More about Emergency Savings

We've all been through some tough times lately, or know well someone who has. Emergency savings seem to be more of a luxury than ever, but in reality, they are more of a necessity than ever.

We talked about getting your first emergency savings account started last year: Your Karma $1,000

Recap: 1) Saving $1,000 makes you less vulnerable to small attacks on your income. 2) More savings leads to mo' bettah Karma 3) Make saving the money as transparent as possible...if you never see it in your checking account you won't miss it as much.

According to this article published by CNNMoney, 28% of American households have no emergency savings at all. Zilch, bupkis, nada, niente. More Emergency Savings Needed!

Nobody is telling us that saving money is easy. It's not. It can be made less painless, though. The easiest way to do this is to have a portion of your paycheck directly deposited into a savings account. Talk to your HR department and have them set this up for you. It's their job, you are not asking for any favors.

Another helpful exercise is to ask yourself what would happen if you had an emergency expense happen right now. Let's not even get so severe as to talk about a job loss. What would happen if you had to replace a major home appliance right now? Try to find a refrigerator that meets your aesthetic and functional requirements for less than $1,200. If you put that on a credit card with a 24% interest rate and paid it off over a year, that's about $115 extra out of your budget per month.

What would happen if you had to replace a car? Insurance helps, but most reasonably priced policies only cover the replacement value of your car. And after the trauma of an accident, don't you deserve a little shiny and some more safety features?

OK, we do need to address job loss. This is America and we're in a recession. Most planners recommend at least three months worth of living expenses as an emergency savings fund. It may help to keep in mind that "living expenses" and "salary replacement" are two separate things. If you are not earning a salary, you're not paying taxes or making retirement fund deposits, which should make you feel a little better, no? However, if you are not earning a salary, then you are not having things like health insurance paid for, so that needs to be taken into account. When calculating living expenses, keep the following in mind:

• Rent or house payment
• Debt obligations such as student loan and car loan payments
• Credit card minimum payments
• Utilities and transportation costs
• Insurance payments - home/renters, auto, health
• Groceries and eating out. You don't have to totally hibernate while you're unemployed.

How many months' of expenses do you really need? As with all financial planning questions, the answer is "It Depends." Are you planning for just one person or for a multi-income household? Do you have other sources of income that you can tap into during hard times? Is your pay dependent on commissions or other irregular cash flows? Have there been layoffs in your industry or at your company? How long do you think it will take you to find another job? Take all of these factors into account, but don't go overboard. You don't want to neglect saving for retirement so that you can have a year's worth of living expenses in a low-interest rate savings account. Keep a balanced perspective here. 

It's a scary topic for scary times. Although it isn't much fun to anticipate hard times, it is better to talk about building an emergency fund now, before you need it, rather than to wait until the need is imminent. 

Moving Unknowns, both Known and Unknown

My husband and I are in the process of moving. We’ve been in an apartment in Tuscaloosa for almost two years but we found a really terrific house, so we bought it. And we are in the process of moving. This will be, I think, my 19^th mailing address, and hopefully one of the last.

This is the third house I’ve bought, so I should know the ropes by now, right? Not so fast, my friend. We knew that there would be some expenses. Got to pay the movers, we want to upgrade some furniture, got to have shelf paper and stuff. Still, there have been some unanticipated expenses. So, for the edification of future homebuyers, I will start a list of Unknowns.

Mailbox We should have seen this one coming. Our new neighborhood is an older one, with homes dating back to the 1930’s. I never noticed before, but some of them have curbside mailboxes while others have the type that connects directly to the house. You know, the more convenient type. Well, it seems that the U.S. Post Office has determined that all new residents of the community will have curbside post delivery. This means us. The very cool folks we bought our house from had lived there for over fifteen years, so were evidently grandfathered into the handy variety of mailbox. With us, not so much.

Funny thing about a mailbox – you get to pay for it (and its installation and maintenance), but the space inside of it belongs to the U.S. Post Office. They are rather particular about things, too. The post must be sunk so deep into the ground. The opening for the mail box must be at just exactly a certain level, for their convenience. And the innards of your mail box may not be used for anything except U.S. Mail. Them’s the rules, as they say.

This is not cheap. The most cost effective mailbox at Home Depot will set you back about $15. The post itself runs about $40. There is also a gizmo called a post anchor that runs another $35 or so. Also, one must prepare the ground and set the post anchor before the post can be installed and the mailbox attached. If you want your address and/or name in cheesy lettering, expect to pay $1.25 per number or letter. So $95 or so in materials and an unknown investment in labor and possible medical/chiropractic care. Or you can subcontract the whole thing out to your local iron monger and get something nice, stylish, and professionally installed for $200. We are still in the evaluation process.

Water setup and deposit We will be dealing with a new water company in the new house. Never mind that we have been ideal customers, paying on a timely basis and not causing any troubles. Our new water provider is unimpressed, so we have had to pay a $75 deposit and $25 setup fee so that they can send us our bills. I hope we have a functioning mailbox by the time the first bill arrives.

The one I hate to complain about.  An F4 tornado swept through our community at 5pm the evening before our scheduled close. More than forty people lost their lives. Thousands lost their homes. We had to do without cable for maybe 36 hours. So this is not a complaint. It is merely an Unknown. Our lender required a drive-by appraisal after the storm to verify that our new house had not been destroyed. Our bill $100. I am very happy to pay this.

That’s about it so far. I’m sure there will be more. And should I classify the fact that I suddenly want a stainless steel kitchen trash can to match my spiffy new stainless appliances as an Unknown? Or should I just try to bury it in the budget?