Budgeting Basics | How Having an Emergency Fund Creates a Buffer

Yesterday was a crazy day. Major rain storms. Tornado warnings. Our friends’ basement flooded. Our two year old got into a safety-locked container of oil-based paint and “painted” herself and the interior of our Camry. (Don’t ask how that happened.)

While she was wrecking havoc out in our car, our six year old was doing damage inside. He swung open the back French door too hard and smashed it into the corner of the fireplace, splintering the inside pain of glass into a bajillion pieces.

Given the torrential downfalls we were experiencing, the only good news was that the glass was double-pane and we didn’t end up with a living room full of water.

Meanwhile, the door’s pane has been taped up with a bunch of plastic garbage bags and cardboard boxes. Thankfully, we have a bit of money in our home improvement fund (Remember? We put 1/12 of 1% of our home’s value into this fund every month) – and if we tap that out, we have our emergency fund.

Since I got a great question yesterday from a reader about what you “can” use an emergency fund for, I thought I’d share a bit more about what we use our emergency fund for and how having it creates a buffer.

To me – an emergency fund is the last resource. It was HARD work to save that money – which makes it even harder to spend it.

If we find ourselves in a situation that makes us consider dipping into our emergency fund, we have to be double – and TRIPLE – sure that we (a) really need to spend that money NOW and (b) can’t figure out any other way to pay for  it.

A killer sale on a new pair of shoes – even if we really need some new shoes – isn’t an emergency. If we were literally barefoot, in the dead of winter, because we didn’t have ANY wearable shoes, okay, fine that would be an emergency.  But if we have a pair of shoes – even if they’re ratty looking – then, no, that’s NOT an emergency.

Might I try to pinch some other pennies to afford that pair? Yes, absolutely.

New shoes are probably easy to rule out as a non-emergency fund expense, but what about home repairs? What about our back door?

Is repairing the door an emergency? Is replacing it?

Before we spend a few hundred (or thousand) dollars for new doors, we are going to do our research. Can we come up with a temporary fix? One that we can cash flow? (Thanks to my friend Chaim for telling us about glass packs – that sounds like it might be an inexpensive fix for now – and later).

If we still decide we want to REPLACE the door, we can take our time to save up the money – thus leaving our emergency fund in tact.

A similar situation happened to us over Pesach. Our oven’s heating element blew up – literally. I happened to peek in and notice blue and read sparks – like fireworks – flying out of the bottom element. We turned off and unplugged that oven FAST.

After my heart stopped pounding, my next thought was, sheesh – there goes $1000 for a new oven.

Fortunately some Googling and YouTubing convinced me that it was more than likely our heating element. Rather than calling a service technician, we ordered a replacement part and my husband followed a video tutorial to install it. It worked!

We saved a fortune – not just on a new oven, but also on bringing out a repair technician. The $60 part was cash-flow-able, so we never even had to tap our emergency fund.

Developing the self-discipline to save up our emergency fund – and believe me, it didn’t come naturally, we had to overcome a lot of bad habits! – taught us a new level of resourcefulness.

Before our EF, our first instinct in almost all situations would have been BUY IT NEW! BUY IT NOW! FIGURE OUT HOW TO PAY FOR IT LATER!

This instinct got us into a world of consumer debt trouble.

They all seemed like totally justifiable expenses – I mean, after all, you can’t live without shoes, a back door, a working oven… or whatever the “emergency” was at the time.

But now that we have scrimped and sacrificed to build that emergency fund, our instincts have changed. Sure, we still have the knee-jerk BUY NEW – NOW reaction, but then we dial it back with a dose of resourcefulness and contingency planning. Before whipping out the credit card.

Does having an emergency fund protect us from the financial hit of every emergency?

Unfortunately, no. There’s no amount of money that can insulate us from every possible life crises.

But we have discovered that the discipline required to save that fund creates as much of a buffer as the money itself.

Stay tuned next week when I talk about how we deal with the logistics of drawing money out of our emergency fund – and replenishing the balance when we do encounter a bonafide emergency.

I’d love to hear about your experiences with emergency funds. Have you also found that saving up for one gave you a new sense of discipline? Do you struggle with the question “Is this really an emergency?” when it comes to drawing out funds?