Finances & Money Frugality Home

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:

  • Mortgage/Rent
  • Auto loans
  • Student loans (that can’t be deferred)
  • Credit card payments
  • Groceries (essential items, not those organic strawberries you think you need)
  • Daycare
  • 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)
  • Vacations
  • 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!

About the author

Clever Dude


  • My wife and I are finishing up our 6 months of expenses savings fund within the next month or so. We found the importance of emergency funds last year when my wife had a blood clot and was in the hospital for 3 weeks. Our emergency fund covered our hospital costs after insurance kicked in. Emergency funds are a personal finance MUST HAVE!

  • We are currently living off our emergency fund. The company my husband worked for went bankrupt last month, so he’s out with no severance. I picked up our benefits (for $450 a month), so my income effectively went down as well.

    After the unemployment checks, the difference between what we have and what we owe is currently coming from the emergency fund. Thank God it’s there. And hopefully my husband will find work before it runs out.

    We have no credit card bills or car loans – just the mortgage and a HELOC to pay – so by really cutting back, we should be okay for about 9 months.

  • We have 3 months of an emergency fund saved up and liquid, but my intended use for that would be if we were both ill or out of work for a long period of time.
    In addition to that, there is a pretty significant ‘house emergency fund’ for things that break around the home as well as remodeling projects. With an old home, it is guaranteed that something will break quite often, so we try to prepare for it.

    But if something really crazy happened, I’m sure we’d dip into both as needed and be happy as long as we didn’t take on any credit card debt.

    As far as calculating ‘essential’ living expenses for an emergency fund, I also keep in mind that it would cost $175 per phone to cancel our cell phone contracts. If we had a layoff that lasted only 1-2 months, we wouldn’t recoup that cost, so would probably be better off just keeping them and moving to the cheapest plan if possible.

  • Nice distinction… I suppose I take for granted that the Emer Fund is for expenses rather than salary and I’ve written articles and created tools along this midset.

    My foundation is this… we may dip into our emergency fund for unexpected expenses – like a furnace – but the mapping to monthly expenses as a gauge is born of practicality rather than as a convenient barometer… and that practical application is the ultimate emergency, a lost job. When you lose your job you need to take a defensive posture relative to your finances and in so doing you need to ID your required cash outflow. Previously I may have been dedicating 1k of my 4k monthly income to snowball payments but in a lost job setting that stops. Therefore, in this simplified discussion, a 12k emer fund is a 4 month fund rather than a 3 month fund. I use the measuring stick of “months of sustained household operations” as my emer fund gauge. This approach aligns my brain around the ultimate purpose of the fund and helps ID which expenses may be culled in such an emergency.

  • This is a great reason to learn DIY skills. We had a similar problem and are fortunate to have a heating & cooling repairman friend. We called him, he said, “take out this part, sand it with some sandpaper and put it back”. Worked like a charm.

    If you don’t have a friend in the business try attending adult education classes on specific areas. Mr Chiots took a plumbing one and would like to take a heating/cooling one as well.

    • @Susy, I’ve actually replaced the drain hose on this unit (saved $90 by spending $5 on automotive hose). I’ve replaced the igniter on our oven. I’ve replaced thermostats, icemakers, water pumps (on the fridge), and our pools whole plumbing and pump system. When our igniter goes on the furnace, I might replace it myself since I saw how the last guy fixed it. I’d rather fix things myself, but I stay away from electrical (except very minor kinds like replacing sockets or switches) and metal plumbing (I’ll do PVC).

  • Lots of people are talking about EFs lately! I love it! I’m a huge proponent of having one. I’ve written about it several times at MYC, and on occasion have been heckled for it – one guy actually commented that there was no need for an emergency fund, the money would be better in an investment vehicle…I suspect he has learned that an emergency fund is absolutely essential to personal financial success.

    At any rate, I currently have 6 months living expenses saved and I’m working on having 12; however, that is slow going as I have 2 other savings funds that I am contributing to – my travel fund and my moving to L.A. fund.

    I’m glad you brought up the difference of saving living expenses as opposed to paychecks. Too many people think they have to save up their paychecks and then become discouraged and that’s not the case…of course, if you’re spending more than you make every month, then you need to reconsider your financial habits anyway. But, the point is that this fund is only meant to cover your bills while you look for another job, or cover emergencies like CDs furnace.

  • Like Susan (comment 2), I’m currently in the position of drawing down my emergency fund while I look for another (full-time) job. I have about 4 months of expenses remaining, although I haven’t completely cut out my non-essential expenses. If I did so, I might be able to stretch that out to 6 or 8 months.

    As it stands, unemployment and the part time work I’ve been able to get have nearly covered my expenses each month, so as long as I can find a permanent job (or significantly more part time income) before the unemployment benefits run out, I should be able to get by without exhausting the EF.

  • I view the EF as death and job loss. Everything else should be planned for. Knowing that you spend on average 1% a year on home repair. Why not keep separate categories of home repairs, car replacement/repair, etc?

    I mean those are planned right? You know they will happen? And I don’t segregate them out, but I know they are separate.

  • Have to agree with LAL… for the most part a lot of car repair and house maintenance stuff shouldn’t be considered “emergency” fund related.

    I know the preventative maintenance schedule on my car… so I know how much to put away each paycheck to cover that cost. I then usually add on 10% of that number to cover any unforeseen. The same can be done for house work.

    However, in your case, you did have an inspection that said everything was on the up and up… so I could see how that would be a surprise.

    Right now I am being conservative and have a year of living expenses in the bank. And there are definitely ways I could lengthen that some more. I figure I can’t be too careful in this environment!

    Definitely happy to see more EF posts lately… just like Kristy!

  • During the bull market years, i never kept an emergency savings fund; i had a few thousand in a checking account and the rest of my taxable savings went into mutual fund stock funds.

    So i’ve learned my lesson and am working to build up a year’s worth of living expenses, which for me would be $$36,000. It’s coming along slowly, with just 2.5 months worth now saved up, at $700 a month contributed, becus i’m also prepaying the mortgage with an extra $425 monthly and throwing 15% to the 401k plus the catch-up contrbution of an extra $5k. So i’m basically tapped out by all the savings, but it’s worth it.

  • Our emergency fund which was pretty much still an infant was completely cleaned out by a dead furnace this past November. Right when we were feeling good about our accounts and everything was looking good, the Utah winter hit us like a brick in the head. The furnace just keeled over and had to be completely replaced.
    I am so glad that we had that money though or we would be in such a worse position at this time.

  • I installed my furnace myself and had a professional inspect it. The one thing the inspector said was that I should not have direct-wired it. The electronics of modern furnaces are basically computers. And they can be sensitive to spikes and surges. He recommended plugging it into a standard surge suppressor. So I did that. You can do it yourself or hire an electrician – it shouldn’t take them more than 30 minutes. I bought a surge suppressor that guarantees the electronics behind it. Hopefully it will never come to that.

    BTW, $657 is insanely expensive. Depending on the size of your house, you can buy a new furnace for less than twice that. If the space it is in is easy to work with, you can easily install it yourself in a weekend. I bought mine and an A/C online from The have a lot of help for doit yourselfers.

  • After a year of trying to turn our finances around I built up a small emergency fund, not to be touched unless loss of job occurred. A second savings account was used to plan for car repairs, furnace fixing, vacations, etc.

    I have now been unemployed for nearly 3 months and have yet to touch the emergency fund. We were able to minimize our expense and defer my highest payment on student loans and are still able to pay some extra on our debt using my unemployment insurance money. With the recent extensions to unemployment insurance I could leave my emergency fund untouched for another full 12 months! My husband is still employed though.

    I understand there are times when a person doesn’t qualify for unemployment insurance, but in terms of how many months can you go without any earned income… shouldn’t it be considered in the equation?

  • @Danielle, congrats on those savings. Regarding unemployment income, it’s never a given, and it does take some time to get that money in your hands. It should be considered, but in my case I would rather not depend on the government giving me money. I’ll take it if available, but I want to know I can be self-reliant if that federal money isn’t available.

  • Bummer. Having a second bank account really helps. I’ve found starting a bank account online was a lot easier than expected. I discovered the Chesepeake Bank and so far I’ve had no problems. There’s a few other good ones on there too.

  • My DINK family’s bare-bones, essential living expenses are currently $3,100-3,200 per month. Our net income is anywhere between $4,800-6,000 per month. Right now, we have about a month and a half of living expenses saved, and we’re adding $500-1,000 per month. I would like to have six months of living expenses saved up, but it seems every time we get above $2,500 or so, something major breaks. This time around it’s news that we need a $3-5k repair to our house. Ughh.

    My partner and I both have steady jobs with benefits. If she lost her job, we could scrape by, but she would have to greatly increase her side income, part-time gig. If I lost mine, we would be in big trouble. However I just got a promotion and my job is very stable, so I’m not worried.

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