Rainy Day Fund Saves My Bacon Again in 2009

December 30, 2009
Written by Cathy

842279505_fb596784ff One of the recurring topics I write about is the many ways a “rainy day” or “emergency fund” has saved my bacon.  It helped me get out of debt.  It’s now helped me stay out of debt.

I finished paying off $35,000 worth of consumer debt in April 2008.  Since that time to present, I worked aggressively to save, save, save.

How I Saved the Bacon
- Lived well below my means.
- Spent no more than 40% of my income on living expenses (food, rent, gas).  I could afford a pricey luxury apartment; I choose to live in a simple, modest apartment.
- I cook quality meals at home and brown bag lunch most days of the week.  I eat a lunch with coworkers and a dinner with my partner once a week.
- Opened a Roth IRA and a health savings account.  Contributed maximum limits.
- Put the rest into an emergency fund and various targeted savings account.
- Traded in my 18mpg Jeep Grand Cherokee for a fuel efficient 45mpg 2010 Honda Insight.  I’m still debt free.  With the trade in on my Jeep and cash saved, I paid off the Honda in 3 months.

This year hasn’t been without its setbacks.  If I hadn’t squirreled away all that cash, things would have been far, far different.

How I Lost the Bacon
- I took a 7.5% paycut. 
- I was on the layoff chopping block 3 times this year.  My end dates were scheduled to be July, September, and October.  My employment status past March doesn’t look good if the first quarter doesn’t improve, though.
- I hadn’t been to the dentist in many years due to lack of dental insurance and big debt. The result when I finally went to the dentist: early stages of periodontal disease.  Paid over $2000 in cleanings and follow up appointments.  Hopefully, it’s enough to reverse the damage.
- My company eliminated 401K matching contributions.
- My dad was hospitalized, and I had to pay for an emergency ticket to fly home.  Thankfully, things turned out fine.
- My partner lost his job and has been out of work since September.  Job prospects are grim.
- My cat developed asthma, and requires pricey vet check ups and medicine.  When we leave town, we can’t leave her with friends anymore due to her medical needs.  We have to pay for vet supervised boarding.
- My brand new car was hit by a guy who ran the red light.  Insurance is covering it, but I still had to pay out of pocket until my insurance company could recover from the other driver’s insurance company.

I paid for all of these things in cash.  Well, truthfully, I purchased them on my credit card to capitalize on cash back or frequent flier rewards.  Every dime spent was backed by cash in the bank.  At no time did I go into debt spending.  In years prior, all of these events would have been catastrophic on their own, nevermind all at once.  I could not have foreseen any of these things.  I didn’t save because I knew they would happen.  I saved because I knew something could happen.

Each time bad news struck, I was angry, sad, or disappointed.  I cried.  I grumbled about bad luck.  The one thought that didn’t go through my head like pre April 2008:  How am I going to pay for this?

If you haven’t started an emergency or rainy day fund, make this your top priority for the new year.  My emergency fund was $100 when I started.  I had approximately $25,000 in debt at that time.  Why bother with $100?  Because that $100 turned into $200, $400, and $2000.  I didn’t have my first major emergencies until I had $2500 in my account.  My car battery died, and I got very ill with a stomach virus.

I kept growing my emergency savings at the same time I paid down credit card debt.  When my savings exceeded my debt, I paid it all off in one lump sum.

The extra dollars I put away didn’t hurt my debt repayment at all.  If nothing else, the psychological safety of having a growing bank account that I could tap into was worth an extra month or year.  If I lost my income, I knew I could continue to pay the minimums on my credit card.  That’s something you cannot do if you pay only debt, and don’t retain a cash reserve.

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