Last October, my oldest nephew got married in a beautiful ceremony at a mountaintop chapel about two hours away from our home. Since we were already going to be away for the day of the wedding, we decided to make a mini-vacation out of it and spent three days with family and close friends.
It was a really great time, that is until we arrived back at home.
Imagine pulling into your driveway, kids restless from the drive, you and your spouse needing a vacation from your vacation, only to open the garage door and discover that it is full of water and sheetrock.
Yeah, that was me, too.
It is a horrible thing to come home from a fabulous event to find your garage ruined and three upstairs rooms soaked through.
Once the initial shock wore off, we turned off the water to the house and tracked down the source of the leak. We knew it was coming from the kitchen and it looked like the refrigerator. When our repairman arrived (he’s great, by the way) we discovered that a small 50 cent coupler holding the water line together had failed. This small piece caused thousands of dollars of damage.
All too often we become comfortable in our surroundings and forget that bad things actually do happen to good people. When something bad actually does happen, we find ourselves underprepared and struggle to get through the tough times.
We have been trained to save for retirement, but we forget to save for the everyday occurrences. Many families don’t have $1,000 in the bank for situations like these, and that’s a problem.
If you are one of those that would struggle to pool enough resources together to pay for a $500+ home or car emergency, don’t fret. Here are a few ideas that you can begin implementing immediately to help build up an emergency fund ASAP.
Emergency or Maintenance?
First, we want to separate a true ‘Emergency Fund’ from regular maintenance on our property. Think of an emergency fund as the “Oh my goodness, I just lost my job!” fund. This is a catastrophic event that requires you to make some immediate lifestyle adjustments. Having a fund of four to six months of expenses will be critical.
A ‘Maintenance Fund’ differs from an ‘Emergency Fund.’ For example, if you own a home, you know you will need to keep it in good condition. This means expensive things like replacing the roof or air conditioner, replacing siding or painting, upgrading rotten wood or adding landscaping. These events are expensive and happen infrequently, but can take a toll on your budget if you are not prepared.
So, your ‘Maintenance Fund’ is more like the ‘Oh crap, my refrigerator just died!’ fund. That type of emergency doesn’t change your lifestyle, it’s just inconvenient.
You may want to have a separate fund for your home, your car, your health (yes, that’s an asset!) or any other large item that needs periodic maintenance.
Create an “Out-of-Sight, Out-of-Mind” Account
We pay our bills from one primary checking account and we keep savings for home maintenance in a separate savings account at a completely different bank — with no bank card or easy transfer option. If we need to use the money in that account, we have to go out of our way to withdraw it.
This inconvenience is by design to allow us time to determine if what we’re experiencing is a true emergency or just an inconvenience.
Create Automatic Withdrawals
The easiest way to fund any savings plan, but specifically a fund for home maintenance is to automate your money. I treat this fund just like a monthly bill and set up automatic transfers from my bank into it once a month.
The result is a two-fold win because I know exactly how much money is leaving my account and work that amount into my budget (which I love), not to mention the ease of continuing to fund my accounts without forgetting.
Now that we know what a ‘Maintenance Fund’ is and how to create it, let’s talk about when you should use it and when you should not.
Improper Uses of an Emergency Fund
Once you have money in your fund, the next challenge is managing it and determining what is a true emergency or something you should save for instead.
Here are a few scenarios of when you might consider using your maintenance fund:
Example #1: Your car needs new tires that will cost $400 to replace.
Q: Should you use your emergency fund? Or maintenance fund?
A: Maintenance fund. While many people keep driving cars because they are paid for and have lower insurance rates, one tradeoff is that they need more repairs than a brand new car. Certain automobile expenses, such as tires, occur every few years and should be saved for in a maintenance fund. You can also save for car taxes and a car purchase in this type of account.
Example #2: Your child falls from a tree and breaks their arm and needs medical attention.
Q: Should you use your emergency fund? Or maintenance fund?
A: Maintenance fund. You might need to pay the bill before you are reimbursed by your insurance provider. Just remember, when it comes to medical expenses it’s important to distinguish between a true emergency and a normal health-related expense (ex: emergency surgery vs braces or contact lenses).
Insurance deductibles should be considered maintenance, so if you set up a separate fund for this, determine your maximum out of pocket costs. That is what you should have on hand.
Example #3: Your dream vacation to Aspen will cost $5,000.
Q: Should you use your emergency fund? Or a maintenance fund?
A: Maintenance. Vacations are not unexpected expenses and need to be planned for through the year like Christmas shopping. Set up a separate fund just for family vacations and save toward your dream trip.
So, what happened to our waterlogged house? There were several ways we could have looked at the problem.
Anger was the first that came to mind, but the least productive — so that was out. We could’ve wallowed in our sorrow with a “woe is me” attitude, but that would’ve done little to change our situation.
Blame. We could have blamed our repairman, but we didn’t. He’s a great guy and he felt just as sick about it as we did.
Instead, we just sighed and said, “Well, this is what insurance is for” and set about the work of putting our house back in order.
We also chose to look at this as a ‘first world problem.’ I mean, really…anyone with too much water in their house has a first world problem. Having this attitude, and funds to cover our deductible, took what was a massive mess and made it a mere inconvenience.
Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.
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