Last year, freaked out by the US Presidential election, I set a goal to have 12 months expenses as cash savings in my emergency fund. Both Mr. G and myself work in sectors that have had substantial uncertainties in the past year – he in the energy sector, and me in public higher education. Sales are stagnant for him, and state education funding is flat for me. Neither of us got raises this year. Things weren’t great to begin with, and then, in 2017, they definitely got worse.
About a year ago, we found out one parent had a rare illness. Then, 6 months ago, my other parent died suddenly. A few months ago, my surviving parent had a stint in the hospital and it seemed we had reached the point where Decisions Must Be Made regarding the treatment plan. As a consequence, I began to seriously contemplate the finances associated with having to take substantial time off work to help care for my parent.
And that’s just my family drama. In the last year, I have been diagnosed with anxiety, had to have a tooth extracted, had major electrical repairs to my car after a squirrel took up residence in the engine compartment, and then…AND THEN… a few weeks ago, my car was totaled in a very scary car crash that left me with broken bones that required surgery and a lengthy recovery. Yeah.
Sometimes it’s hard to find a lot of optimism in the dumpster fire of the past year, but I also recognize how incredibly lucky I am to have supportive friends and family and an emergency fund that have helped me survive without losing my mind. First off, I am thankful every day I did not sustain a head or spine injury in the car crash, which could have left me permanently disabled. (I’m obviously still healing and don’t know how close to 100% I’ll be in a year, but it’s so much less scary than a brain or spine injury.) My job is fairly flexible and has an excellent leave policy and very good health insurance, which means that I haven’t many out-of-pocket expenses immediately after my hospitalization. I’m still youngish and otherwise healthy, and have been able to adapt to a mobility-limited life in short order. Mr. G is awesome (SO AWESOME) and has been helping me with transportation, meals, showering, and laundry since I got home from the hospital. (As a woman who was previously “I am independent, hear me roar,” the last few weeks have been a neverending lesson in humility and gratitude.) Fantastic friends have brought us food and sent me flowers and care packages from around the country. My village is strong, and I am so, so, so lucky.
“You Have a Large Cash Balance”
Real talk here: our savings situation is in a bit of flux and has been for quite a while. We have cash sitting around because we’ve been thinking about buying (or building) a house for a few years now. Or doing some major updates to our current home. We have another slush fund for minor home repairs and travel. And then we have the emergency fund, which is about 6-8 months of household expenses that is just sitting there, earning a little interest and waiting for a crisis. So, every time I log into Personal Capital, it likes to remind me that I have “a large cash balance” and serve me with helpful articles such as, “is it possible to have too much cash?” I GET IT, OK – but seriously, The Algorithm needs to cut me some slack while I figure my shit out.
When I was planning for the size of our emergency fund, I did a lot of research on how much liquid cash we should have socked away. My never-ending stream of life crises, for better or for worse, has highlighted things that I don’t need to worry about and things I should worry about more. It has also forced me to re-examine the savings strategy I have used for the past decade. The size of your emergency fund and the investment vehicle where it resides are both deeply personal decisions. Yes, Dave Ramsey or Suze Orman will tell you to start out with $1000 and move up to 3-6 months expenses “depending on your situation.” This is a good place to start! However, as you learn to manage your money in an efficient manner, you may find out that your access to credit (and ability to pay it off every month) improves substantially, and you might start thinking that your money could be doing more work in an index fund, rather than earning a measly whatever-CapitalOne-is-paying interest rate every month.
But, of course, there’s the other side of that coin. This recent Billfold post was illuminating as to how expensive it can be to deal with unexpected major medical expenses, especially late in life. If none of your cash is liquid, out of pocket expenses might be more than your relatives can deal with if you have a real health emergency. When my parent passed away suddenly last summer, we opted to pay cash for the funeral arrangements rather than wait for the life insurance to come through (at which point the funeral home will arrange to take their cut before any remainder goes to you). Even for cremation and a simple service, that was $6,000+ out of pocket, plus lots of other bills related to end-of-life care, attorneys, accountants, and all of those sorts of things that must be dealt with. Had all of my parents money been locked away in CDs and retirement accounts, it could have been a very challenging couple of months.
Have I Outgrown My Sinking Funds?
When I was making not very much money as a graduate student, I dipped my toes into saving and budgeting by amortizing most of my major expenses. How much did I spend on holiday gifts and baking each year? Divide by 12 and save it each month. What kind of car payment did I feel comfortable with? I’d save that amount each month and I had a nice down payment when it was finally time to upgrade. I initially had accounts for my emergency fund, holiday spending, travel, major electronics purchases (replacing a phone or computer), and then later on for my Roth IRA contribution, car down payment, and charitable donations. $25 here, $300 there, is automatically zapped over to each account a few days after payday. This was 100% a strategy I developed to keep myself out of credit card debt after I’d worked so hard to dig my way out after grad school. If I planned for a large expense, I could pay off my credit card immediately after the charge. Plus, I had a little emergency fund (it hovered around the aforementioned $1000 for a LONG time) in case of an unexpected expense. And it worked! But times are different now.
It’s been almost 10 years since graduate school. Mr. G and I are debt-free except for our modest mortgage. If either of us faced a job loss, we’re trained enough in our frugal ways that we could clamp down our unnecessary spending in a pretty rapid fashion. (I’m looking at you, eating out.) It’s very affordable for me to add him to my health insurance. (The opposite is a little more expensive, but still manageable.) We’re both pretty prudent with our spending, although our savings strategy could be a little more cohesive. An expense that used to be insurmountable for me to pay off immediately – for example, our annual ~$400 vet bill that includes the exam, vaccines, flea/tick/heartworm meds, etc. – is not anything I really sweat at this point in my life. (Although it still makes me cringe.) I just don’t need to amortize all of my major expenses anymore. And it seems somewhat superfluous to have “regular savings” for these large anticipated expenses, in addition to “emergency savings” for crises, when both can be replenished in a pretty rapid fashion.
The Path to an Adequate Cash Balance
We’re not going the $0 emergency fund route at our house, but it might be time to roll all of my little sinking funds into one account so that I have a more complete picture of my savings. I still think it’s important to have a chunk of cash available, whether it’s earmarked for emergencies, or just in a general savings account that is intended to cover all of those big, irregular expenses in addition to crisis time expenses. Job loss or having to take time off to help care for my parent aren’t one-in-a-million scenarios at this point in my life, unfortunately, so I’m ok with a cash security blanket that isn’t earning great returns. Maintaining a large cash cushion has obviously been driven by fear and uncertainty, and we still have a lot of looming questions about our future (as in, we are definitely going to buy another car in the next few months, and we are still thinking about a different house). However, I’ve recently started a regular contribution to our taxable brokerage account (trade war be damned), and I haven’t slowed my contributions to my 403b or Roth IRA. Because life will go on, eventually. (Right?)
One thing that really determines how much emergency savings you need is how well you are insured. Earlier this spring, Mr. G and I rearranged some things with our auto and home policies to more adequately reflect our financial situation and relationship commitment. We have a local agent for a major national insurance carrier, and although I hate doing it, I’m really glad we took the time to meet with them this year to discuss and adjust our coverage levels. For example, when we combined households 7 years ago, I still had a renter’s insurance policy because it would have been cheaper for me to take out a claim against the renter’s policy in case of a property loss. With a lot more savings in the bank than when I first started my job, I’m not as worried about the financial hardship that I would face if, say, my bicycle or my laptop was stolen from our house. Plus, our financial interests are a lot more intertwined than they were 7 years ago.
I also didn’t have any idea about the deductibles, out-of-pocket maximums and co-insurance levels for my health insurance prior to the car crash. It’s true! Call me lucky, but I’ve never been faced with a major health issue or hospitalization. I was blissfully unaware of coverage levels and co-pays for anything other than office visits with my primary care physician and prescriptions. I honestly thought that I’d be on the hook for a few thousand dollars almost immediately after my surgery, and I’d have to eat those expenses while we waited to see if the other driver’s insurance was going to accept liability. Well, as it turns out, my in-network coverage is very good, and my out-of-pocket costs are next to nothing. Even with a robust cash savings in the bank, this was a huge relief to me. Several months from now, after I have achieved “maximum medical improvement” (a term borrowed from worker’s comp, but the principle is similar), my health insurance and the other driver’s car insurance will duke it out in an insurance battle royale to determine who pays what. Between the other driver’s liability coverage and my health insurance, I shouldn’t have to cover any of my medical expenses as a result of the crash. This isn’t really a process I can really control, so I’m trying not to worry about it.
So Many What Ifs
I’m a chronic over-thinker. In the first few days after I got out of the hospital, I couldn’t help but dwell on all of the what ifs of my situation. What if I hadn’t taken that route to work that morning? What if I had turned instead of going straight? What if I lived alone – would I have had to move in with a relative or friend during my recovery? What if the injuries would have been more serious and I wouldn’t have been able to get around our incredibly inconvenient 100-year-old house? Would home healthcare be covered? Piggy, who had her own visit to the ER recently, points to a dozen more scenarios that could have made my recovery more difficult or expensive. Mr. G, despite his fairly no-bullshit/no-overthinking approach to life (I affectionately refer to it as “managing my expectations”) has also had his fair share of anxieties about my crash. Despite both of us being pretty angry about the injury and inconvenience of the last few weeks, we’re both very thankful it wasn’t worse.
But you can plan, at least to some extent, for those what ifs. Knowing what I know now about our insurance, I feel confident that we would have been adequately covered had my injuries been more serious. My takeaway from this experience is that being reasonably prepared for an emergency means having an understanding of your insurance, your employer’s leave policy, a small cash emergency fund, and access to credit. However, Mr. G and I need to get serious about writing wills and advanced directives, because we aren’t getting any younger and we are at a point in our relationship where we are very committed regardless of our marital status.* Any residual feeling of invincibility left over from my twenties has been pretty dramatically extinguished by this past year. The only thing I’m wondering about now is how much it costs to add a little more life insurance to my plan.
*Post-script for the unmarried: Mr. G and I are not married. We have been meaning to get married, and the delay was mostly us being really indecisive for a year followed by a never-ending cascade of clusterfuck for another year. We did not encounter any issues at our local hospital (in the Midwest) with him being able to be present in the ER or my hospital room, or with him being my emergency contact person during surgery. However, Mr. G pointed out to me that because we’re not married, he would not be able to file for FMLA to help me during my recovery. Thankfully, my injury was not so serious as to require that, but it’s been in the back of my mind ever since. There are a lot of things you can arrange, paperwork-wise, if you’re not married, but FMLA is not one of them. So, just keep that in mind if you’re in the USA and you’re long-term partnered but not married. And, if the clusterfuck subsides, stay tuned for Dr. and Mr. G coming at you this summer or fall, at a courthouse near you. Probably. 😉