An Emergency Fund: Our Secret Financial Weapon

photo source: BigStock

Testimony from Amanda of Finding Joy in Depression

It was a quiet Friday evening. My husband was running an errand on his way home after work. He stopped at a stoplight and the unthinkable happened: he was rear-ended.

Thankfully, my husband was completely fine. The tailgate door and the bumper of my van, on the other hand, were both crushed and in sad shape.

When reporting the claim with our insurance company, we were informed that we’d have to pay the $500 deductible up front and wait to be reimbursed despite the fact that the other driver was at fault. My former self would have been relieved that the money was coming back but completely panicked in figuring out how we’d come up with the money.

But, we no longer needed to panic about the unexpected. We had a secret weapon. It’s called an emergency fund.

A few years ago we committed to funding an emergency fund at $1,000. Having children and owning a home, we didn’t feel like $1,000 was enough. So, we increased our goal to $2,500. Now, we keep our emergency fund between $2,500 and $3,000.

Rather than floating the money on a credit card or trying to juggle cash while praying that payments to our bills wouldn’t bounce, we used our secret weapon. I simply moved the money out of the emergency savings account and into the checking account.

From the checking account I paid the $500 deductible at the body shop. A few weeks later, the $500 reimbursement check arrived in the mail, and I replaced the $500 that had been taken out of emergency savings.

Pretty cool secret weapon, huh? 

Amanda Pelser is a work-at-home(schooling) mom of two young boys who has been married to her high school sweetheart for nine years. She opens her home as an encouraging and inspirational shelter for the heart of moms through stories of faith, motherhood, and homeschooling at ThePelsers.com. Amanda is the author of Finding Joy in Depression and runs her own virtual assistant and WordPress maintenance business from home in an effort to reach her family’s goal of being debt-free.
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Comments

  1. lara says

    Very important tool!!!!! I have an automatic deduction from our paycheck. Yes…. the account grows. No, I don’t have an upper target. Just let it keep growing.

  2. says

    This is such an important factor in having peace of mind! We too, have made it a priority to keep our emergency fund. It is such a relief just knowing it is there. Since we currently live on a very meager income (part-time), simply knowing we have that set aside for an emergency is a huge relief.
    Thanks for sharing, Amanda!

  3. says

    We have, thankfully, not needed to touch our emergency fund because we have basically become our own credit card in a way. When an “emergency” (usually needing some new electronic gadget) occurred before we would simply put it on the credit card…now that we have payed off all those “emergencies” we have a much better system! We have a fund in our savings account for EVERYTHING…this leaves us with plenty of money in savings all earmarked for something specific (think doctor bills, car and house repairs, child care, furniture and appliance replacement, etc.). If the car needs work that we don’t quite have enough cash for in the fund we borrow money from ourselves. The next month we budget to pay that money back to ourselves. We are thankful that all REAL emergencies so far have not made us dip into our emergency but it sure is good to know it is there!

  4. says

    That’s our secret weapon too! Ours currently floats around $2000-$2500. My husband’s job often reimburses him for costs (fuel, fitness, work-related purchases) so if I know a purchase is reimburseable, I’ll float it from our emergency fund. About a year and a half ago, we had to replace our furnace and it was great to have the money to pay for it in cash!

  5. says

    I need to get more disciplined in actually setting some aside each paycheck! I want some of that peace of mind you speak of!
    Thanks for the reminder.

  6. says

    We’re working to get our emergency fund up to 3 months worth of living expenses. Right now we’ve got about $6000. While I hope we never have to use it, it is so nice to know it’s right there if we need it.

  7. says

    I think it’s great that you have an emergency fund! But $3,000 really isn’t enough. You described a fender bender as the unthinkable happening. But what if the unthinkable really happened – the breadwinner getting a devestating illness, an unexpected death, a job loss, or a home wiped out in a tornado? You should have a minimum of 6 months’ salary in an emergency fund to carry you through until you can get a backup plan in place. One year’s salary is even better.

    $3000 will get you through small breakdowns but for a major life-changing emergency, it is not nearly enough. It is a good start, though! And I commend anyone who starts an emergency fund, but make sure it is enough to carry you through some large, real-life emergencies.

    • says

      I agree with this. We have worked hard over the years to have a larger emergency fund, and with my husband now in law school it is a relief to have it there for things like you described. For example, we just found out that on top of starting his 2nd year of law school and working 20 hrs a week, he has to have an unexpected surgery. If we didn’t have that fund, I don’t know what we’d do.

  8. Lori says

    I would fire my insurance company. When you are not at fault, you do not have to pay your deductible period.

    Also (and you probably know this) you should have at the very least six months of living expenses in your emergency fund.

    • Meredith says

      I thought the same thing. I was in a fender bender and I didn’t pay anything out of my pocket. The guy who hit me did!!!! I just took my car in to his insurances body shop, they did the work, I signed a paper that said I owed $0!!!

    • Charity says

      Glad I wasn’t the only one thinking this! Why on earth would you have to pay when the accident wasn’t your fault???

    • Stephanie says

      You would have to pay your deductible if the other party was uninsured. Then YOUR insurance company takes the uninsured party to court to recoup their costs.

      • Susan says

        Okay, I just posted a long response before reading this comment from Stephanie. She said it better and much more succinctly than I did. :-)

    • Amy A says

      I was thinking the same thing! I’d be shopping around for a new insurance company! When a lady backed into my husband’s car in a parking lot, we didn’t pay anything, her insurance company did!

    • Susan says

      Not so fast. Having to pay for an expense out of pocket and then get reimbursed is a fact of life in some insurance situations regardless of what company it is.

      I was once rear-ended once (hardly an “unthinkalbe” event in my opinion) by a driver who had no insurance. He was in trouble but that’s another story. My options were (1) sue him for the damages, which I had a very slim chance of winning. You can’t suck blood from a turnip. Plus then I would have the additional expenese of legal fees. Or (2) my insurance policy would cover the claim and to after the guy, in which case I would need to pay the deductible. My insurance company would reimburse me if and when they recovered the money. That never happened. It’s was a bummer, but that the way it is, and I got over it.

      Same insurance company and policy that covers my home and car — I had a flood once that resulted in close to $50,000 worth of damage to my property. Much more of an emergency than the fender-bender! My insurance was AWESOME to work with, not only with regards to the financial aspects but also the physical restoration to my property. They arranged for all of the repairs, and all I had to do was let the worker guys in. The adjuster made sure that I included every little expense on my claim, things I wouldnt’ have thought to include, like the two bags of dog food that were destroyed, worth about $60. It did take a while to settle everything, but when all was said and done, I paid nothing.

      All that to say, I would not suggest anyone run off and fire their insurance company without all the facts.

      That said, yes, some insurance companies are better than others, and if the fender bender was covered by the other person’s insurance, then I would agree with other posters that you should not have to pay the deductible.

      • Linda says

        I was in a similar situation. The other person’s insurance didn’t want to pay and “claimed” the other driver said I hit him. I’d have to wait for them to sort it out before I got a dime. My insurance with American Family was full coverage. I had the estimate and my vehicle in the shop 2 days later. I did have to pay my deductible since my insurance company paid the repair bill. But with the wonderful documentation of the state patrol, they were able to get 90% out of the unwilling-to-pay company and I got back 90% of my deductible. (And I would have paid every penny of that because of the enormous amount of stress that was relieved because I had my vehicle and my insurance company was the one that handled 6 months of arguing with the other company and paid the attorney.)

  9. says

    The financial lady on TV recommends an 8 month emergency fund. That is my goal in case my husband ever finds himself losing his job. My degree is in Education and it would be extremely difficult to find a teaching job in the middle of a school year.

    Suze Orman! That’s it. I knew I’d remember some time…

  10. Marisa says

    I appreciate the reminder to have an emergency fund. This is something we really need to get better at automatically putting money towards.

    Another way that I have been counseled in my church to be prepared for emergencies is to slowly build food storage. This can really help in times of unemployment, disaster, etc.

  11. Amber says

    Emergency funds are SO important! I had a hard time using it recently, but we’ll eventually get it built back up, and build up way more. I’d love to get 6-9 months’ worth of expenses saved. It would take a lot of pressure off, that’s for sure.

    Frankly, I’m impressed that you got your deductible back so quickly! Subrogation (the process of getting your money from the other insurance company) depends mostly on how good a company the other person has. It took us MANY months to get our money from a rear-ender collision years ago. My dad is an attorney, and he has a list of insurance companies that are very hard to work with…of course, we got hit by someone with one of those companies!

    • Andrea says

      So true! I have a friend that was in a serious accident. It took more than five years for the insurance companies to settle it all, even though it was clearly the other driver’s fault (she was texting while driving).

  12. Megan says

    Do you have just one savings account or multiple savings accounts with funds for different things? What is the best way to keep track of different types of savings?

    • Meredith M says

      ING is great… It lets you keep a few different accounts all under one savings account number.

    • LaTanya says

      This is what works for me….. I ended up opening just one new account (with my current bank) and using an excel spreadsheet to keep track of the different categories. Every payday I transfer out an allotted amount of money to the “savings” account and then plug in the numbers in the different categories in the excel spreadsheet. Every dollar is accounted for in the spreadsheet. My total balance on the spreadsheet matches the balance on the savings account. Some of my categories are funded every paycheck because they are ongoing savings (car insurance/renters insurance) then other categories have a limit (goal) to reach ($1,000 savings/$1,500 deductible) and once I reach that limit I move to the next category (kinda similar to Dave Ramsey’s snowball effect for debt, but for saving). This has really helped me to start saving. I really just started small and have been gaining some momentum in my savings. It is really exciting to see the money grow and to reach some of the savings goals I have set.

  13. Amie says

    Thanks for sharing this. I think it is so important to have an emergency fund. For years I was clueless about how to manage my money. I had no budget and no emergency fund. When things went wrong, I pulled out the credit cards. I now have $1000 set aside and I am snowballing my credit card debt. I plan to add another $1000 next year as I dig my way out of debt. So far, I haven’t touched my emergency fund and hopefully, I won’t have to any time soon.

  14. Christy says

    A lot of people have suggested a 6 month salary emergency fund. I know that a lot of Crystal’s readers follow Dave Ramsey. He suggests setting up a $1,000 emergency fund, then paying off debt (except the mortgage)–the debt snowball, then snowballing that money into the emergency fund to build it up to 6 months salary, then the morgage, of course. So the writer and many of the commentors that have said they have $1,000 funds might be following his advice.

    • Liz says

      @ Christy…I was thinking the same thing, so I’m glad you clarified. But, and I could be wrong, I believe Dave says to save 3-6 months of EXPENSES, not salary. Or basically, he says to save the amount that you would absolutely have to have to get by each month.

      • Christy says

        I have heard him say the part about the 3-6 month expenses–the bare minimum you need to get by. If you have the means, I don’t think saving 6 months salary would be a bad idea either though!

  15. Annabell says

    My goal is to start an emergency fund by the end of the year. My current job is just enough to pay the bills. So I am planning on getting a second job so that I can put money into an emergency fund.

  16. says

    I think $3K is a great start to an emergency fund – if that’s where you’re at, then that’s where you’re at. We have 10 months of expenses in our emergency fund and you’re right – it’s a great piece of mind, but not everyone is there yet. Baby steps! Our emergency fund is kept at DiscoverBank – would take a day or two to get funds transferred from there to our local bank, but since we never use it, that’s okay. It’s in an internet bank since we get a better interest rate there and we don’t need to access it quickly. Our emergency fund is there as well as any savings for big things (we’re currently saving for our next house and car – current house and car are paid off.)

    We also have a smaller savings account at our local bank – it holds money that we put away each month for bills not yet paid, but will be due. Example: each month, we transfer $75 to that account for car insurance, another $100/month for vacations, another $50 for house maintenance, etc. That way the money is easy to get to if needed. That’s in a local bank for easy access. A simple excel spreadsheet that I keep tells me how much is in there for life insurance, car insurance, house maintenance, vacation, etc…

    We also keep an extra $1,000 in our checking account for those “bigger than we were expecting” events or where an opportunity comes up to give money to something.

    I think you provided an excellent example of why an emergency fund is needed – keep it growing!

  17. says

    We keep our emergency fund money in an account in a completely separate bank. That way we are less likely to borrow from it when there is a “really cute pair of shoes” emergency.

  18. Gwen says

    I would argue that it shouldn’t come out of the emergency fund. It should come out of the insurance fund. This isn’t an emergency. This is the reason you have insurance. If your deductible is $500, then divide by 12 and budget that amount each month for your deductible.

  19. says

    I am trying to build up a good emergency fund myself. Right now, I’m not working but I do receive some money from my GI Bill for attending college full-time. I only get paid once a month so I really have to stretch what I make, especially for those months where I don’t receive a check because school is out. I’m hoping to work part-time soon to start supplementing my income, and start working on my emergency fund. I’m working on some other ways to save that seem to help (saving change in a jar, etc.)

  20. Stacy says

    We have tried and tried during the years we have been married to save up an emergency fund. Literally every time we have managed to get some money set aside, we have an emergency come up and have to empty our EF again. Usually it is car-related (I drive for work), but emergencies have also included replacing all of our AC duct work (we live in AZ) and a few other things.
    We’ve always lived on a tight budget so I’ve slowly changed my attitude to one of being thankful that we have always had $$ to cover our emergencies even when we aren’t sure how the numbers work out.

    • stee says

      We keep our emergency fund at $20K. That will cover more than 6 months of expenses if heaven for bid we both lose our jobs at the same time or have some other big disaster. I was laid off when I was single and I was so glad to have had a $10K emergency fund back then.

      I really like having accounts for different things. Vacation fund, Christmas fund, emergency fund. Helps me plan. Helps me stay accountable.

      • L says

        We have a substantial savings account (like you) for emergencies or the unexpected. For example, my 14 year old needs her wisdom teeth removed, at a cost of over $2,000. We have two months before her surgery to save up the money. But if we are short, we know we have this account as a backup. This account is used for car repairs, appliance repairs or “big” things. If we have time to save for a bigger item, we will. But if the unexpected comes along, we have this as a cushion. We usually can put the money back into this account within a few months.

        We do have a separate account for Christmas, school shopping and college. I don’t like having too many “accounts” for things but it is nice to have these separate from what I consider “an emergency or unexpected expense”.

  21. says

    Having an emergency fund has been a huge blessing on our lives. In addition to the emergency fund we also have targeted savings accounts to cover random bills or expenses that happen throughout the year.

    Whenever something pops up we have it covered and it’s nice to have the peace of mind knowing that there are few things we wouldn’t be prepared for.

  22. LJ says

    I think as you paid off all debt and begin to accumulate more in savings, what you call an “emergency” changes. For people with a lot of debt, an “emergency” may be getting the electric bill paid on time. Once you’ve got your debt under control and a budget made, then your “emergency” might be the washing machine breaking or big car repairs. Once you’ve got a bigger amount saved and you’re really good at budgeting, those things may become much less minor problems and your true emergencies because the huge, life-altering events of unexpected job loss, ongoing medical issues, etc.

  23. Larabelle says

    This is my secret weapon also…and it soooo came in handy. In May I fell and broke my arm and I am sooooo glad to have that emergency fund as I have been unable to work . I am so glad God impressed upon me the importance of acquiring this secret weapon. I am due to return to work next month but having my emergency fund allowed me to live/eat these several months WITHOUT going into debt .