Recently I had a death in my family, and so my wife and I had to head out of town in order to attend the viewing, funeral, and spend time with family. Unfortunately, this meant that we would have to take a drive of over 600 miles and between 10 – 12 hours ( depending on how many stops we needed to make).
Since we were in the middle of a move, we had to reschedule a couple of deliveries and we even had to cancel the first stage of our move. Because of the reason behind all of these moves, we really didn’t mind making the changes. However, we did have to take a minute to consider the financial impact of such a move.
The immediate costs that came to our mind were travel (gas & food), lodging, and our meals. If this had been a planned trip, we would have had a vacation budget in place. However, since this was an unexpected drive down, these expenses were not in our short-term budget.
Emergency Fund To The Rescue?
We actually try to have two levels of defense against unexpected expenses. The first is simply to keep at least a $500 cushion in our checking account to cover small things that may come up, or even subscriptions which we have forgotten.
The second defense which we have set up is a traditional emergency fund – kept in an online high-yield savings account. We actually took a good chunk out of our emergency fund in order to handle a few things with securing the new apartment and taking care of a few other things. [Don't worry, we used this money to act as a 30 - 45 day bridge - we did not "spend" down our emergency fund on non-emergencies]
Fortunately, since we keep a cushion in our checking account, we didn’t have to worry about how we would fund this trip. The last thing a family needs when a death occurs is to be stressing over how they will pay to travel to the funeral!
I have been in situations where I depleted my emergency fund, in order to pay bills, and when something unexpected came up (losing my job in those cases) I was forced to place all of my living expenses on credit cards!
Actually, we charged some of our expenses for this trip – a couple of nights in a hotel – but that was simply to take advantage of credit card benefits (rewards points and purchase protection). We put the rest of the expenses – food during the drive there and back, and a trip to Wal-Mart – on our debit card, so it came directly out of our checking account.
Since we had/have this cushion in our bank account, we will be able to pay off the hotel bill in full once the credit card statement comes (I wish we were always able to pay off debt that effectively)!
Is It Really Necessary?
Some people will suggest that maintaining an emergency fund while you’re in debt is not the best use of your money. However, they fail to consider the high probability of you needing to rely on something other than your current paycheck at some point during your debt repayment journey! Your only options would be to tap into your emergency fund (or at the very least, bank account cushion), taking loans from family or friends, or trusting that you are now an expert at using credit cards responsibly.
If you ask me, having money set aside for this purpose is the only way to avoid financial stress and difficulty.
photo by Suzie T
How large of an emergency fund would you have in place if you were in debt?
What do you think about using every dime to pay off debt and save for retirement, and simply using a credit card in an emergency?
Have you ever been in a situation where you regretted not having money set aside? If so, how did you handle it?
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