How to Survive When Life Suddenly Gets Expensive

Typical budget advice goes along the lines of “set aside X dollars for Y each month”, and “don’t exceed your spending cap”. But life isn’t predictable.  Or at least, mine isn’t.  Mine’s more like: spend spend … dry spell … spend spend … dry spell … OMG, EMERGENCY! SPEND! SPEND!

June brought us some nice new things… and some budget spoilers:

– $1000 couch (planned – couch budget was $2500)
– $1200 TV (planned – bought with leftovers from couch budget)
– $600 car insurance payment, which is billed every 6 months (planned)

– $225 for nine inch nails tickets (surprise!)
– $520 on a dental crown for me, yay :(  (surprise!)
– $900 on a root canal (surprise!)
-$300 removal of two cysts for me, yay (surprise!)

Holy medical and dental batman, and that’s with insurance coverage for medical and dental.

A common thread: All of the surprise items came with a time imperative.  I’m can’t ignore “my-face-is-melting” pain just because I didn’t know to budget for a root canal it going into the month, that’s nuts. Time imperatives are where debt is born. A problem needs to be solved right now, and there’s just no waiting.  The only thing that can save you (and your budget) at that point is a well stocked emergency fund.

Savings vs. Emergency Fund

You must build an emergency fund, because shit like this happens at the worst times.  It’s a rule of the universe: you lose your job, then a major appliance breaks.   You need dental work and your favorite band ever is suddenly touring and tickets are 100 bucks a pop.

“Emergency fund” is a term that gets bandied about a lot on personal finance sites, but I think it’s easy to confuse “savings” and “emergency fund”.

What’s the difference between savings and an emergency fund?

  • Savings = money you “flag” (mentally or physically by moving it to a special account) as being for a certain thing.  You might set aside money for something abstract, such as “the future”, or something concrete, like a piece of furniture, anticipated medical expenses, or perhaps (if you’re super lucky) a vacation.  It’s not “emergency fund” money and you should think of this as money you spend very deliberately at some point in the future.
  • Emergency Fund = money you keep “just in case something horrible happens” is your emergency fund.  You don’t know what this money is for, but when you need it you shouldn’t be raiding your “future” fund or your “new couch” fund to cover the emergency.  This is for the completely unexpected: you get a flat and need a new tire. You need emergency dental work. An appliance in your home breaks.

How much should be in the emergency fund?

Well, this one’s going to vary person to person, based on location and standard of living, but if I had to put a number on it I’d say $4,000.

Why $4,000?

  • It’s enough to cover you if  dental work and car repairs decide to screw you simultaneously
  • If you’re a homeowner, $4,000 will replace any major appliance except perhaps a furnace
  • It’ll also cover a $3,500 water line, should yours blow up right after you lose your job
  • For many people, $4,000 might get you through two whole months of rent/mortgage, basic utilities, and food (more or less, depending on your cost of living)
  • It’s a down payment on a replacement vehicle if something happens to yours

Having $4,000 set aside but immediately accessible for “whatever crazy shit happens” is what makes me comfortable – your own number might be higher or lower.

Where to keep it?

I keep my emergency savings in the checking account I share with my husband.  The money doesn’t earn interest, but it’s readily available.

My Savings and Emergency Fund in Action

New Couch & TV – from savings

The couch budget was about $2500 worth of savings that we’d set “tagged” as being for a couch we could both fit on at the same time.  After 6 years of sharing our too-small sofa we decided we deserved a nice piece of furniture that could meed this basic need.

In the first week of June, we got a fantastic deal on a huge couch we loved from IKEA.  Rather than sock away the rest of the couch budget into regular savings, we splurged on a new television.  Probably not the most frugal thing to do, but we were feeling saucy after saving so much money on the sofa itself.

Had all the surprise dental work come earlier in the month I doubt we’d have gone couch and TV shopping, but alas, we suck at seeing the future.

$2200 from savings.

Nine Inch Nails tickets – from savings

Omg, I can’t miss NIN.  Spending money on experiences is said to be better than spending money on stuff, and NIN shows are one of my most favorite experiences. For me, frugality is about “what can you do without so you can afford the things you really want?”.

This is what savings are for, I told myself as I bought a pair of very expensive concert tickets.  I know I’ll have a great time, and hey – at least this time we’ll save on train and hotel tickets since nin’s actually playing in our city now that we live by Seattle.

$225 from savings

Car insurance payment – from savings

I hate this expense but there’s not much avoiding it. A car is necessity for us right now, and while I shop insurance quotes every couple years this is still the best rate I have found. I won’t plug my insurance provider here – at $1200 a year for two ordinary vehicles and two drivers with perfect records, they can spend some of that on their own advertising.

$600 from savings.

Dental work – from emergency fund

My dental work came out of nowhere.

I found out in May that I would need a crown to attempt to salvage a cracked molar, but I wasn’t told the cost until the day of the procedure.  I suspect this is a common tactic. Once I’ve gone through all the trouble of establishing myself as a patient of a dentist, setting up an appointment and getting the time off work, I’m unlikely to walk out of the office after hearing the price and just begrudgingly pay it.  After all, I was in pain.

There must be a way to price-compare procedures across dental offices. My parents tell me crowns run them about $900, not the $1400 my dentist charged me (which was reduced to $520 after insurance kicked in and after I didn’t need a portion of the procedure they thought I would need).  At that price difference, I could fly to Illinois for my next crown and still have money left over.

What I didn’t know was that I would need a root canal after that crown.  The crown made the pain worse, and while that was a known possible outcome of the crown procedure, I was pretty cheesed that my pretty new crown had to be drilled into and filled afterwards.  Next time, root canal goes first.

$1420 from emergency fund.

Medical bills from emergency fund

I had a couple cysts cut off my right pinkie finger and my right ear in May.  Nothing major, just little lumps that were painful when pressed.  That was in April, a procedure which I paid a $20 co-pay for. I sort of expected that to be the end of it. Then I got a $300 bill in the mail in June.  This is a symptom of the dysfunction that is our medical insurance system here in the United States.  You don’t get to know how much of a procedure is covered and what the cost will be until after you buy it.

$300 from emergency fund.

Moral of the Story

Your emergency fund will save your ass someday.  Plump it up with regular feedings!  My emergency fund provided a cushion for unexpected expenses so normal expenses and planned purchases were able to happen regardless of any crises.

Thanks, past self, for setting aside the cash for this stuff. :)

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