A few years ago, I got tired of living on razor-thin bank balances, just a mathematical error or forgotten check (this happened) away from an over-draft. Without ever hearing of Dave Ramsey, I decided I should have a $1000 cushion.
Actually, we saved quite a bit more than that because my job at the time was only going to last 4 months, and we needed to stretch the income through a full year. But I can’t call something that is a certainty an emergency. Your car’s radiator leaking is an emergency. Your car’s tires needing to be replaced after 40,000 miles is not.
But I built up that emergency fund, and the savings we needed to get through the year. Then I got started on paying down my debt. Without realizing it, I was following Dave Ramsey’s advice in The Total Money Makeover. I actually laughed out loud when I realized it when actually reading Dave Ramsey’s book.
$1000 Doesn’t Cover Much
However, it hasn’t worked out that well for me. I’m finding that $1000 just isn’t enough to cover our unplanned expenses. When my radiator did go and I was in the middle of working 60 hour weeks so didn’t have the time to replace it myself, the bill was paid nicely with our cushion.
But when I woke up in the middle of the night in extreme pain and had my gallbladder removed that afternoon, our insurance deductible left us with over $3000 in hospital bills. Since our local hospital absolutely refuses to be reasonable about repayment, more debt was required.
6 months later (but a new calendar year, so the deductible reset), my wife wound up in the emergency room, too. She didn’t even get admitted and the bills still added up to $3000! Again, we faced a billing department that provided just two options. Pay the balance in full or get a loan. In terms of debt added vs debt paid off, we are pretty much break even over the last year.
In fact, if you exclude the mortgage, we owe roughly $600 more right now than we did on the day I went into the ER that night in October 2011.
Another financial emergency?
This January, we have had to pay a security deposit and first month’s rent on our new place, the lot rent and mortgage on our old place, and two weeks at a Motel 6 for the period in between the date the trailer park insisted we be gone and the date we can move into our new rental. Total cost of housing for the month: $4000 + utilities. Add nearly $300 for utilities thanks to higher than average heating and electric bills this month. I get the gas bill, it’s was dipping into negative numbers for a couple of weeks at night. But how the heck did we run up the electric bill to the level not seen since we turned the A/C off?
My emergency fund plan going forward
We aren’t in a great place financially right now. Chalk that up to paying more an extra $3000+ compared to normal for housing this month. Our savings are basically zero at this point. But once we get the proceeds from the sale of our mobile home, we can start rebuilding.
When we are rebuilding our emergency fund, we are not going to stop at $1000 this time. I still plan on going the three-step route of basic emergency fund, pay off debt, full emergency fund. But I hereby declare to the world that I disagree with Dave Ramsey that $1000 is enough money start with.A number that has come up repeatedly in my retelling of my debt woes is $3000. It was $3000 to cover our health insurance deductible (thanks King Soopers for only offering high deductible health plans). Twice. It was an extra $3000 on housing costs this month. $3000 is also the amount of my monetization challenge because that was the extra amount needed to pay off my credit card!
Three grand is the Bad Wolf of my financial existence. While I’m not going to look into the time vortex to give myself god-like powers while it burns away my humanity, I think it behoves me to follow the clues and realize that any emergency fund of mine is going to need at least $3000.
Do you have an emergency fund? Do you think $1000 is enough until debt is paid off? Also, who is your favorite Doctor Who companion? 🙂