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Define "Emergency". . . and don't tell my mother

Remember when you were in college and scrapping together the extra bucks for a splurge on a party wasn’t the easiest thing in the world?  What about when something BIG happened, like a car accident that you didn’t want parents to find out about?  Yikes!!! Coming by cash to cover it was almost an impossibility.

My mother has never heard this story, so I’m interested to see how long it will take before I get a text after reading this.

I was in a harmless fender-bender in the parking lot one morning before class back in my good ol' college days, totally my fault too.  The guy I bumped was super understanding and cool about it.  He agreed to let me cover the costs out of pocket.  (Little did he know that my pockets were empty.)  I found myself having to pick up extra shifts at the restaurant I worked at to be able to foot the bill.  I got less sleep those weeks, didn’t get my studying in and definitely had to give up the party nights with friends since I was busy waiting tables.  I made do though, because I had to. I simply WOULD NOT let the parents find out, and having "Emergency Savings" built up enough to pull from was just not an option at that stage of life.

Here we are, oh too many many years later and yet another emergency is upon me!  No, not another wreck this time. Our washing machine up and died on us. Yes, this IS an emergency, people!  As a household of 4, washing laundry is a constant everyday boring part of my life. Can you visualize with me for a moment....the mountain of stinky boy laundry accumulating?!  GROSS!

Fortunately, I didn’t experience the same level of life-impact as I did with the fender-bender.  I didn’t lose sleep, I had no stress, and we didn’t need to sacrifice time with anyone to get back on track.  A quick withdrawal from our emergency account for a new washer, and we’re back on track with laundry….yay…laundry. This is adulting in its truest form.

Could I have put $500-$1000 on a credit card for a new washing machine?  Sure.  Did I want to?  Never. A credit card is NOT an emergency fund!

WHAT DEFINES AN EMERGENCY

Emergencies are generally defined as car wrecks (ding ding!), a hospital visit or an unexpected home improvement.  I’m 2 for 3, it seems.

HOW MUCH TO SAVE

The more reliable your income is, the less you need in an emergency fund.  For a two-income household, 3 months of salary is probably okay. But if you’re self-employed or carrying a family on a single income, 6 months is likely a better option.  At the end of the day, it’s also about what makes you sleep well at night.  If that’s 6 months of savings on a dual-income, so be it!

WHERE TO SAVE IT

Keep your funds liquid. The key is an ability to access it at a moment’s notice. This is generally in your savings or money market accounts.  Take the extra step and shop around for low or no account fees that offer competitive rates.

WHEN TO USE IT

It can be very tempting to think of a new wardrobe for an upcoming vacation as an emergency.  But’s it’s best to ask yourself the following questions to see if you should tap into your emergency bucket:

-       Is this unexpected?  Yes…I expect to do laundry every day.

-       Is this urgent? Yes…If I don’t replace this washing machine right away, my kids will be wearing stinky clothes to school.

-       Is this essential?  Yes…my alternative is to wash clothes in the sink.  Not going to happen.

So now my mother knows that I got into a car wreck and kept it from her all these years.  But good news, Mom!  You raised me to be independent and care for myself in a time of need, which has evolved into me being able to take care of my own family and our emergencies today.  We’ve got a new washing machine locked and loaded, and we all smell like roses.

If you’re trying to establish or make progress on your emergency funds savings goal, review your current living expenses and determine where there many be enough wiggle room to lower certain cash outflows and redirect those dollars towards your savings. Not sure where to start? You're welcome to give me a call.

Written By:

Rachel Stewart

Financial Advisor