Yep, it’s another post about the emergency fund and budgeting for everything, this time from a very personal perspective. It’s also about the importance of preparing for the unexpected.
You Never Know When Something Will Go Wrong
It’s called an “emergency fund” for a reason. Most of the time, these emergencies are relatively minor stuff, like your transmission going out. It’s expensive, but you can handle it. Then there are the personal emergencies that send your budget into a tailspin.
Last week we learned that my husband needs surgery. It’s not life-threatening, but it’s better to do it now than wait until he’s old and has more risk factors. He’ll also likely be out of work for several weeks. That’s where the challenge comes in.
On the plus side, this isn’t emergency surgery, so we have time to make arrangements and reduce spending to prepare for the gap in income.
Always Leave a Buffer for Emergencies
After my husband and I bought our house, we had a nice sum left over that we planned to use for furniture. I don’t know if I had a psychic moment, but I didn’t want to use ALL the money for furniture and then replenish the fund later. My husband did, because we’re having guests at Thanksgiving and don’t currently have enough places to sit.
Then that money slowly started vanishing. First, water mains started blowing up all over Los Angeles, so we got flood insurance. Then we opted for earthquake insurance. Those were unplanned expenses. Then we realized we really should get some sort of window coverings. There goes another $1800. We’d managed to spend $3200 without buying a stick of furniture!
And then we got the news. Suddenly we were glad we hadn’t bought the furniture yet.
Know Your Disability Benefits
Our first step was figuring out how much income we’ll have while he’s out. In addition to my salary, he gets state disability. In California, that’s about 50% of your salary, but it typically takes four weeks to actually start receiving benefits. He bought a cheap disability policy through his trade organization, but unfortunately it doesn’t kick-in for 90 days after the start of the disability. His employer also has a disability policy, which we’re getting details about.
Note that disability benefits aren’t taxable, because they’re insurance, so you get the full amount, unlike unemployment benefits, which are taxable.
We realized that we’d have enough to cover our monthly expenses, especially since he’ll be spending less while he’s recovering, but we won’t be able to make extra purchases or save any money while he’s out.
Plan Your Major Purchases and Irregular Budget Items
As I’ve mentioned before, I built an extensive lists of upcoming house projects and major purchases running out through December, 2010. We’ve been parceling those out along their scheduled deadlines, shifting a little here or there. The furniture was on the list for this month and next month. It was already built into our cash flow chart, too.
Our next step was to sit down with our budget and start cutting. We immediately took out $4000 in furniture expenses. We kept the fridge expense, because 1. not getting a new fridge soon will create a new emergency, and 2. Cash for Appliances is coming and could save us a decent amount of money.
We’ll just push everything back by a few months, and then once he’s back to work and we’re saving again, we’ll be able to reprioritize our list.
We’re very fortunate that we were able to build up savings, and that we have low enough expenses that we won’t be in trouble with one of us out of work for several weeks, however we vowed to increase our emergency fund even more after all this is over. You never know when something will go wrong.