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We’re Hemorrhaging Money – A Good Time For The Emergency Fund

May 7th, 2007 · 5 Comments

Lately we’ve had several large unexpected medical bills at a cost of several thousand dollars. Even with health insurance, our portion of these bills is more than we could financially absorb with our current monthly income, and so these were perfect examples of when to use the emergency fund. As I’ve written previously, our emergency fund is comprised of 6 months of household expenses and is kept in a money market fund that is quickly accessible. So even though we’ve had a lot of stress lately, our emergency fund will allow us to go through this time without incurring debt.

We have several criteria we use to determine whether we should hit up the emergency fund and these expenses easily met both:

1. These were unforeseen and unavoidable expenses so we couldn’t have saved up for them ahead of time.

2. The dollar amount is too large to be absorbed by current monthly income.

Now that our fund is down a bit, we will work aggressively to build it back to its previous amount. I am glad we are paying ourselves back, rather than having to pay someone else.

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Tags: Personal Finance

5 responses so far ↓

  • 1 Shadox // May 7, 2007 at 11:02 am

    All I can say is:

    1. Good for you!

    2. I hope that medical situation worked out ok.

  • 2 The Simple Dollar » The Simple Dollar Morning Roundup: Molar Teething Edition // May 8, 2007 at 9:33 am

    [...] We’re Hemorrhaging Money – A good Time For The Emergency Fund If you’ve ever wanted to see a compelling reason for an emergency fund, read this story and imagine if it was you. (@ not made of money) [...]

  • 3 Ted Valentine // May 8, 2007 at 4:15 pm

    Same thing happened to me this year. Then we got a nice tax refund, moved down in car while suiting our needs, and voila! the EF is back to where it should be.

    PS – Don’t be afraid to call the hospital and ask for a cash discount.

  • 4 Lyman // May 9, 2007 at 7:29 am

    Thank you for posting about this… I just started building my own fund, and it’s good to see a real life reason for having it. Your post took it out of the realm of theory and into real life.

    And whatever the bills were for, I’m hoping that that everything is working out now.

  • 5 The Money Mythos » Carnival of Personal Finance #100 // May 15, 2007 at 8:37 am

    [...] We’re Hemorrhaging Money – A Good Time For The Emergency Fund: This gives a story of the actual use of an emergency fund, and lays out two simple rules for when it’s ok to pull money out of it. [...]

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