When you’re first starting to get your financial house in order setting up an emergency fund is considered a necessity. Pick up any personal finance book or scan the numerous PF blogs on the subject and you will quickly find that an emergency fund is considered a fundamental part of any sound financial plan. What isn’t agreed upon is how much you should have tucked away for the inevitable rainy day. Deciding how much money your emergency fund should hold is dependent upon your personal situation. A single person may need far less than a family of four and an expensive lifestyle will likely need more than a frugal one. Determining the amount is not what this post is about, instead the focus will be on how to make the money in your emergency fund last as long as possible regardless of the amount you decide to allocate to it.
Now that you have three months or even three years of living expenses squirreled away for a rainy day let’s look at how you can get the most out of those funds.
Tip Number One: Reduce expenses
This one is especially important if you are anticipating a job loss or would like to find a new job and need a little time off to focus your efforts. It does require a little pre-planning though as deciding to pare down living expenses after a job loss, while helpful, makes an already stressful situation even more so. If you gradually reduce your living expenses over time then you will be much more prepared to handle whatever financial emergency that comes your way. Overall having a lower monthly expense total means a smaller emergency fund will be needed.
Tip Number Two: Have A Plan B
Things inevitably go awry in life, that much is certain, but it doesn’t mean your best laid financial plans have to go out the window with the first unexpected event to arrive. Planning for the unexpected makes it, well, less unexpected and allows you to make decisions that are in your best interest, not ones made in the heat of the moment. Take a few minutes to think about things that could go wrong in your life that would require an outlay of cash and then think of responses to those scenarios that would reduce or eliminate those expenses. Having a back up plan is never a bad idea.
Tip Number Three: Develop A Healthy Lifestyle
Developing a healthy lifestyle is a prerequisite for getting the most out of life. Our bodies are made for movement and require it to function efficiently. Besides the quality of life issues that come with living a healthy lifestyle the monetary savings can be substantial over a lifetime. Something as simple as the common cold leads to missed work days, expense of visiting a doctor, OTC meds as well as prescription costs. A healthy immune system as a result of a healthy lifestyle doesn’t insure that you will never get ill, but it will certainly reduce the frequency of such events. How much did your family spend on health related expenses last year? Did it put a strain on your families budget? Do you see any means of improvement? Planning a healthy lifestyle can limit the overall healthcare expenses you will incur over the year as well as limiting the damage done to the emergency fund when you need to access it for healthcare expenses.
Tip Number Four: Proper Maintenance
If you own a home, vehicle, or any other item that gets frequent use then creating a maintenance schedule is imperative. Be honest, do you change the air filters in your homes heating/ac blower? Drain the hot water heater at proper intervals? Rotate the tires on your vehicle? These are a few examples of how creating a routine maintenance schedule on the items you own can dramatically increase the life-cycle of such items and limit the frequency you would need to draw money from your emergency fund to pay for such unexpected expenses. It’s worth the time even if you do find it unbearably boring.
Tip Number Five: Become a DIY Dynamo
This is probably my favorite tip of all, but only because I have recently become an aspiring DIY aficionado myself. Leaking faucet? No problem. Clogged drain? Let me at it. Hot water heater needs replaced? (Yawn) Got it covered. Less than a year ago these are things I may have thought I could do, but ultimately would’ve called someone to come and do it for me and paid a premium for the service. Learning a few “hard” skills can save you a lot of money over a lifetime in both simple and complex repairs. It also provides great peace of mind.
This past winter was a cold one for most people and it was no different here at The Stoic’s abode. I remember one night curled up under a soft blanket reading a book and enjoying some hot chocolate, with marshmallows of course, that was particularly worrisome. Freezing rain had been falling most of the evening and you could hear the cracking of limbs as the weight of the ice forming on the branches slowly stressed the strength of the many trees surrounding my home. For a moment I was a little worried, “What am I going to do if one of these limbs break off and come crashing through my roof??!!” At that moment, with my mug of hot chocolate in hand, a smile crept over my momentarily worried brow as I thought to myself, “You’ll fix it, that’s what you’ll do! You are The Stoic Investor, a man with mad DIY skills and an arsenal of tools.” I knew I could put my winter garb on, grab a ladder and chain saw, cut the branch down, use some plywood I have out back to do a patch, and place a tarp over it until I could contact the insurance company the following morning to file a claim. What I wouldn’t be doing is desperately trying to find a repairman willing to come out in the middle of the night while charging me an insane “emergency” rate to do it. Knowing how to take care of yourself is a dying art, but one worthy of studying if you want to feel in control of life’s winters.
I hope that you find some of these tips useful in your own situation. They can make even the most modest emergency fund last longer and add an element of peace to your life in the process. Have any additional tips you think should be included? Share it with me in the comment section.