Yes, You Need an Emergency Fund

From the very beginning of this blog, I’ve stated an emergency fund is critical in life. It’s also certainly not just me: Dave Ramsey preaches it; every financial advisor advocates for it. The very first step in my being able to quit my job was having an emergency fund. I’ve mentioned it repeatedly in past blog posts, so why bring it up again?

Because I just had to spend nearly all of mine.

It’s one thing to have an emergency fund — that cash set aside in case life intervenes — and sleeping easy at night knowing you’re prepared for what might come the next day. It’s another thing to watch it drain out over the course of a few weeks. Over the past six months, I had bulked my emergency fund up to cover six full months of expenses in case something happened to my wife’s job or my business. There was no need to panic, it was just good financial sense.

So what happened?

In early March, I had a simple medical procedure done as a prevention measure. My mother was diagnosed with cancer in her mid-40s, so me in my late 30s have been pressured by my doctor to have some preventative testing done. As it turns out, the procedure is not covered by my insurance (because they deem me “too young” to have the testing done — even though it could save them millions in the future). Bill #1 was over $1,340.

This year was my first year of paying quarterly taxes. When you own your own business and you’re not on a payroll, it’s common practice (and the IRS can issue penalties if you don’t) to do a mini-tax return every 3 months and mail in your own withholding. So April 2021 was my first quarter 2021 taxes (January – March). Fine, I was prepared for that. What I wasn’t so prepared for was my CPA discovered my previous 2019 tax return wasn’t filed properly by my former CPA, and there was significant back taxes and interest owed because of it. Bill #2 was $8,100.

This month 2020 taxes were due. The number was slightly higher than anticipated, and my tax savings account decimated by the 2019 taxes, so I had to pull from my emergency fund to cover the shortfall. Bill #3 was $2,200.

Three tax hits in a row and a medical bill. I had gone four rounds with Murphy’s Law and could get back up. But Murphy wasn’t done.

Last week not one, but two major appliances in my house went. My LG refrigerator (do not ever buy a LG fridge) had the compressor go and has slowly been getting warmer and ruining the food in the freezer and fridge. My washing machine had its motor burn out. Bill #4 and #5 were $2,400.

That’s over $14,000 in 60 days that had to be covered. Imagine if I hadn’t had an emergency fund to draw from? Or if I hadn’t decided to beef up to 6 months of expenses saved — it would have been life altering. I would have had to go into debt to cover the medical costs and appliances, making payments and paying interest. Even worse, the IRS does not take credit card. Taxes must be paid in cash. If I hadn’t had the emergency savings to pay all the taxes, the IRS would have set up an installment plan — with more penalties and fees — and I’d have to pay them back monthly for years.

This is why you need, NEED, NEED, NEED an emergency fund.

So my six months of expenses is exhausted. What now? The process restarts. I will set aside money to ‘regrow’ the emergency fund. Life always regroups and will come around again. You can keep Murphy at bay, but he’s never truly gone. I will set aside what I can each month to rebuild, and given the extent of these past two months, I have resolved to save beyond six months expenses. Maybe a year this time?

If you plan to quit your job and build your life, you can’t do it without an emergency fund. If you have an emergency fund, let this post inspire you to add a little extra to it! Life strikes randomly. Things happen. We can’t plan for everything or know everything, but we can do is be prepared.

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