emergency fund/insurance deductable

[rusty@saving]

alright, i am trying to plan saving now that i have extra money. i know that in the emergency fund i am supposed to have 3 months of expenses(rent, utilities, payments). but what about my $500 insurance deductable? i don't wnat to live in fear that something will happen, but that $500 deductable is a killer if it is needed. obviuosly, i am grateful that i have insurance, and things could be worse without insurance, ect ect, but should i put that $500 in the emergency fund or were?

[Bookie]

Sounds reasonable to me.

Don't get too hung up on the bookkeeping. An emergency fund is simply a designated resource, a sum to which you have immediate access in times of need. Depending on your other resources, you may or may not need to use emergency funds to cover an insurance deductable, but there's usually not the urgency of a plumbing repair, say.

I keep three separate savings accounts -- emergency fund (locally), short-term for things like annual and semi-annual bills (also local) and long-term (on line). It works for me, but there's nothing special about the arrangement.

Find what works for you and go for it.

[Ima saver]

I like having an emergency fund of at least 6 months. I also keep a seperate fund for the once or twice a year expenses, like my 4 car insurances, house insurance and property tax.

[rusty@saving]

oh crud!!! i forgot to add in my car insurance.....
back to the drawing board

[Mathew Green]

Originally Posted by rusty@saving

i know that in the emergency fund i am supposed to have 3 months of expenses(rent, utilities, payments). but what about my $500 insurance deductable? i don't wnat to live in fear that something will happen, but that $500 deductable is a killer if it is needed.

The Emergency Fund is to cover the cost of emergencies. IMO that includes insurance deductibles, broken furnaces, unexpected car repairs, and whatever else isn't predictable enough to be included in your regular budgeting plans.

The E-fund is normally expressed as X months of living expense because (1) being laid off cuts off your income, (2) you need cash to pay your bills till you can get a new job, and (3) three to six months of living expenses is usually enough money to cover any other type of emergency as long as you're still working. There's nothing magical about the numbers. It's just an easy way to set a goal. When you really need it, your emergency fund will almost certainly be way more than you need or no where near enough. That's the nature of big unplanned expenses.

But to answer your specific question: Unless it would take you more than 2 or 3 months to put that $500 back into your emergancy fund from regular income, I wouldn't be concerned about it. Temporarily absorbing big hits like that so you won't have to borow money is one of the main reasons people have an emergency fund.

[Mathew Green]

Originally Posted by rusty@saving

oh crud!!! i forgot to add in my car insurance.....
back to the drawing board

FWIW, I think of my unspent money in terms of several categories:

Intentionally Over-Budgeted: This is money I include in my budget every month even though I rarely spend the full amount. The primary things that fall into this category are electricity, gas (heating), and lately gas (car). I budget each of those at the highest amount I've paid in the last 24 months, because their monthly cost can vary widely and unexpectedly. At the end of the month, all unspent money gets swept into my savings/investment/debt accounts. So, this is in essense a very short-term emergency fund that covers any wild variation in monthly expense.

Budgeted Average Expenses: These are reasonable predictable expenses that vary month to month or happen only a few times a year. Annual or twice-yearly insurance payments are an example, normal car maintainence, water (higher in summer, lower in winter), and so on. By budgeting the average amount every month and carrying the surplus/deficit forward each month, I end up breaking even at least once or twice a year.

Slush Fund: Now we're getting into 'real', as opposed to 'allocated' money. Any cash I have on hand and any unspent money in my checking account that isn't earmarked for a specific purpose is part of the slush fund. I call it that because it's very fluid and variable. My only rule for the slush fund is that my checking balance can't drop below $200 or rise above $1200. The $200 minimum covers unexpected minor expenses (it's a mini-emergency-fund) and anything more than $1200 needs to be used for savings/investment/debt (IOW either earning money or reducing interest expense). Your figures would be different based on your income, normal paycheck-to-paycheck expenses, availability of CC credit to cover minor emergencies, etc.

Emergency Fund Savings Account: This is my 'emergency fund' in the classic sense. Including debt-reduction payments, my average monthly expenses are ~$1500 (~$690 per bi-weekly paycheck), so I try to keep $1200-1500 in the savings account to cover emergencies or the gap between being laid off and unemployment checks starting. If I'm feeling nervous about my current job or something else, I'll increase it to $2000-3000 till the potential crisis has passed. The key is that this money is earning interest, could be transfered to my checking account within one week, and is not part of my Slush Fund.

Planned Expense Savings Account: Just what it says. This is where I keep money I've budgeted for future/average expenses during the next 6 to12 months but have moved out of my checking account to keep the Slush Fund from getting too big. When the Slush Fund is projected to drop below $200 for more than a few days, I transfer some of this money back to the checking account to cover the difference. While I consider this money seperate from my Emergency Fund, it's all in a single Savings account and the whole thing could be tapped in a single transaction if I needed to.

Retirement Investment Account (Roth IRA): This is where most of my investment dollars go unless I've already fully funded it (which very rarely happens). I consider this my "!!!Holy Batsh-t!!! Emergency Fund" because the money I've contributed to it can be withdrawn with no tax or penalty if I need it, but it would take a while for the transfer to happen and I would only take money out of it in a dire financial emergency. I'm in my mid 50's, so I place a much higher priority on funding this account than someone younger would.

Future Expense Savings/Investment Account(s): This is a combination of money in my investment account and money in my savings account (waiting to be transfered when it reaches a certain amount). It's earmarked for expenses that will occur more than 6 to 12 months from now. It also serves as a backup super-emergency fund so I (hopefully) will never have to tap my tap my IRA till I retire. The money in this account is for expenses which may be known, unknown, hoped-for, or feared, but none of them are due short term. Since the money isn't needed short term, I'm able to invest almost all of it in the stock market and thereby get a higher return than the interest I'm paying on my debts (when that condition isn't true, I cash out and use the money to reduce my debts faster.) This account rarely has more than $1000-$3000 in it because I've put a higher priority on funding my retirement account and paying off debt.

So there you have my system. YMMV.

1) Known current expenses for this month get top priority.
2) Average-Budgeted and Over-Budgeted expenses get second priority.
3) Slush Fund gets third priority.
4) Emergency Fund portion of my savings account gets fourth priority.
5) Planned Expense portion of my savings account gets fifth priority.
6) Retirement Investment Account (Roth) gets sixth priority.
7) Future Expense Savings/Investment Account(s) get a variable priority based on my anticipated needs and how far away they are, but only gets money after the other 6 accounts have all received their alloted monthly contributions.

[JoyJoy]

After going through a surprised Columbus Day snowstorm of 22 inches where trees are uprooted and power is still out for some 200,000 customers in Western NY, I would think an emergency fund would be useful!! Scores of people are trying to buy generators and chain saws. Food is spoiling in refrigerators. Some people will not have power until Sunday, Oct., 22. It looks like a war zone here.

School taxes are due tomorrow and the town clerk's office has made an announcement over the radio that they do expect taxes to be paid tomorrow or for one to get to the post office and have the date of Oct. 16 stamped on the envelope so the taxpayer will not receive a penalty.

Faced with paying one's insurance deductible to get a tree off of one's roof, etc., along with other emergencies, that extra money you save in an EF would be welcomed by you for sure! Fema may step in and help but we have to be declared a disaster area first. Hillary Clinton says that Fema will be here in two days and for one to save all their storm related receipts. This type of repayment is going to be welcomed for sure! Hillary said it's not the old Fema either that "took care" of the Katrina victims.

My advice is to prepare for war in the time of peace by definitely having an emergency fund of atleast 1K in addition to your deductibles (house and car).

[Ima saver]

Sorry to hear that Joy, Joy. wow, Mathew, you really have this all thought out. But I guess when doing my bills, I do them with a priority in mind. My dh does not make the same every week, so things like christmas club, medical expense, are at the bottom of my list. I also think it is important to keep cash in the house for emergencies.

[JoyJoy]

Thanks Ima. Disasters happen and it was our turn this year! We're still a lot better off than Katrina in that we have our homes.

I agree with you about keeping money in the house for emergencies. ATM's aren't working with no electricity!

[Mathew Green]

Originally Posted by JoyJoy

My advice is to prepare for war in the time of peace....

Very True. But as I've often said, "The warnings are not heard. If Heard, they are not believed. If believed, they a not thought to apply to the believer."

A provident person would always have a supply of toilet paper, food that doesn't require refridgeration and can be fixed without electricity (You're SOL if your house is total electric), voltive candles (good long-lasting ones are available cheap at church-supply stores and unglamourous hardware stores), Drinking water for at least a few days, half a tank of gas in the car (you can't buy gas if the power is out at the gas station), and so on. But I'd bet not one household out of a hundred actually has the essentials to survive being stuck at home without electricity for two weeks, let alone a month.

[Elgin526]

When it comes to EF's , my mantra is "Keep it simple, stupid!"

An EF is an EF, no matter how much or how little is in there. 3 to 6 months is just a long term goal. Anything from $1 to six months expenses is an emergency fund as long as it is set aside and only used for unexpected expenses or reductions in income.

Now, a good short term goal can be whatever helps you sleep at night. Some people shoot for a dollar amount ($1000 is popular, but I feel more comfortable with $2000, some feel okay with $500, others feel that while they are paying down debt, it should be $0 because all available funds should go to debt reduction). Others want specific amounts for specific reasons, like their car insurance deductable.

Whatever makes sense to YOU is what you should do for your short term EF, as long as your ultimate goal is to have 3 to 6 months EF and you keep working towards that by paying down debt and/or putting money into savings.

[JoyJoy]

Originally Posted by Mathew Green

, "I'd bet not one household out of a hundred actually has the essentials to survive being stuck at home without electricity for two weeks, let alone a month.

You're correct! According to the people calling in on the radio station, they were ill-prepared for this type of emergency. People are running out now getting generators and chain saws like mad. Some are not versed on generators and an elderly couple has reportedly lost their lives by having a generator hooked up in their hallway. Hundreds have been seen in the hospital for carbon monoxide maladies.

Stocking up on the things you mentioned would have been a big help to many.

We had the water (we stockpile it), plenty of pantry items and a non-electric can opener! We had candles like the ones you mentioned.

We are one of the ones who have all electric appliances though we do have a fireplace that is heated by gas and saved the day for us! It was really one of those times when hubby and I enjoyed the time alone (smile).

The first thing hubby did when we got our power on was to make an emergency list for the house and for car trips!

Thanks for sharing.

[Elgin526]

Originally Posted by JoyJoy

You're correct! According to the people calling in on the radio station, they were ill-prepared for this type of emergency. People are running out now getting generators and chain saws like mad. Some are not versed on generators and an elderly couple has reportedly lost their lives by having a generator hooked up in their hallway. Hundreds have been seen in the hospital for carbon monoxide maladies.

Stocking up on the things you mentioned would have been a big help to many.

We had the water (we stockpile it), plenty of pantry items and a non-electric can opener! We had candles like the ones you mentioned.

We are one of the ones who have all electric appliances though we do have a fireplace that is heated by gas and saved the day for us! It was really one of those times when hubby and I enjoyed the time alone (smile).

The first thing hubby did when we got our power on was to make an emergency list for the house and for car trips!

Thanks for sharing.

That's sad about the elderly couple! This is why it is so important to read directions for things like generators, you could hurt or even kill yourself and your family!

DH and I have plenty of food, and DH has a generator that can run off his truck, so we'd be okay until his gas tank ran out. We have enough non-perashable food to last about a month if we were carefull. It would be a lot of broth and rice, but we'd be okay. My only concern would be for DH's medication, he can't stock up. That and in winter we have no way to heat the house, we don't have a fireplace.

But this is a good reminder to stock up, we don't have much in the way of candles and some more flashlights and batteries never hurt anyone. And without a fireplace we should get a generator (in addition to the one that runs off the truck) and a space heater for winter.

[greedy4chips]

For one of my classes we have to do a Personal Disaster Recovery Plan in the case of a catostrope. This is just practice for us since many companies have extensive plans in place as a result of 9/11.

Is it realistic to plan for the worst and fill your house with all the necessary items to last for a day, week, month, or longer. What disasters do you plan for? Nuclear holocaust, Katrina, mamoth meteor, etc are too extensive for a realistic supply of items to get you thru completely.

My limit is a tornado or winter storm cutting power...not much else can affect us in central Wisconsin that wouldn't completely wipe us out. Do I have a generator? No. Perhaps I should.

Isn't it amazing when you do lose power and have to do without electricity how many chores you can get done and socializing you can do.

[JoyJoy]

Originally Posted by Elgin526

. My only concern would be for DH's medication, he can't stock up. That and in winter we have no way to heat the house, we don't have a fireplace.

But this is a good reminder to stock up, we don't have much in the way of candles and some more flashlights and batteries never hurt anyone. And without a fireplace we should get a generator (in addition to the one that runs off the truck) and a space heater for winter.

Make sure your husband keeps an empty bottle of each of his meds so the pharmacist can get the correct name and dosage off of it. They just won't take your word for it with no computer operating. I had called in my insulin and another medication before the day of the storm and couldn't pick it up because the storm came that evening and power was out in the entire community. After the 3rd day of no power, the pharmacy posted a note to go to another Eckherd Pharmacy to pick up my medicine but to be SURE to bring the proof of the dosage that I was taking. One could call an emergency number or 911 in case of med emergency for meds. Had to be a real emergency not for just an aspirin.

Now is a time to take stock of what you do have in case of an emergency.

[JanH]

We have lived through an ice storm--week without power--and a hurricane. I have stuff stocked up. But I get complacent even after all this. I think I should have a review every month or so to see what I need to replace/do to keep in shape for the next time.

[boefixepa]

This is why I make 'emergency prepardness' part of my everyday life. I don't believe I am an alramist and I do it step by step...I don't have a generator or anything like that. But I know that there are more things out there...more possibilities...than we can think of. I want to be able to know I can take care of me and mine. I know I'm sure to forget something...but having something is better than having nothing in an emergency.

[JoyJoy]

Originally Posted by greedy4chips

Isn't it amazing when you do lose power and have to do without electricity how many chores you can get done and socializing you can do.

Yes it is amazing and what's amazing yet is the number of births that will take place in 9 months from this power outage here in NY!