Friday, January 21, 2011

Emergency Funds and Financial Peace

In his books, on his radio program, and in his Financial Peace workshops, Dave Ramsey counsels individuals and families to build an emergency fund. First, work to build a basic fund with $1,000; then, a fund containing three to six months of living expenses. These accounts would preferably be a high-interest (around 6-12%) money-market account, which you can write checks from with no withdrawal fees. You would only withdraw money in a true emergency (not because you've saved up a nice wad of cash and want to take a vacation). I haven't found an account that pays that great of interest yet, but that's hardly the hardest part of the emergency fund.

For us, although there have been times when we've had some money in savings, when you're raising small children--and multiple small children--there's always something that cleans out the account. Since we have a high amount of medical expenses with my husband's back injury that are not covered by insurance, it is tremendously difficult to save money each month. Plus, in a month where perhaps we could save, if one of the kids comes down with a nasty bug and needs a doctor's visit, that's $70-$80 out of pocket, plus any needed prescriptions. A trip for the boys to the dentist every six months is around $300 (we don't have dental insurance).

Suffice it to say, I'm more accustomed to saving for particular items than just to save for savings' sake. But let's say I am saving for no particular reason except to save. In the middle of the process, maybe the brakes need to be replaced on the van, or my husband needs an eye exam and new glasses, or the roof starts leaking and needs to be redone. It seems like there's always something that keeps us from meeting our saving goals.
While I don't have any magical answers on how to create a fully-funded emergency fund, what I can offer you is some practical ways to save.
  1. For us, I'm working to trim expenses in other areas to free up some extra money that can be saved. Even if it has to be used for something along the way, at least there's something in the account.
  2. Second, even if it's just twenty dollars, when you deposit your husband's check (or your own), split some money to savings right on the deposit slip. (If you don't know how to do this, a teller can show you.)
  3. Are there any ways you (or your husband) can increase your family's income? Can you take some clothes to the consignment store or sell them on ebay? Can you or your husband find a way to earn some extra money from home?
  4. Eat out less, or not at all, and save what you would have spent.
  5. Making breakfasts from scratch (not buying cereal, bagels, etc.) saves quite a bit. Think oatmeal, eggs (fried, scrambled, hard-boiled), pancakes, waffles, crepes, muffins, etc. Think of creative ways to save on lunches and dinners too (I'll keep sharing what I learn in the Healthy $10 a Day Menus).
  6. Browse thrift-stores if you haven't already. You can find great clothing and housewares for pennies. Of course, not all thrift stores are created equal. Here is a post I wrote with some thrift-store shopping tips:
  7. Buy plastic wrap and spices in bulk (like from Sams or Costco)
  8. Browse through the "Saving Money" category on the sidebar of my blog for more ideas.
I'd love to hear how you successfully save money. What are some of your biggest challenges to saving?

(linked to Works for Me Wednesday)


  1. Our biggest savings challenges are much the same as yours. We drive two very old vehicles and it never fails, when we get a little bit in the savings account, one of them breaks down. We do have good insurance, so it's not usually medical expenses that do us in, unless ALL six of the children are sick at one time (like last winter) and then you're looking at $150 in copays at one visit. I know there are opinions on keeping as much of your paycheck as possible and getting little to nothing back at tax time, but well, that big lump in February is the most success we have had with saving.

  2. We do not have dental insurance either. A friend of mine takes her children to the local community college for cleanings. It's no more than $25 per child. I haven't done this yet, but I think I'm going to try taking them to the community college every other appointment (so I'd be seeing their dentist once a year).

  3. We use a credit union that has a Round Up program - when you use your debit card it rounds the amount up to the next dollar and transfers the change to a separate savings account. We are not debit crazy, but we've managed to put a pretty good chunk into our Round Up Savings, which we add to our 3 month emergency fund.

    I also decided that each time I tithe, I also transfer 1% to our emergency fund. That way it becomes a priority, just after tithing. That definitely adds up quick but I don't notice the small amount each time.

  4. Our biggest issue is that my husband has not been gainfully employed the last 2 1/2 years. It has not been a good time for us, as we've been living off of credit.

    But some things that have cushioned some of the blow include:
    - Any rebate checks we receive are paid down on our auto loan. So we will be paid off nearly 6 months early! Those little $5 and $10 checks add up.
    - We've been blessed to get a lot of hand me downs or inexpensive clothing from sales. Kids grow so fast.
    - We buy my husband's textbooks online, which saves considerable money each semester.
    - We grow/make what we can. That includes cleaning products.

    We are also trying to menu plan. Saves us from emergency trips to the store and impulse buying.

    And remember, maintenance is cheaper than a bigger fix later down the road!

  5. Thanks for this post! Budgeting and using the cash envelope system has really helped us to save. We reconcile our account weekly to make sure we are staying on track.

  6. What a great post! My goal, although far from being met, is to limit or omit extra food in our grocery spending. I struggle with snacking...
    That is a big waste of money!

  7. You got some great adive. I so agree with Heidi about using the cash envelope system. It has changed our lives, really. We also take any change we get and put it in a jar. When we it's full we roll the coins and put it in our savings acct. It can be up to $100 every few months.