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Even though I worked full-time since I was 16, I rarely had enough saved to scrape two nickels together until I was about 23. A couple times during those years I had a big goal- travel to Japan in 1995 and 1997, and buying my first car at 17, when I was able to sock away most that I made to meet those goals.
Once I moved out at 19, and had to pay the rent, I typically had just enough to get through until the next paycheck. I would have told you I didn’t earn enough to save, but that was before the internet (and couponing blogs), and before that fateful day I was pulling an extra shift at the library and discovered the Tightwad Gazette. My emergency fund was a pretty bad one- a credit card.
I would have an emergency, like a big car repair, put it on my credit card, then scramble to pay it off. I’d get the number down to zero, and then inevitably another emergency would happen, and the cycle would begin again.
After reading an article in the Tightwad Gazette, about a couple with limited means only able to save $100 over the course of the year and skillfully parlaying it into $12000 after 5 years, I started to follow the same methods. I saved a tiny bit, and used it to build a stockpile using a price book. I charted every penny, and even though I was back in school for degree #2 again, I was able to save $1000 in an emergency fund.
There is a lot if disagreement about how much money should be in an emergency fund. Dave Ramsey suggests starting at $1000 and eventually getting to $3-6 months worth of expenses. Suze Orman suggests 8 months worth of expenses. In my opinion, having had very small means myself in the past, I think starting at $1000 is reasonable if your own means are small. There once was a time $1000 was a huge sum for me.
For us, with my husband the main breadwinner, and three small children, we feel most comfortable with at least 6 months expenses in our emergency fund. You never know when an illness, job loss, major home issues, or surprise triplets can strike. (Please no surprise triplets.)
This week was a good case in point. I went to the dentist for the first time in two and a half years. When I was pregnant with our now almost-two year old, I had severe hyperemesis the entire pregnancy. I expected I might need some dental work because of that, since a tooth with an old crown was starting to cause me problems. I also have been putting oral surgery for my wisdom teeth on the backburner, and they are starting to cause pain. On top of that, I was born without a permanent tooth in the back of my mouth, and have been needing an implant, something that we would have to pay 100% out of pocket.
I actually fared well despite the hyperemesis, but I do have to have my crown replaced completely. That will cost us at least $400 as our copay. The special X-ray for my implant (so they can make sure I have enough bone there) is $350 out of pocket. The implant and oral surgery copay may be $1800-2000. That is not chump change, considering we have our next tuition payment due in January.
We learned this on Monday, and the same day we noticed our 2008 Ford Escape was making a funny sound. Of course, it ended up needing a $650 repair!
The good news is, it was all OK. We hate to spend the money, but it is there, and these emergencies are not disasters. We don’t have to choose between the mortgage and teeth.
How do you build an emergency fund? We make savings automatic, so we never see that money, and make our budget with what is left.Start with whatever you can.
Right now, about 12% of my tiny part-time income goes into savings automatically every month. I plan for it to fund a Roth IRA since I no longer have 401K benefits at work.
Together, we save about 30% of our income. We hope for this to increase when we are no longer paying graduate school tuition, and as my income increases. Not quite at 60-80% savings rate, but we will get there!
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