund from $0 only three years ago, and this is the first real time I’ve needed to use it.  Many people underestimate the value of saving only $10/mo somewhere safe, but when you need it, you’ll be happy you did!

We’re hoping for a much less eventful week this week.  Definitely one where we can sleep more than 2-3 hour cat naps at night or in between shifts at work.  Overall we’re VERY thankful that we could take care of our little guy and not have to worry about undue hardship in the next month.

Do you have an emergency fund?  How did you decide how much you needed? What other important reasons should I have added to my list?

5 Responses to What Emergency Funds are For

  1. Awe poor kitty!! Glad he is doing OK though. There must be something in the water because I’ve read three posts relating to cat emergencies. I’ll have to keep a close eye on my Pepe. Anyway I’m going to add one more to the list. That is when as a freelancer work is slower one month and you need it just in case. That’s why I want/need my e-fund to be as big as possible, specifically 15k for me to feel comfortable.

  2. Aw, Pepe! That’s a great name!

    That’s a really good emergency fund reason. Especially out here in LA where a lot of people have work uncertainties between the end of production on one site/film to employment on another. It applies to any consultant, really!

  3. Yeah, emergency funds are a must with pets and houses. I agree it’s important that what it’s for is laid out so it can’t be misused! Hope your kitty heals up quickly!

  4. Rally awesome idea, I have been living with two pets since 2005, I have never thought about that………..you have forced me to think about it .

  5. And cats are smaller than people so a four inch cut for them is like the equivalent of a super owie for us (>_<) Glad you pointed out that an emergency fund can be a stash of assets and not just money sitting around in a savings account. I bought some circulated gold and silver earlier this year so even precious metals can be an emergency fund since I can sell it at any bullion exchange company around town and get instant cash :) Other investments like stocks and bonds are good too of course :D

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