Reader Q&A | My Emergency Fund Keeps Shrinking – Help!

Reader Q&AToday’s reader question comes from Chana in Baltimore (not her real name). I love this question – and hey, who am I to complain about another opportunity to talk about Emergency Funds!

We have been working on getting out of debt for the last 18 months. We have a decent income, but a lot of debt, so it’s been rather slow going. So far, we have paid off $42,000 of debt, and we are down to our last loan (a personal loan to my parents for $10,000 – ugh).

Here’s the problem: Everytime we manage to make some traction, something comes up. We had car repairs, needed to fix our furnace, then the fridge broke. Now my son needs braces. We have a small emergency fund of about $2,500, but it seems “emergencies” keep cropping up.

I feel like we’ll never get ahead at this rate. Am I missing something?

Congratulations on paying off so much debt. You have made tremendous progress and should feel really, REALLY good about that.

Since your last loan is to your parents, I can certainly understand why you are eager to pay it off.  And I know it can feel like all these “emergencies” mean you are taking one step forward, one step back, but look at the numbers: You’ve paid off $42K in debt. That’s 42K steps forward! (And, from your letter, I assume that you are paying CASH for all these emergencies, which is another several thousand steps forward!)

As to your question – no, unfortunately, I don’t think you are missing anything. There’s no magic bullet to this. The only proscription for getting out of debt and staying out of debt is to take determined action to pay cash for your choices.

If you are eager to get more even traction during this time, I would suggest trying the following three things:

#1. Take a fresh look at your budget and challenge yourself to cut it by 10%. I realize that another 10% may seem impossible, but remember: Small changes add up. For example, can you cut down your utility bills by ditching cable or reducing your cell phone package? I know you probably did all these things when you started getting out of debt, but if you’re feeling stuck, a fresh “kick in the budgeting pants” might be in order.

#2. Look around your home and ask yourself, “Do I need this? Do I love this? Do I use this regularly?” If the answer to these questions is no, you might want to consider selling some stuff on Craiglist, Ebay or at a garage sale. We do this once or twice a year, even now that we’re out of debt, and are usually able to bring in $200 or more at a time. That little infusion of cash is highly motivating. Apply the earnings to the debt to your parents immediately – that’s 2% less that you owe them!

#3. Redefine “emergency”. I’m not saying fixing your car isn’t an emergency – it may well have been, especially if you only have one car and you and/or your husband can’t get to work without it. But during this phase of paying off debt, you need to take a CRITICAL look at every.single.expense – including the emergencies. I have no doubt that your child needs braces, but if it won’t damage his health, you may want to consider holding off until that last debt is paid off. Now is the time for hyper-focus; once the debt is gone, you can let your foot off the pedal a bit and reconsider urgent-but-not-emergent expenses.

Longer term, I would also suggest that you keep a running list of “things we’d really like to buy or do”…someday.

We do this for things that we know just aren’t in the budget right now – i.e. can’t be cashflowed. We prioritize the list and then either get creative about how to pay for them (like when I used Swagbucks to buy that XBox for our family Chanukah present) or we delay gratification while we save up (like for our hopeful trip to Disney this summer).

I also do everything in my power to “build fences” around my emergency fund. We worked so hard to build up that Emergency Fund, I am loathe to spend it on anything. When I have to, I have to… but I avoid it as much as possible by anticipating emergencies.

In other words, I know that at some point my car or house is going to need repairs. So, we have a car repair fund and a house repair fund. We save a set amount to those funds every month. Then when something comes up, we have a pool of cash to draw from – rather than having to tap our emergency fund.

I hope these suggests are helpful – and, again, congratulations on all the wonderful progress you have made over the last 18 months!

Do you have a question about budgeting, couponing, menu planning or anything else? Please send me an email – I love hearing from my readers!

Disclaimer: I am not a financial adviser, nor do I play one on this blog. This post should not be construed as legal or financial advise. I am merely relating my opinions about emergency funds based on my own personal experience.


  1. WOW! Chana, if you paid off 42K in debt in 18 months, you need to start your own blog! I think anyone would be hard pressed to accomplish that. I really like the idea of special funds for car & home maintenance; they are such money drains. Having funds on hand to fall back on would take some of the sting out.

  2. 42K, great job! Pat yourself on the back, get rid of that last loan, and keep doing what you are doing and you will end up with what you got rid of in debt as savings working for you.

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