My e-fund currently stands at a grand total of -- wait for it -- $51, after an automatic end-of-the month transfer from checking to savings.
Yup, that'll get me through anything!
Meanwhile, I've been directing massive amounts of incoming cash at my student loan, because I was/am bound and determined to get it paid off by the end of this contract, almost a year to the day after I defended my dissertation. I could easily fund a $1000 e-fund at the end of this month (or could have done it anytime in the last few months) by simply delaying debt repayment, and since interest on the student loan is now down to about $13 a month, I don't know, maybe I should do that. Damn it, that's $13 that could go somewhere else, though, like, say, to an e-fund, so....
Here's my reasoning:
1) My e-fund-like efforts in the past have always disappeared quickly; I'd get them built up to a few thousand dollars and then either be unemployed for a while (I was a freelancer) or spend the money on a few trips or credit card payments after I ate out too much or bought new clothes or whatever. I am committed to budgeting more responsibly now that I am, oh my God, 35, and not 22 (not that I should have been doing that when I was 22, but water under the bridge) but I'm still worried that if I put together an e-fund I'd be tempted to dip into it for less than emergency expenses, and meanwhile the remainder of the debt would still be sitting there. If I kill the debt first, however, it's killed.
2) I'm single and have no children or, for that matter, pets. That is, other living beings are not relying on my steady income (and a good thing too.) So, if a serious, big-time emergency strikes (I get hit by a bus) I at least won't be putting anyone else in danger.
3) Meanwhile, for a minor emergency, I have an ungodly amount of unused credit -- over $30,000 available on the four major credit cards that I have open.
3.5) Also, since I don't own a house, the number of minor emergencies that could come up are reduced (no random exploding boilers or whatever.) Pretty much it comes down to unexpected car repairs and unexpected medical bills.
4) I could also call on my parents -- I would never do that for anything less than a true, serious emergency, and I wouldn't be likely to at all. Like, say I needed a plane ticket for a funeral: I'd rather put it on the credit card and pay it back in pieces. If I do end up asking my parents for help, it's more likely to be in the form of free housing, should my tenuous hold on an academic career finally slip away. However, at the end of the day, I could ask them for an interest-free loan and get it, if I really needed it for some reason.
5) There is basically no chance I'll randomly lose my job during this coming year. I have a guarantee of 13 months of income, so while I do want to guard against being unemployed in the future, I don't need to worry about it in the imminent way I might if I worked in a normal job.
So the upshot is that I'm afraid of my own past bad habits and I'm not that afraid of handling emergencies with the non-cash resources I do have. I want that debt gone though -- because one thing I really am afraid of is potentially entering a period of unemployment (13 months from now) while still in debt.
All that said, I do think I should have a bigger e-fund. I'd like to aim for $1000 to start, then maybe gradually ramp it up to $3000. But I don't think I'm going to make it a priority over other savings goals. I couldn't possibly get it large enough to really live off for six months or a year, so there doesn't seem much point in having a relatively huge one when instead I could be directing money towards other priorities. I'll talk more about this in July when I have a better sense of what exactly I'm going to make every month, though. Until I get my first paycheck I only have a ballpark idea of what it'll look like after taxes, insurance, retirement contributions, etc.
What are your thoughts on e-funds? I know most people are making it more of a priority than me so I'm afraid I'm overlooking something.
My situation is a lot different than yours but I did need to dip into my efund recently. When will your student loan be fully paid and you can start building it again? If it's soon, then stay the course. If it's more than 3 months, put 50% to debt and 50% to efund until it is at 1K or whatever your target is. That would be my recommendation.
ReplyDeleteThat's helpful! I appreciate hearing other people's thoughts, even from different situations. And luckily, I only have a month left on the student loan. I was planning to start ramping up the e-fund contributions after that, although I'll still have a credit card to pay down.
DeleteI really like your blog, by the way. Thanks for commenting over here.
Hi,
ReplyDeleteI think because you are about a month away from paying off your student loan you can put off contributing to an EF. But honestly DO NOT look at your $30,000 of unused credit as an option. You just got out of debt, why would you want to go back? But I do see your dilemma of not being able to leave the EF alone. This month I justified the fact my favourite clothing store is closing to go on a $260 sopping spree that I deemed an emergency. Give me a break! I am going to pay it out of my debt repayment money to teach me a lesson for being so stupid. I think 3 months worth is the minimum, 6 months worth is ideal and 12 months would be overkill. But imagine the peace of mind it brings. As a woman, I am learning that having control of my finances is not only smart it is empowering and with it comes a great sense of independence. Have an EF, you NEVER know what the future brings, it's nice to be prepared.
LOL about the clothing store. That's exactly the kind of thing I would do, and why I'm so worried about putting lots of money in an e-fund. Also, while I'm in my next job (substantially lower salary than current one), I simply wouldn't be able to build up an e-fund to six months' worth. Not while also saving for housing, car expenses, retirement, etc. So the inevitability of failure makes me inclined to just set a much lower goal. Argh, I don't know, I guess I'm more worried about it than I thought I was....
DeleteThanks for the comment! And I totally agree with you about the empowerment of getting control over our money. I always had *some* kind of control, which kept me from getting even deeper in debt than I did, but it was a constant scramble and I'm really glad to be finally in a mental place where I'm consciously taking the reins.
I see your situation quite differently than you would. If I was single I'd want an even larger emergency fund than if I was in a relationship where finances were mingled, because there is no one else to rely on. So while you say that is a positive that no one else relies on you, it also removes part of that security of a dual-income.
ReplyDeleteIt might also be because I am huge worry wart, but I definitely couldn't do what you're doing :) But get that student loan paid off and then drop a huge chunk in a savings account the month after.
Yes, that is definitely true about the singleness -- I guess part of my emotional "calculations" here is that I know I can rely on my family and friends if I really need to. My monthly expenses are also really, really, really low if they need to be; with no mortgage, no car payment, and, soon, no student loan payment, I can cut it back to virtually nothing.
DeleteBUT that said...I obviously need an e-fund. It's more a question of whether I prioritize that over other savings goals (like a housing fund.) In a sense it's a little academic because I could always pull money out of my housing fund in an emergency!
(By the way, before I started this blog, back in January when I didn't have any guaranteed employment coming up, I was putting big chunks of money in savings instead of towards the loan. But then when I got a new job I used most of that to make a big loan payment and to open a retirement account; hence the $50 e-fund. So I'm not quite as blithe as I may look!)
I am prioritizing now my efund. It's just that we learned a lot from not saving anything for emergency before. My family and I went through a lot of difficulties about money. So as years passed by, and we were able to solve all of it, we started now saving for efund.
ReplyDeleteYeah, it's really tough not to have savings. I made it through a lot of years without a steady savings plan but I'm definitely ready to stop doing that.
DeleteHi, I recently wrote a post about my emergency fund as mine is too big - a good problem to have admittedly! My conclusion was to not only aim for a smaller target amount but to better define what an emergency actually is. Like the comments above, I also concluded that bargain sales didn't constitute an emergency. Though perhaps I should consider making an opportunity fund for such events.
ReplyDeleteBest wishes for building up your savings!
Yeah, knowing what counts as an emergency seems like a big part of having an EF. (And congrats on having one that's too big -- you're right, good problem to have!)Thanks for the best wishes and the comment!
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