If you’re walking around with a cloud of optimism thinking nothing bad will ever happen to you and that having around $1,000 as an emergency fund is enough, I’ve got some news for you. You’re going to need a lot more cash saved up for emergencies.
Here’s what happened to us over the Christmas break—a situation that’s funny now, but wasn’t at the time. If anything, it’s a reminder to start saving because you never know when you’ll need it.
Let me share my story with you:
On the last workday before Christmas break, I drove my wife’s GMC and noticed some unusual things. There was a faint burning smell inside the cabin, and when I got home, I saw steam coming from the hood. That was definitely not a good sign! The next day, we took the car to the dealer, and the news wasn’t great. Oil and coolant were leaking into the cylinder heads, causing the engine to misfire. The solution was to replace the entire front engine cover, and I found out that the part alone costs over $900. The total repair bill came to $2,200, but fortunately, the dealership worked out a prorated figure since our drive-train warranty was still in effect. Even so, the final cost of $1,100 was a significant hit to our emergency fund.
Just a day before we were supposed to get the GMC back, I discovered that the blower motor for the HVAC in my other car wasn’t working, leaving me without heat. I hoped it would be a simple fix, but no such luck. The entire blower motor needed replacement, costing another $300.
And the fun didn’t stop there. While dealing with these car issues, a winter storm knocked out power for most of our area. After a day of waiting, we became worried about pipes freezing and food spoiling. We had to buy a gas-powered generator to prevent further problems, costing another $800.
In total, we spent $2,200 in emergency cash in no time.
2013 wasn’t great for me and my cars. Altogether, we faced $6,100 in unexpected expenses over the past year. That’s a lot of money—enough for two trips to Mexico.
So, how’s your emergency fund looking? Could you handle a series of surprises like these without going into debt? If your answer is no, then it’s time to reconsider your financial planning. Many financial advisers suggest having 3 to 6 months’ worth of living expenses saved up, but this advice often gets ignored.
Some bloggers suggest $1,000 is enough (a figure popularized by Dave Ramsey), but put yourself in my shoes. How far would $1,000 have gone?
Probably not far. Your alternatives might be credit card debt or payday loans, neither of which is ideal. Building up an emergency fund of 3 to 6 months’ living expenses can seem daunting, but it’s a realistic and necessary goal for most working people, even those with irregular income like freelancers or contractors.
As challenging as it may be to save that much, it’s crucial. Bad things will happen; it’s inevitable. To protect yourself, make sure you have plenty of emergency cash ready.
Will you be prepared?
