Goal Completed: We’ve Funded 3 Months of Emergency Expenses

by Kevin on August 6, 2008

That’s right, I finished up balancing our family budget yesterday. We’ve finally hit a very significant 2008 goal: three months of expenses in an emergency fund. It took us a while, required some hard work, but we’ve finally done it. We’re a bit excited…

How We Built Up Our Emergency Fund

I’ve talked about free cash flow during the No Debt Plan in the past. You need to look at your budget like you are running a business. Free cash flow is what you have at the end of the month after paying all of your expenses. You need it to be positive.

We put any extra free cash flow towards our savings goals, in order of priority. Our first priority this year? Topping off our emergency fund. Every extra cent went into the savings account for this.

Why Having an Emergency Fund is Important

I’ll try to keep this list short, but there are all kinds of reasons you need to have an emergency fund. Not having any sort of backup funds for life’s hard times is just asking for trouble. You might lose your job. A child or pet can become ill. The air conditioning/heat can go out. The roof will leak.

Life happens. Life can be expensive. What would you do if you don’t have any emergency funds and suddenly find yourself staring at a $2,000 medical bill? The most likely result is debt. And I’m here to keep you out of debt.

Now What Will Our Extra Cash Go To?

As I said, while we were trying to fill up our emergency fund every last cent we could spare went into that category. Now we’ll just move onto the next savings goal and start funding that with the extra money. I’ve written about this in the past and called it the Savings Snowball. We’ll keep rolling down the list of goals until we’ve paid for them all.

This sort of a plan is exciting for us, but in reality is pretty boring. Save money for Goal A, meet Goal A, save money for Goal B, meet Goal B… rinse and repeat. But it’s getting us places. We’re making great progress.

The next goal? Save up money to replace my wife’s car in the year 2012.

Do you have an emergency fund? How did you do it? Leave a comment and explain to the other readers how you are currently saving up for an emergency fund, or how you did it in the past.

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PT August 6, 2008 at 3:04 pm

Congrats. That’s going to be an awesome car come 2012.

I’m close to building up my e-fund as well. Just one more paycheck.

Scott @ The Passive Dad August 6, 2008 at 5:12 pm

Great job getting 3 months saved up in your emergency account. I’ve been working on our 2008 expense spreadsheet and am looking forward to finding more ways to save in the next few months. Currently, my wife and I put all bonus, tax rebates, and gifts into our emergency savings account. Anything over that goes to long term savings and investments.

When my wife and I were first married, we saved nothing. It took several years to build up a savings account and almost a decade to create 6 months of reserve. Living in California is very expensive and we sleep better having that 6 month cushion for unknown hardships. And we have had our share. This year is was a gas leak and a new HVAC system for the house. Total cost was $12,000

Kevin August 6, 2008 at 7:02 pm

@PT: We’ve done the math and think we can buy another used Honda Accord at the time. Of course math is always fuzzy four years out, so we’ll know more as we get closer. The idea is to buy it with cash out right… no loans, no financing.

@Scott: I can imagine living in California makes it that much harder. And ouch, ouch, ouch with the emergencies for the house. $12k?! Keep it up though — one foot in front of the other.

PT August 6, 2008 at 9:46 pm

That’s definitely the ideal way to do it. Cars you completely own off the lot are the awesomest.

Kym August 7, 2008 at 1:07 am


I do have a question for you, and possibly also for Scott. You have a house, Kevin, right? I think I remember reading that, and also that you’re 23 (please correct me if I’m wrong). I’m also 23, have a well paying job, but I’m many years off from having a down payment for a house.

That said, I’m in Southern California (this is where Scott comes in). Scott, how did you get up your down payment before you were able to save 6 months EF?

I’m trying to tackle both of these goals at once, but I’m just amazed at how fast some people are able to save down payments, although of course I have no idea how much their houses cost or how much of a down payment they paid. Almost every PF blog I read, the writer had tons of consumer debt yet bought a house…that boggles my mind.

Kevin August 7, 2008 at 6:22 am

@Kym: Yup, I own a house. I turned 24 in April — but close enough.

We were very blessed by my parents who had saved up a nice chunk of money for us as a start on a down payment. We lived in an apartment and just saved our money as fast as we could to help increase what they had given us.

I think most people buy a house while they are still in debt because they don’t know better.

I would encourage you to build up the emergency fund you are comfortable with (note we are at 3 months, not 6, for now). Once you’ve got that built up (and hopefully paid off your debt) you should have a lot of extra cash each month to save up for a house.

Kym August 7, 2008 at 11:44 am

Ah, well that makes me feel better, then. That was very gracious of your parents. My only debt is the remaining 50% of my student loans, which should be gone by next April, and I should have an EF complete by the end of next year (I also have a wedding to pay for next year or I would have that EF a lot sooner).

I come not from a poor family, but from a very poorly managed finances family, and I don’t want to go down the path that my mom did. She’s still trying to save for a down payment today, and had never saved anything for my college education. I learned from her bad example and I’m trying to max out my savings ASAP.

It’s very inspiring to read what you’ve accomplished at your age, especially when you’re practically my age. Thanks for the great posts!

Kevin August 9, 2008 at 2:25 pm

@Kym: Yea, tell me about it. They completely shocked the heck out of me. Pays to be an only child!

Keep up the good work. You can’t help the past, but only adjust your results in the future.

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