Last Updated on March 5, 2018 6:05 pm by Steven

Our vacation ended with our Emergency Fund!

Last summer my wife and I were driving home from a wonderful vacation.  Lorell and I had just spent 10 days on the beautiful island of Guam.  We were tired from the flying and were excited to get home and we just needed to make the four-hour drive from Salt Lake City to St George Utah.  My wife calls our two boys at home to warn them that they have four hours to get the house clean!  Our youngest tell his mom “The house is really warm – I’m not sure the Air Conditioner is working!”

The weather report in St George that week was calling for highs in the low 100’s and lows in the high 70’s.  Not a good situation for having no Air Conditioner!

When I got home, I played with it and I got it to kick on!  Yes! I thought – we are all good…until the next morning.

Called the A/C repairman, after he played with it for a few hours, got it working for a day, then it really died DEAD!

How much is a new 3 Ton Air Conditioner in July in St George?  HINT: There are no discounts available this time of year for Air Conditioner Units!

The estimates were all right around $6,000!

This is a true emergency

We had two choices:

  1. Fix the Air Conditioner for $6,000
  2. Move to a place that does not need an Air Conditioner (which means the mountains or Canada with lots of snow)

We elected option #1.

It was not a hard choice.  Our conversation went like this (By this time, I was out of town on a business trip in an Air Conditioned hotel):

Lorell: It is going to be about $6,000 to get the Air Conditioning fixed for the house.

Me: Do you think we can wait until they go on sale in October?

Lorell: <Akwardly long pause and no humor in her voice> I’ve already ordered it, they are already working on it.

Me: Did you at least check the Emergency Fund Balance in YNAB before you said yes?

Lorell: <still annoyed> Yes, there will be about $13,000 in the fund after the aircon is fixed.

Me: Are you sure you don’t want to wait until October when they go on Sale?  I can just plan my business travel so I stay in hotels until then.  I’ll be fine!

Lorell: <Not seeing the humor in my jovialness> No!

Me: OK.  We will take any extra cash for the next few months to pay the emergency fund back.

Sign that says "Do not change Seat and Dump outside, please"

This sign is on the inside of the gondola at Talofofo Falls, Guam.

Why you need a CA$H emergency fund

For many years I thought that because I had a lot of available credit on my credit cards I had an emergency fund.  I was wrong!  An Emergency Fund needs to be in CA$H, in the Bank.

In the above situation, we had just returned from an expensive trip abroad.  We had put everything on the Credit Card (which we pay off every month) for simplicity.  (We also tracked each expense in our budget so we knew exactly how much money we had during the trip).  If I did not have the cash to pay for the Air Conditioner, I would have had to borrow – which then tied me down and does not give me the freedom to do what I want with my money.

Available Credit on a Credit Card is a line of Credit or just available credit.  It is not an emergency fund because there is no fund.

Emergency Funds needs to be in Cash in the bank.

Why do I need an Emergency Fund?

Because we all suck at knowing the future!

I did not know that my A/C was going to go out.  If I did, I would have ordered a new one the previous Spring when HVAC guys are slow and looking for work.  It is a great time to get a better deal.  When you have to replace it in July, they are very busy.

If you need more reasons, here are a few:

  • You lose your job (even for a week)
  • You get sick
  • Your car breaks (you should have a few hundred in your car repair fund)
  • Your Child gets sick
  • You get in a car accident and can’t work for a few months

If you need more reasons, here are some links:

The list goes on.  Search your favorite search engine for reason shy I need an emergency fund.  You will soon find hundreds of reasons.

Where do I put my Emergency Fund?

In… The… Bank…

But, can’t I get out of debt quicker if I put it on my credit cards?

No – Becuase you will use your Emergency Fund more often then you want to.  It needs to be cash that you can get.

Until you are comfortable with having large balances of cash in your checking account, I would recommend that you start a saving account at another bank.  Something that you can get at, but it is a bit of a pain to get at it.

 

How much do I need in my Emergency Fund?

I go with the Dave Ramsey answer here – $1,000.  It might seem like a lot – but it will add up fast when you put your heart and soul into it.

You will be amazed at the little piece of mind that $1,000 emergency fund creates in your soul.

You also need to create some rules around when you can access this Emergency Fund.  HINT: It is only for a true emergency.  Remember, Christmas is not an emergency!