Perfect Example of the Need for an Emergency Fund
If you’ve been following me on Twitter, you’ll know that for the last 2+ weeks, we’ve had problems with our furnace. The furnace would ignite the gas and get up to temp, but then cut off the gas and then keep running. Then for hours, it would just run periodically without the gas igniting. Only by cutting the power on the entire furnace for at least 4-5 hours would something seem to reset. Then we could get it back up to temp and start the cycle over.
For the first week, we thought it was the thermostat. Even though I replaced the old dial one with a digital, programmable thermostat in 2004, I went out and bought a new one for $30, replaced it and let it run. No luck.
When you’re no longer comfortable in your own home
As you know, we like to keep it warm in our house. Well for two weeks, it was getting 10-15 degrees colder than our comfort zone (down into the 50 degree range). Stacie was not a happy camper; she hates camping. She would wear a winter hat to bed each night and would wake up numerous times because her head was cold. Granted, we have a heated mattress pad (highly recommended), but that didn’t help her little head poking out of the covers. I, on the other hand, was loving the cold because it made the bed that much more comfortable.
We would keep the furnace powered off (there’s a switch right next to it) overnight while we slept and during the day while we worked. An hour before we would get up, I had to set my alarm to go down and flip on the furnace…and pray it would ignite. I lost a good bit of sleep, both from waking up early and from hearing a complaining wife all night. We had to get it fixed!
Pulling from Our Emergency Fund
I just paid for a yearly maintenance service in November (about $200) with the company the previous owners contracted with for years. They said the furnace worked fine, although some components were showing wear. I called them back (for a $99 service fee) to check out the furnace, so they were already familiar with our furnace. Sure, I considered whether they did something to the furnace the last time to cause it to fail now, but I just have to give them the benefit of the doubt since I have no proof of foul play.
After an hour of diagnosis, they found that the circuit board was faulty. Ok, so we know the problem, now let’s fix it. Unfortunately, but as expected, they didn’t have the part. They would have to order it, and since this was a Thursday, didn’t expect to get back to fix it until the middle of the next week. It was going to be a cold weekend. Luckily they called the next day (Friday) that they had the part, and they could replace it Monday in less than an hour. I was off on Monday (federal holiday), so everything fell into place.
Final repair cost = $657. Wow. Tack on the $99 service fee and we pulled $756 from our emergency fund. And the technician thinks a couple other components only have a year or less before they’ll need replaced. Either way, spending $1000-1500 to fix the furnace is far less than the $4,000 for a new one.
This was a perfect example of an emergency. Some people consider an emergency as “I need a new suit”, even when they have a closet full of them. We, on the other hand, only pull from savings when it’s a home or vehicle component that suddenly breaks and cannot wait to get fixed. In this case, the circuit board also runs the A/C, so we would still need it replaced for the cooling season.
Advice on Building Your Emergency Fund
People will tell you all kinds of numbers from 3 months of living expenses all the way up to a full year. Some will even tell you that you need 3-6 months of income saved up (different than living expenses). Right now, we have almost 6 months of living expenses stored up in savings, and just need one more month to cross the 6-month threshold.
Living Expense vs. Paychecks in Emergency Fund
I don’t see it feasible to put build up a savings account that could replace your entire paycheck because that means you’re going months without income because you’re putting it into the bank and not paying bills. Rather, I think the intent of an emergency fund is to cover your living expenses, not your whole salary.
A living expense is a bill that if you didn’t pay it, you would be reported to creditors, or you couldn’t survive. Examples of living expenses include:
- Auto loans
- Student loans (that can’t be deferred)
- Credit card payments
- Groceries (essential items, not those organic strawberries you think you need)
- Health and life insurance premiums
- Gas/mass transit costs to get to work/daycare
There are a few others, but I will note some items NOT included as essential living expenses:
- Cable bill
- Phone bill
- Internet bill (unless you work from home and MUST have it for your business. Otherwise there’s free options around)
- Dining out
- Gym membership
- Lottery and alcohol (I know, this one is hard for some people)
In some cases, you may need to sell your “luxuries” to get money to pay off the debt you accrued from acquiring them. For instance, if you just bought a fancy new TV on credit and then lost your job, you might be forced to return the TV or sell it for a loss, depending on your prospects at finding a new job. Emergencies are called that for a reason, and all luxuries should be shelved until you can balance your finances again (or for the first time).
In our case, with our savings, I know we can survive if BOTH of us were to lose our jobs for 6 months, and that doesn’t even account for the income I bring in from this site. You need backup plans. Our backup is that both of us have jobs in different fields (healthcare and federal contracting) PLUS side income from web ventures. Something catastrophic must happen to really bring us to our knees. While I never hope our emergency fund gets tested, it’s good to know it’s there if we need it.
How about you? How does your emergency fund look? How about backup plans? Are you a single-income family with no backup? Speak back in the comments below!