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.

1. My company is indirectly hurt by the instability in the financial sector.  Thus, many of us took a paycut.  I took a 7.5% paycut.

Impact: Disappointed, but my goals are marginally affected.  I can still meet the minimums on all my fixed obligations (rent, food).  I can still max my retirement funds.  Some of my short term goals will be trimmed back by about 7.5% proportionally. 

2. My company is eliminating the employer match portion of my 401K in May.

Impact: Disappointed, but I will fully fund my Roth IRA first, then contribute to my 401K instead of the other way around.  Amount contributed remains the same. 

3. My dad got sick and was in the hospital in March.  Flew home the same day to help.

Impact: Spent $590 borrowed from my emergency fund for an airplane ticket.  Happy my dad is healthy and back home.  This is what emergency funds are for.

4. Didn’t read parking zone signs correctly on two separate occasions.

Impact: $45.25 in parking fees.  Avoidable, and my fault.  Still lame.

5. Bad ear infection in February.  Minor concussion bumping my head at the gym because I’m a klutz.

Impact: $160 in doctor office visits. 

I withdrew $795.25 in the past 4 months on unexpected expenses.  It was very scary with my dad briefly, but everything is ok for now.  I borrowed from myself when I needed it most, and didn’t have to worry about it later.  I paid back what I owed myself, not a creditor.  The only thing I had to worry about was what I needed to do right when I needed it.  To help my parents, I just paid for the ticket. I didn’t think whether I would be able to afford it. I just got a ticket and went.

The outlook for the rest of the year still looks pretty shakey. We’re still preparing for the worst, that we hope won’t come.

How has your emergency fund helped you recently?