Sense to Save

Our emergency fund is complete! (almost)

I hope I’m not being premature in announcing this, but we have finally completed our six-month emergency fund!

It’s sort of here, actually. We’re waiting on a few checks to clear, and on a few checks that should already be in the mail. So while we don’t have the full six-month amount in our bank account, it’s almost here and will be in our account shortly.

All of this has happened by the sheer grace of God. He has helped us stay focused, get creative with ways to find extra money, and I’m certain He’s helped send a few little windfalls our way.

Cuz baby, it’s gunna rain. And we now have a decent umbrella to weather us through.

We started building our emergency fund as soon as we had paid off all of our credit cards last December. We didn’t have anything in savings while we were paying that off, and as I mentioned in a previous post, I now know how having a small bit in savings while you’re paying off debt can be such a tremendous help. We got lucky, and didn’t have any emergencies pop up in that time.

Once we had our credit cards paid off, we started building our fund.

The beginning was a bit frustrating.

We’d set aside some money for savings, but then we’d need to use it for an expense that popped up. It took us a little while to gain some traction, but once we got going….wow.

We tried saving for our fund back in January of this year, but we didn’t actually have anything saved until February.

Since then, we’ve had windfalls in the form of a salary bonus, tax refund, and economic stimulus check. This blog has earned quite a bit toward that fund (thank you!) in the form of advertisements and affiliate links. We’ve found a bunch of little ways to cut our expenses, and they’ve added up into nice “snowflakes” which we’ve been able to throw into savings. Finally, just about all of my freelance earnings and leftovers from Shane’s paychecks went into savings.

We focused all of our efforts onto building up six months worth of expenses. It took about seven months to complete.

Again, it’s been a direct result of God’s blessings. We don’t technically earn near enough each month to cover double our expenses, and yet, it only took us that long to get this amount saved.

So now what?

• We need to increase our retirement contributions to a full 15 percent of our annual income.
• We want to save at least $1,500 to give us a head-start for paying for baby-related things.
• We’ll create some sub-accounts within ING Direct to save for car expenses (including paying off our car loan), gifts, vacations, and other regular but infrequent expenses. Oh, and we’re going to start saving for a down payment on a house.

Honestly, it wasn’t as hard as I thought it would be. And it didn’t take nearly as long as I had expected. If you don’t have an emergency fund, why not get one started? Even $10 per week is a start, and it does add up. If you have at least $250 you’d like to use as a starter emergency fund, consider opening a savings account with ING Direct. If you use my referral link, you’ll get an extra $25 (and I’ll get $10). The interest rate is awesome (about 3 % apy) and I’m earning more than $20/month in interest with them now.

Building up savings while getting out of debt

I’ve seen a few posts around the blogosphere about whether it’s good to pay off your debt first or build up savings.

At I Pick up Pennies, the author doesn’t want an emergency fund until she’s out of debt (I spotted a link to this post at Get Rich Slowly.). It might work for her, but it would scare the pants off of me. Being a primarily one-income household, our emergency fund will be used for insurance deductibles, emergency trips to places, and the big one: Loss of income. Shane and I have maybe a $13k credit limit or so on all of our cards. Yes, we could live off of our cards for six months if we had to. But do I want to do that? Oh heck no.

Sure, if you have a credit card with a high limit, you could probably charge an emergency. But if you’re already deep in debt, adding $1,000 will turn into a lot more by the time you’re able to pay it off.

Karen at Living Well on Less is taking a balanced approach. She’s putting half of her surplus funds toward debt, and the other half toward savings. She and her hubby see a real need to have cash on hand when they move in a few years, and it makes sense to beef up the savings for now.

There is no perfect answer for everyone. You’ll have to decide what works best for yourself, of course.

That said, if I had to give you my opinion (and I will. Cuz that’s what blogging is all about!), I would say that I’d suggest building up at least a small emergency fund before tackling debt could save you a lot of headaches.

Or, if you find yourself in a situation where you’ll need plenty of cash on hand, it makes the most sense to sock away as much as possible while just paying the minimum on your debt.

Popular financial guy Dave Ramsey suggests saving a $1,000 “baby” emergency fund before starting your debt snowball. Having $1,000 in savings will cover most people’s insurance deductibles, cover smallish home or car repairs, and cover you in many other emergency situations. If you’re committed to getting out of debt, then you need to be committed to avoid going further into debt. Having this small savings set aside can be just the ticket.

Having even a small emergency fund in place no matter what might give you a peace of mind. You’ll sleep better. And once you’ve seen you can squirrel away a thousand big ones, you might be motivated to save even more or carry on getting out of debt.

Detractors might say, “But you’ll net more money if you pay off debt first and avoid interest charges, and then put money into savings.” That might be true, especially if you’re fortunate enough to avoid any emergencies (and for the record, when you’re living paycheck to paycheck, ANYTHING can feel like an emergency).

But. To that, I would say, “If you’re so good with money, then you wouldn’t be in debt in the first place.” So there.

We’re within spitting distance of completing our emergency fund. We still have a car loan, and we’ll leave that alone for awhile. We want to have as much savings as we possibly can scrape together, since by now you all probably know we’re having a baby boy at the end of this year.(Yay!)

For now, it’s better for me to have more money in the bank than a paid-for car at this stage.

What’s your take on this?

Tuesday afternoon ‘snack break’ linkup

I typically share links I’ve discovered once per week in a post round-up. There’s a lot of great stuff out there, and I’d like to share the link love a bit more. I thought I might try sharing some interesting links with you more often–daily, perhaps? We’ll see. You guys do like link round-ups, right? Love ‘em or hate ‘em, I’d love to know.

I thought about calling this a “coffee break” linkup, but I don’t drink coffee anymore (tisk, tisk). However, I do have snack breaks! I hope you do, too :)

If you’d like to take a break from whatever it is you’re up to, grab a snack and check out these links:

The whole frugal chicken at The Simple Dollar shows you how to use ALL of that chicken goodness. Hmm, at first I said this was a ‘snack break,’ now I’m kind of hungry for a dinner!

10 tips for a better budget at Christian Personal Finance. My favorites are # 3, 4 and 9.

Dressing classy on a budget? At We Like Money. Tiffanie needs fashion help! So go help her. I’m the least-qualified person out there to give style advice.

Just say ‘no’ to the birthday lunch at Living well on less. Aw man, no b-day lunch? When you are in an office of a buncha people and someone has a birthday every few weeks, those birthday lunches can be expensive!

Finally, if you’re itching for even more reading material, head over to this week’s Festival of Frugality hosted by Our Four Pence Worth. I have a post linked there, too.