Monday, 22 December 2014

Hard Lessons About Saving

Everyone  knows the importance of having an emergency fund - extra savings set aside in case the car breaks down or a water pipe bursts or one of you loses your job - but very few of us actually have one. Until that first big emergency happens and we find ourselves learning a very hard lesson.

I pride myself on being pretty good at money management and budgeting. After years of living beyond my means in my first marriage, relying on credit and juggling house-furniture-clothes-credit cards-keeping up appearances, then years of struggling to make ends meet, provide for my kids and survive as a single mom, then finally getting to a place where I could start over, debt-free (and asset-free, unfortunately) and earning enough to live life and look to the future, I learned a lot of lessons about managing my money, prioritizing and budgeting. I read financial blogs and absorbed all the advice I could. I watched 'Til Debt Do Us Part religiously and felt smug about how much further I'd come in my financial life and education than those people on the show. I planned and re-planned, budgeted and re-budgeted. I was quite sure we had our financial ducks in a row and our family's life planned out in the best possible way within our means.

But one area where we have always managed to fall short is in our emergency savings. We earn enough to cover all aspects of our planned budget. We have a reasonable amount of money going into long-term savings, both for our boys' education and for our retirement. But somehow we've never managed to find as much money in the budget as the experts say we should set aside for emergencies.

Gail's advice is to have six months' worth of expenses set aside. Though we would love the sense of security that would give us, it's simply not practical for us where we are in our lives right now. We have three children. They are active in sports and extra-curricular activities, they outgrow or wear through their coats and shoes and clothes every five minutes, they each eat more in a day than my husband and I combined. We're in an expensive phase of our lives right now. Our incomes are stretched as it is. I know we should be finding a way to set more aside. I know we should have a safety net. I know that even more after this week.

We had a little electrical problem the other day. A couple of circuits blown, a couple of breakers out. A fairly minor inconvenience, we thought. A couple of trips to Home Depot, a couple of failed repairs and a call to an electrician friend and we realized we'd need to hire an expert. We were pretty upset. A week before Christmas is not the time of year anyone wants a several hundred dollar unexpected expense. We sighed - but such is life. A day spent with electricians and techs from the power company in and out of the house and we realized the problem was much more serious than we expected. Four thousand dollars more serious.

We do not have four thousand dollars saved for random electrical emergencies.

The irony is that my husband and I were just discussing our home repair savings the other night. We laughed at the recommendation that we should be setting aside three to five percent of our home's value. Surely such a suggestion had to be overinflated - surely those numbers had to be based on an average that included rural houses in less expensive markets. Five percent or our little townhome's value is almost twenty-five thousand dollars because we live in one of the most expensive real estate markets in the country. What on earth could happen to our tiny little home that would cost twenty-five grand a year? We figured we should try to start saving more, but we felt fairly safe.

And then we lost power in half our house and got hit with a four thousand dollar electrical bill.

Happy Holidays.

How much do you set aside for emergency savings? How much do you budget for home repairs? How much is realistic to set aside for things like this - rather than a percentage of the value of your home, shouldn't it be based on the square footage of your home? How do you decide how much is enough?

This is obviously an area where my planning has fallen short and a hard lesson has been learned. How do you handle home and emergency savings?

Originally published as "Hard Lessons About Saving" on my weekly column at

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