By Alaina Trivax, WCI Columnist
The standard advice I’ve always heard for emergency funds recommends keeping around six months of expenses set aside in case of job loss or another disaster. For my husband (an early career PM&R physician working toward partnership with a private practice) and me, six months of expenses is a LOT of money.
Our most significant monthly expenses include our student loan payment; the daycare bill; our mortgage, groceries, and household bills; and our transportation costs (lease payments, car insurance, etc.). There are other recurring costs—child-related stuff like diapers and activities and various expenses for our dog—and it all adds up to quite a bit.
I’ll be honest—we don’t keep that recommended six-month emergency fund set aside in cash.
It’s actually one of our few financial disagreements. We have agreed to keep cash on hand that could cover around two months' worth of expenses. My husband, Brandon, cannot imagine such an emergency in which we’d need that much money at a single time, much less six months or more worth of expenses. Right or wrong, his focus is on his student loans and getting them paid.
If you’re a regular reader of my columns, I’m sure you’re thinking—again with the student loans? We refinanced them a while ago down to a 1% interest rate, so that’s not the problem. The issue is simply that the monthly payment requires such a massive chunk of our cash flow that it limits the other things we can do with our money (and with our lives!). In his mind, any extra funds are better served sent to student loans rather than set aside in an emergency fund. If we kept the emergency fund cash in one of those high-yield savings accounts, we’d technically come out a little ahead—but the student loans are such a mental burden for him that it just doesn’t matter.
However, earlier this year, we had the great pleasure of actually getting to use our emergency fund for not one but TWO emergencies within just weeks of each other. That really tested our definition of what constitutes an emergency, and it has us reevaluating the funds we keep for these situations.
Emergency #1: The Laundry
One Saturday evening, while trying to power through the weekend laundry rush, our dryer broke. It just stopped drying. I pushed the buttons, and nothing happened. Dead. I tried the good old unplug-it-and-plug-it-back-in trick. I flipped the breaker switch a couple of times. Still nothing.
I called Brandon—he’s usually the laundry-doer in our house. I was just subbing in since he was working this particular weekend. He said, “Oh yeah, the dryer’s been doing that. Sometimes it works again later.” OK, sure. I’ll let it get a good night of sleep and try to finish the laundry in the morning.
The next morning, it still wasn’t responding. I’ve learned that this pattern of “sometimes not working” had been happening for weeks. OK then. It was an older appliance anyway, and we’d had it serviced a few times under a home warranty during Brandon’s residency and fellowship. In reading about the problems that could have caused it to fail, it became clear it was nothing that I was going to repair on my own. Perhaps my sweet dryer had just met its end.
Of course, there’s never a convenient time for a dryer to break—but when you have two small kids and a dog, that time is definitely not the week before a vacation.
Brandon was off to work again that day, so I did the world’s fastest research and essentially impulse-bought a dryer. I ran downstairs to check if we had a gas or electric dryer hookup; I saw that the dryer was plugged into the wall outlet and figured it must be electric. I wanted to get the new one ordered before the kids woke up, so I scrolled through a few recommendations from Google. Ultimately, I went with a mid-range model for $800. It seemed to have enough features to get the job done, but I didn’t feel like I was throwing away too much money. We plan to only be in this house for another five-ish years and don’t plan to take the dryer with us.
Fast forward to Thursday: dryer delivery day! I took the morning off to meet the delivery truck and supervise the installation of the new dryer. The delivery guys arrived and came inside to check out the setup. Immediately, they informed me of a problem. The dryer I ordered wasn’t going to work. It turns out that just because my appliance plugs into an electrical outlet doesn’t mean it’s electric. I have a gas dryer. Surprise! Thankfully, I had the presence of mind to refuse delivery of that dryer; I’d just have to wait up to 30 days to get a refund.
(I later learned that had I accepted delivery, we would have been stuck with that dryer—even though it wouldn't work for my house. A bonus tip for you: be sure to research return policies before big purchases!)
Back to Google. I found another dryer—gas, this time—and ordered it (and from somewhere with a much better return policy!). Now, we were up to $1,600 in pending charges for dryers. Then, I needed to schedule a plumber to install this dryer, since the delivery guys who had been out that morning warned me that my basement gas lines weren’t up to code and that I’d need to address that, too. Add in another $300 for this project.
My husband and I were leaving for vacation in just two days. While it wasn’t a financial problem, I had to send my boys off to my in-laws with a basket full of dirty laundry. Then, I'd have to rely on my mom to coordinate the delivery of our new dryer. Eventually, we did get the $800 for that first dryer credited back to our account. It took about two weeks to receive the refund, and I am thankful we had the financial flexibility to float that mistake on our credit card for so long. All in all, this dryer “emergency” came to around $1,100.
But was it an emergency? Or should we have been planning for this appliance to need replacement? I might like to create a “slush fund” for home maintenance that we keep available for minor repairs and projects. These things aren’t actual emergencies—it’s reasonable to expect that home appliances will need replacement as time goes on. It feels wasteful to set aside a ton of cash for these problems, so maybe it should just be enough to cover one or two appliance-replacement-type situations at a time.
More information here:
What to Do When Your Emergency Fund Fails
Emergency #2: The Canceled Flight
We got the dryer ordered, with a delivery date set for the day before we would return from our vacation. Brandon and I sent the kids off to his parents, and we headed to Cancun for some much-needed relaxation. It was incredible—so, so relaxing. We spent five days in the sun, and we were ready to come home; we missed our kids.
Cancun is in the same time zone as Michigan, making for easy travel logistics. We were set to board our flight home from Mexico on Wednesday morning, and we’d have a quick layover in Charlotte that afternoon. Then, we would return to Detroit by early evening on Wednesday night. We’d be back in plenty of time for Thursday's very exciting dryer installation!
You can already imagine where this is going, I’m sure. On our way to the Cancun airport, I got a text alert that our flight from Charlotte to Detroit had been delayed. A major ice storm was hitting the Midwest, so we weren’t too surprised.
Annoying but no big deal. My mom had picked up the boys from my in-laws, and she was watching them at our house. But she had to leave Thursday. Brandon had to work that day, too. No problem, though. We’ll get home a little later. We’ll be tired, but we’ll be home.
We made it to Charlotte and explored the city a bit to kill time during our now seven-hour layover. Our flight was scheduled to take off at 10ish, so we settled in at the gate around 9pm. My phone dinged again just before the scheduled boarding time saying our flight was canceled. Canceled!
This time, we panicked a little. There was not a gate agent in sight. I called, texted, and messaged the airline. Wait times to connect to someone were hours long. Were we supposed to get a hotel and wait it out? Should we try to get on a different airline? Who pays if we do either of those?
Ding! Another text from the airline: we were rebooked on a morning flight. We were going to take it, and we started to look up hotels. Then, we noticed the date: the flight was on Friday morning, and it was currently Wednesday night. That was not going to work. We only had childcare scheduled for the rest of that night and needed to get home.
We left the airport to rent a car. We looked at the desk agent and said, “We’ll take whatever you have.” We rented the last available vehicle out of the Charlotte airport that night—a Kia Sorento—for $580 and drove the 10 hours home overnight.
That, in my mind, is a true emergency. We had to get home to our babies. We were willing to take whatever car we could get for whatever it cost to do so (Brandon did ask if a Tesla was available but he was denied). In that moment, I was so grateful to know that we could take whatever car they had—and we had a sufficient emergency fund to figure out how to pay for it.
More information here:
We’re (Finally) Broke! Why Being Worthless Feels Amazing
What Happens Now?
We took the next few months to replenish the money we grabbed from our emergency fund. Our cash flow is shockingly tight each month, so there wasn't a ton of extra savings to be had from each paycheck. Granted, a lot of the cash flow is also savings being allocated toward future expenses—we were setting aside funds for our older son’s preschool tuition payment that was due in July, and we were planning for recurring expenses like car insurance and our health insurance deductible. If we had to refill the emergency fund faster, we could pause on saving for some of those expenses for a bit.
Neither of these situations was terribly expensive, but they did drop our emergency fund by about 10%. Although my husband is much more relaxed about it, the idea of having an insufficient emergency fund worries me quite a bit.
I have much more experience with financial struggles than he does—I know what it’s like not to have enough money to pay the bills. The idea of running out of money and being unable to care for my kids completely freaks me out. Our experience of needing to rent a car (any car!) and drive home to our kids underscored the importance of an emergency fund for him, but we still disagree about how much money should be set aside for this. We’re usually on the same page with money matters, but not here. It'll be an ongoing conversation for us.
How do you handle your emergency savings? Do you keep separate pots of money for catastrophic situations, like a job loss, vs. the more expected “emergencies” like broken appliances and home repairs? Do you really have that recommended six months of savings set aside in cash? Comment below!
dude congrats on having an emergency fund! did the fact that in this emergency you only used 10% of your e-fund sort of help the scarcity mindset that you were describing formed during childhood? if not do you think it will ever ease?
It’s hard to describe how I felt when handing over my credit card to the car rental agency that night. There was such a sense of relief and comfort in knowing that we could afford whatever this car was going to cost in order to get home to our kids the next day.
Using our emergency fund is still a little stressful because we don’t have much month-to-month flexibility to allow us to fill the account back up. We’ve figured out a plan to build our savings again, so that’s definitely comforting.
Even within our strict budget, we’re able to maintain a great lifestyle. I’ve noticed lately that I don’t look at the price of things as much as I used to when growing up or even throughout my early career and my husband’s training years. This is especially true for necessary expenses–things like gas or diapers. We have to buy them and I go to the places where we have coupons or reward points. Beyond that, though, I just swipe my card and pay. Very different than my days of putting a few gallons of gas in my car at a time or scheduling different purchases throughout the month to make the money last, and I hope to never take it for granted.
I always feel bad when I pull up to the pump and see that exactly $10 or $20 (or worse $5) was put in by the last purchaser. Glad to not have to watch prices anymore. The price of almost everything I buy is now irrelevant. Dramatically different from my life 30 years ago. Even 10 years ago. One of the great blessings of developing a great financial plan and working it for a long time.
Our emergency fund is limited since until the US govt goes TU we’re getting most of our monthly income from them. (Garden, can opener, ammo, and acceptance of fate probably more important if that happens.) However I always have in cash or ready cash (including for bigger amounts CDs which I’ll pay penalty to cash in early prn) for upcoming expected costs. Right now that’s “car purchase $70K ? 1 month , est tax payment $7K? 1 mo, trips 2 mo $10K, Xmas $3K, car for kid $25K? 10 mo?, wedding kid $14K 1-6 years, house purchase kid $12K ?1-5 years.”* So I make sure there will be CDs adequate for that maturing about the right time/ have cash somewhere for the immediate stuff.
Sounds like you should convince spouse to have a ‘home updates’ allotment in monthly budget set aside somehow for likely repairs needed based on house and appliance age and similarly for your autos. This however may make emergency fund needs smaller? Haven’t sorted that one out yet, but it can be an accessory fund usable for emergencies prn ie job loss and truly needing 6 months expenses not just unexpected flights to a funeral/ need to rent a car in a snowstorm. And make an extra loan repayment every time those funds grow to 6 or 12 months plus without being needed.
*2 kids spread out and parity- plus inflation as older one points out- is crucial to me. At some point if this one never gets a house or marries I’ll gift her the amounts and tell her ‘don’t come ask for wedding or house money in future and claim we owe ya’. But now I even have a differential in my beneficiary stuff favoring the younger so spouse doesn’t shortchange her if I’m not around to dole that out.
There’s a podcast by Financial Residency called “Financial Vitals: How Much Should You Save For a Rainy Day,” which walks through factors to consider when deciding how many months of savings to build up. I loved it for its straightforward, pragmatic approach. For example, he has you think about all belongings with upkeep costs, the size of your household, the security of your income and ability to supplement that income in a pinch (as well as a number of other factors). As a whole, his process encourages an evidence-based approach to deciding on the size of your emergency fund.
Thanks for your post. You have a wholesome writing style.
Regarding emergency funds… I’ve never been a big fan. I mean, we had an emergency fund early on when income was tight. But after a while, I don’t understand why a high-income earner needs an emergency fund. The examples from the post don’t seem like real financial emergencies… they seem more like an unexpected expense. And for a high-income earner, those can be covered with normal cash-flow.
In my mind, once you get to the point that you are contributing to a taxable brokerage account, you probably don’t need an emergency fund. Worst case, you could cut back (or even withdraw) from the taxable account contributions to cover a financial emergency. What do you think? Do you plan to keep an emergency fund indefinitely?
I felt the same way for a while, and then the pandemic hit. There was the definite fear (maybe unnecessary?) of job loss in the face of that, even for medical professionals. I agree you should cash flow anything you can, but that’s tough to do if you have no cash flow! It also sounds like the author’s non-dedicated cash flow is extremely tight on a monthly basis.
Make sure you get money back from the airline for the part of the trip you didn’t use. If it is maintenance or something it’s easy. Even if it’s weather you should be entitled to refund since you couldn’t use what you paid for. I recently couldn’t use the first and last leg of a 4 flight trip. Initially they said tough luck. After a couple emails they finally gave me half my ticket value back as a credit for future travel for the two of us.
Oh my gosh! Let me tell you about that. I reached out to the airline requesting a refund for my and my husband’s unused flight along with reimbursement for the rental car and other travel expenses. (I figured the car and the other costs were a long shot, but wanted to ask anyway.) They offered me a $50 flight credit as compensation for my troubles. I was not impressed.
So, I had my husband contact the airline as well. He sent the same message as I did. They offered him a $100 refund for each of our flights along with $250 in flight credits for each of us–a total of $700 in compensation. Absolutely wild.
I’m glad you were persistent and got some of your money back. Were the flights unusable due to weather or rescheduling on their end?
Was weather. Still its amazing that when they say no you can call back and do better with someone else!
Hi!
I enjoyed your column and have enjoyed your writing.
Most of us have been in similar situations and have had to work through this conundrum. Do you pay off your debts ASAP, or do you keep some emergency funds available for unanticipated, and hence, emergency expenditures?
I can only suggest, and I do not presume to “should” on people, that it is kind of nice to have some funds available for emergencies. It makes life a lot less stressful if you have the money available for the furnace or the transmission for the car.
Right now, the Vanguard Federal Money Market Fund (VMFXX) is paying 5.25% interest. You stated that your student loan rate was 1.00%. So, if you contributed funds to an emergency fund to get to a certain level and then started paying back the student loan with, say, $20,000 in an emergency fund, you would not be losing ground.
Just sayin’. I once signed up for a 15 year fixed mortgage trying to lessen all of the interest that I would pay over time, but it proved too tight for cash flow to enjoy our early years with my family. I then refinanced to a 30 year but paid it off by age 50. So I understand both sides of the equation of wanting to be debt free and also having a decent cash flow (General Internal Medicine-a profession that I have loved).
Best of Luck! And enjoy those little ones in your lives!!!
Submitted for consideration, we haven’t used a dryer but rarely for more than 5 years. As soon as I read this MMM post, I thought, “Yeah, this device is unnecessary.” From Phoenix to Alabama, hang-drying clothes inside has worked perfectly well for us 99% of the time. Just thinking if you’re looking for financial efficiency, it’s not a lot of savings, but if you have to hang clothes up eventually anyways, it’s no extra hassle so why not? https://www.mrmoneymustache.com/2011/06/27/my-new-1000-annual-return-on-investment-clothes-dryer/
We put around half a million in cds and cash as emergency fund. We use the rest to buy index stock fund. Personally we need 2 yr’s expense before any investment. The true value of a large amount of cash is more psychological. We invested a lot during Covid and 2022-now bear. It gives us a peace of mind to invest very aggressively during hard time.
If cashflow is so tight, why not buy the $600 gas dryer from Home Depot? Or use a clothesline for a couple days?
“We took the next few months to replenish the money we grabbed from our emergency fund. Our cash flow is shockingly tight each month, so there wasn’t a ton of extra savings to be had from each paycheck.”
You mention total emergency expenditures of around $2000—getting that cheaper dryer would have made this emergency 50% less severe.
Lots of WCIers that talk about tight budgets are counting big 401(k) or other investing contributions. Their budgets aren’t actually that tight. A little bit gamey that way.