Today I will be depositing $1000 in my Emergency Fund Account. This comes from a variety of sources; the business is doing better this month, my change jar has a little over $200, the sale of the puppy and some intense snowflaking of a dollar here and a dollar there.
I still have approximately $9000 in consumer debt, and another $10,000 in a business loan. My concern is that I also have a business where income fluctuates seasonally from barely enough to pay my bills to about $300 less than my basic living expenses. Assuming that December, January and February of next year are going to be less than enough, that would decimate my emergency fund. I am not going to even consider that I might be making a salary if I get the job on Monday.
So I am trying to calculate the risk and benefits of paying down my consumer debt versus adding to my emergency fund to get me through the hard months. If I can continue to put $100 a month into my savings account during the summer and early fall, that would be an additional $700 which would bring my emergency fund up to $1700 before the winter slow down. It would be enough to get me through a month and a half of not working at all or several months of slow business.
And on top of that, I need to make a decision on whether to buy a used riding mower to mow my 2 1/2 acres of lawn. I can get one for about $400 but the last used mower I bought didn’t even last through 2 months of lawn mowing. I have someone who will cut an acre of the grass for $70 if I do the trimming. Last year I had it cut once a month but it should be done at least twice a month for at least six months of the year which is $840. While just looking at the numbers, I would be smarter to buy the mower I have to look at the security that I will be sacrificing as well as the risk involved in purchasing another used mower.
Lessons Learned
I would not have thought twice about it last year. The extra money would have been spent catching up bills, buying the things that I had put off due to lack of funds — some needs, some wants — and I would have put nothing into savings. I may not have learned all the answers in the last 6 months but I have at least learned a bit about the questions I should be asking myself.
I find that one of the most difficult things about being single is that I don’t have anyone to bounce these types of decisions off. So I will throw it out there for my readers. Does anyone have any alternate ideas, suggestions or advice? Is $1000 enough?
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Tags: emergency fund
Dave Ramsey and others call the $1,000 a baby emergency fund. It’s a start/first step. I think the ulitmate goal is to figure out what you need for about 3 months of living expenses and make that your E Fund goal. For me, my 3 months of basic expenses would be $5,000 (mortgage, car, utilities, insurances). My goal this year is to have a $2,000 E Fund. I will get to just over $1,000 + after the tax stimulus check that we are all supposed to receive next month.
I never really had a true emergency fund prior to now. I’ve had savings that I considered good for an emergency, but my previous definition of what constituted an emergecy was pretty broad and I spent that money on some of the dumbest things ever. And like you, I would use the extra money to play catch up and on wants and needs.
I’ve already used about $600 of my Efund this year for a replacement/repair to my door and to replace a window I broke on a friends truck. I’m glad I had the fund.
Dave Ramsey generally tells people that if they KNOW a hard time is coming to sock as much money in savings as possible. Then when the hard time is over, lower the fund back down to $1000 and put all the extra on debt.
We’ve always been self employed with some sporadic wage income. Budgets and planning are challenging under those circumstances. Our main income is seasonal, too. We don’t call our savings “leftover” from the previous season to be an E-fund, but I guess it is.
I’ve heard a good rule of thumb is 3 months worth of living expenses, but that is meant for people who “might” sustain a period of income loss. We have to “assume” we will. There are two of us to make the decisions and it is still difficult to decide whether or not to spend money on this or that.
I have a question about your lawn – can you just cut the part directly around your house with a push mower and leave the rest? Is there a farmer who might like to cut and bail the rest at some future time? I.E. – free cut-it-yourself hay?
I haven’t read through all of your archives, but how important is it to keep a place that requires so much upkeep? The way we got out of debt was to downsize. The house we have now isn’t much smaller, but the lot size is smaller and so is the value of the house.
Just throwing out some think-outside-the-box ideas. You are certainly on the right track.
I find that if I keep my focus on the ultimate goal, I make enough good decisions and few enough bad decisions.
Betty, My Basic Needs Per Month is about $1200 per month. That is NOT paying anything on the consumer debt. Just House, Heat, and groceries.
Jennifer, I agree with Dave on this point and I want to make SURE that I have enough to get me through the winter.
Jungleswife, With the housing market as bad as it is, I am pretty much here for the long haul. The average house is on the market here for at least a year. Seven of my nine acres is used by a local farmer for hay, the remaining 2- 2 1/2 is lawn grass. I can cut some of it with a push mower but eGads that’s a lot of grass. Your comment did get me thinking about turning a portion of the back yard into a bigger pasture for the horse and goats. They would enjoy it. It would be some investment in fencing but not that much.
More than $1,000 would be a great cushion to have. I heard Dave Ramsey recommend that people first save 1,000 in an emergency fund, and then begin paying off all debt before adding more to that fund. I trust his opinion, but you have to do what works for you.
Being self-employed, I do not believe $1000 is enough. I was there when I had my first born and depending on your bills, may not go very far. You may be underestimating what you need. I would try to sock away at least another $2000 before paying down the debts. This is just me, I’m fairly conservative and don’t fee too secure without at least $3000 in case of emergencies. However, my situation may be different. We have 2 kids and a house to worry about, but we are also employed outside of the home for now. I trust Dave as well but as the economy gets worse I think a larger emergency fund is in order, especially self-employed individuals.
Whether its enough or not depends on your situation. Dave Ramsey says if you make less than $20,000 a year, $500 is good for a BEF. But he’s also said that if your income fluctuates substantially (mine does) then you probably need more than $1000. I’m aiming for $1500 quickly then building to about $12,000 over the next few months. Just my two cents.
Have you considered checking with Freecycle.org to see if someone is getting rid of an old riding mower for free? It may be cheaper to have one repaired than buying one. Also, you might think about seeing if there is a Time Banking program in your area and maybe you can have someone mow the grass as part of their time banking and you can bank your time in other ways?
A few star posts and a cheap electric fence energizer would enable you to move the goata around the 2-1/2 acres regarly to keep it short.
Goats / sheep also contribute some awesome fertilizer…. I know you’ve already sold your place and moved in with your R, but for the rest of you guys reading these in archive, try to rememver that goats and sheep make excellent automatic lawn mowers and fertilizers!