“How we looking, Don?”

“Well, I can’t pass your inspection unfortunately, because I can’t get the ‘check engine’ light to go off.  It’s reading a transmission malfunction code, which you also saw indication of when the light flashed around the D symbol on your gear shift indicator.”

“So, how do we get this taken care of?”

[sighs] “Having driven it around, I can tell the transmission is on it’s way out, and it will be unsafe to drive soon.”

[me, eyes wide] “So I need to replace the transmission?!”

“It’s looking that way.”

There I stood in the mechanic’s office, facing a $3200 repair on a used car that we had purchased less than one year prior.  I was starting to freak out a bit.

“OK Don, let me talk to my wife.”

I stepped outside and called Nancy, utterly frustrated at the situation.  Exasperated, I relayed the information as best I could, and she [with surprising calm] said, “Well, we’re not buying a new car, so I guess we’ll fix it.”

“Gosh, it’s just so frustrating!” I replied.

“I know, but this is why we have an emergency fund, right?  This is exactly what it’s for, unexpected emergencies.”

She was right, again.  I’m just so cheap that I was having trouble with the idea of spending over $3000 on anything, but this is exactly why we had an emergency fund.  It’s not fun to deal with emergencies, but at least we weren’t going into debt to deal with it.  We had cash sitting in an account for this purpose, so we fixed the car, and it’s run great to this day!

If there’s anything I’ve learned in the last 8 years on my own, it’s that life is going to throw things at you that you didn’t plan and weren’t expecting, probably at the worst time.  Time and again, I’ve seen the value of having an emergency fund of at least three months of expenses.  Our emergency fund has proved it’s value over and over again, by covering expenses we didn’t expect but were fortunate enough to plan for, even though we didn’t know what they would be.

You might recall that I nearly burnt down my family’s vacation home.  In short, everything was ultimately okay (and the home got new paint and a deep clean it needed), but we had to pay the insurance deductible to have the work completed on the home.  Definitely wasn’t planning on that.

When the HVAC tech came out this year, he re-charged our coolant but also found two control panels in the attic that had gone out.  $800 later, we’re all set.

I found water on the floor by our hot water heater a few months ago.  Thankfully, it still operates fine, but needed a few parts replaced.  $500 in parts and labor, no problem.

An emergency fund keeps these personal/medical/home/transportation crises from becoming financial crises, as well.  If we didn’t have an emergency fund when the transmission went out, we would have had a financial crisis on top of our transportation crisis.  Dave Ramsey brilliantly said, “An emergency fund turns a crisis into an inconvenience.”

Many people think that an emergency fund only exists in case of a job loss, because it’s “measured” in terms of your monthly expenses.  No, you can use the emergency fund for any “emergency” expense (including keeping afloat during a job loss), but we discuss it’s size in terms of monthly expenses just as a way to help gauge the size of what it should be for you.

If you’re a student with $1200 in monthly expenses, you don’t really need a $30,000 emergency fund.  But if you have $5500 in monthly expenses, a $30,000 emergency fund wouldn’t be out of line.  Larger monthly expenses generally indicates you have greater exposure to additional emergencies, and more contingencies to consider.

We could share stories forever about the times we had unexpected expenses.  You can see from our personal experience, and you know from yours, the importance of it!  So jump on it!  Start this month, put something away, and don’t touch it except for extreme emergencies!

Question: When have you seen the value of an emergency fund in your own life, or when do you wish you would have had an emergency fund?