How We Finally Finished Our Emergency Fund

Last week, I was telling you about how my husband and I had been working on building an emergency fund of 3-6 months of expenses (since we’re both freelancers, we were going for 6 months to give us some added security). Creating this emergency fund was the third step in our commitment to living a life of financial responsibility.  We had been following this book called The Total Money Makeover, which is the seven-step plan of a financial counselor named Dave Ramsey.

We don’t see eye to eye with Dave on a couple of things, most signficantly his religious views. He’s a fundamentalist Christian and we’re Orthodox Jews. The reason I’m telling you this is because for a while I worried that those differences would make his plan incompatible with our lives. But, as we quickly learned, we can take what we need — his clear-cut, no-nonsense plan for financial peace — while skipping over the rest of his teachings.

The first two steps of Dave’s plan are (1) to create a baby emergency fund of $1,000 and (2) to use the debt snowball to pay off all debt, except for the mortgage. Thanks to a lot of factors that went in our favor, we were able to accomplish both of these steps in just six months. Our momentum hit the breaks big time, though, when we turned our attention to the emergency fund.

In part, our pace was slowed by good news — I was pregnant with our third child. Which meant that at the same time that we saved for the emergency fund, we also needed to put aside a few thousand dollars to pay for the birth itself, since our insurance didn’t cover our midwife.

Just as we finally thought we were hitting our stride, we came across another bump in the road. When we left Israel in the summer of 2008, we had rented out our apartment for a two-year contract. But just nine months later, we got a phone call from our tenants. Due to illness, they needed us to release them from the contract. Of course we obliged, but now we had to figure out what to do with our apartment. Long distance land lording was hard enough, but the intercontinental divide made it almost impossible.

Plus, the rental market in Modi’in had fallen about 15% over the previous year, which meant we more than likely wouldn’t make enough on rent to cover our mortgage, let alone set aside money to cover repairs and maintenance. A quick look at budget told us that we could not afford to float the Israel apartment for very long at all. Our decision was clear: We had to sell.

We found a real estate agent and checked her references. Everyone told us she was a shark, which we figured was a good thing. But after a month of several showings, we hadn’t gotten a single offer. We were beginning to worry.

We pushed our agent to tell us what was going on, and finally learned that the apartment was not showing well. The tenants had clutter covering every surface of the house; they kept the shutters closed all day, so the place was dark as a cave; and the sweet little garden we had planted ourselves was torn apart by their two dogs. Given our tenant’s illness, all of this was understandable — but it didn’t make it any easier to sell our once airy, pretty apartment.

Our agent recommended that we wait until the tenants moved out in late June, and then have the place cleaned up quickly. She assured us she could sell the apartment, but she needed the renters out.

We agreed — what else could we do? — but we were worried that we’d have to float the mortgage for months on end. Building up our emergency fund took on new urgency. We cut our lifestyle even further and poured every penny into our emergency fund. Now all we could do was wait for our tenants to move out.

In early June, our agent called us again. She asked if one of us could come to Israel at the end of the month. She thought it would be best if we oversaw the move-out and clean-up personally; plus there were all sorts of contracts that would need to be signed — and doing it in person was preferable to using a power of attorney.

With a six week old baby, the last thing I wanted to do was sit on an airplane for 12 hours. But my husband encouraged me to take the trip with our daughter, reasoning that traveling with her would be less stressful than staying at home with all three kids while he flew off by himself. We quickly rushed a U.S. passport for our daughter and booked me a flight.

Now I don’t know if Dave Ramsey would consider those things an emergency, but that’s the fund we used to pay for our flights, passports and other travel expenses. After paying for all that, plus the cosmetic work we needed on our apartment, our fund was back down to just a couple thousand dollars. We knew that as soon as we sold the house, we could replenish the fund, but for now, we were living dangerously.

When I arrived, I saw for myself that the apartment was indeed in bad shape. Fortunately, the clean up went well and we even managed to salvage some of the garden. Three days before I left Israel, our agent showed the house to a young couple with two girls — the same age as our two boys. They loved the place and agreed to our asking price! We were delighted… and more than a little bit shocked! It’s not like we’re plagued by bad luck, but outcomes as picture perfect as these don’t usually happen to us.

The morning before I left Israel, I was able to meet with the lawyers and sign the contract. We were still a month and a half away from closing, but knowing that we had a deal — and a down payment — was an incredible relief.

The first thing we did with the proceeds of our house sale was fully fund our emergency fund up to the six month level. After more than a year of scrimping and saving, finishing the fund so quickly was anti-climactic. In fact, I felt a little guilty about it and wondered if we had struggled enough?

But then I heard a radio call on the Dave Ramsey show one day (you can podcast the first hour of his show for free everyday — here’s the link). I don’t remember what the caller’s situation was, but Dave said something to the effect of, “Isn’t it amazing how once you start doing smart things with your money, you start making more money.”

That’s when I realized: If we hadn’t gotten our acts together a year and a half earlier, selling our place in Israel wouldn’t have been a financial blessing to us. We still would have been deeply in debt, and we probably would have frittered away the profits on more stupid junk we didn’t really need. Guilt alleviated. Emergency fund filled!

Another major milestone was behind us, and for the first time ever, I felt like I could breathe. Did working this plan make us millionaires? No, of course not. But having a true emergency fund definitely made me feel like a million bucks!

Since finishing our EF, we have been focused on Steps 4 and 5 of the Total Money Makeover — putting aside 15% of our income into retirement and saving for our kids’ college education. Once again, we’re moving much more slowly that I’d hoped. Part of that is an income thing, but I’ll tell you more about that and where we go from here next week.

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Read the rest of our story here:

Part 1: An Honest Discussion about Debt

Part 2: How We Owned Our Problem with Debt

Part 3: How Saving $1000 Changed My Life

Part 4: How We Paid off $30,000 of Debt in Just 6 Months

Part 5: The Rocky Road to an Emergency Fund

Part 6: Finishing Our Emergency Fund – We Did It!

Part 7: So, We’re Out of Debt and Have an Emergency Fund. Now What??!!