Where are We Going? And What’s With This Handbasket?
What would you do if your financial life suddenly and violently went to hell? Do you have a plan? Would your emergency fund be able to absorb the blow?
Bad things can happen to good people. No one is completely immune from the bad luck life can throw at us.
- You or your loved one fall critically ill, requiring constant medical care.
- You lose your job and with it your health insurance.
I’ve been thinking about these and other unlikely events for a while now. I am in the best financial position of my entire family. Luckily, my fiancé’s family is in better shape. Not free and clear but not as bad as my own.
If anything were to happen to my fiancé or myself, I am afraid that we would not be able to lean on our families to help us through. We would need to rely on ourselves. On the other side of the coin, if anything were to happen to either of our families, we would be the ones who would need to be there to make things right.
In the event of complete financial calamity here is the plan. Desperate times would call for desperate measures.
- Cancel the cable and internet, save $80 per month.
- Sell one of our cars (if not needed for a job), save $350 per month. Pocket extra profits from sale.
- Cut all discretionary spending (entertainment, eating out, etc.), save $580 per month
- Cut back on groceries (beans and rice diet), save $100 per month
- Pause contributions to house down payment fund, save $1,500 per month
I sincerely hope that I never have to go to such drastic measures, but in the event that they are necessary, we will be prepared. Together we could conservatively save a combined $2,610 each and every month through drastic cutback in our expenses and spending. We need approximately $2,000 each month to take care of the bare essentials (shelter, food).
Drastic spending cuts combined with our current savings would be able to float us through a minor event. I think we need a more substantial emergency fund to be able to weather a bigger storm but that will come in time.
The moral of the story is to have a plan. Run the numbers. Don’t avoid it.
Calculate How Much You Would Need to Survive
This would not include any spending beyond the basics of food and shelter. If you find yourself in a situation where you are financially against the wall then survival is the name of the game. Don’t mess around. What do you need to survive and nothing else?
An important note is to include for health insurance, which you may not have from your job depending on the nature of your emergency. Private insurance can cost well north of $10,000 per year. I don’t think it is possible to over stress how critical health insurance is. If you base your emergency fund on replacing your monthly income, you may miss this. Health insurance after losing your job will allow you to absorb a health emergency if you find yourself so unlucky. Without it, a minor emergency could lead to bancruptcy very quickly.
Now get out there and make that number, times three to six months and sock it away where you won’t touch it. My fiancé and I are avid users of INGDirect. It is a great way to save for a goal. Haveing a meaningful emergency fund is something that everyone should have.