Emergency Fund. It’s one of the most basic principles in personal finance. People mostly talk about using it in case of unemployment in today’s unstable job market. But what else is that money for, if anything? What is that (presumably) large chunk of change really doing for you?
Let’s take a step back.
When developing a ideal number for an emergency fund, most of us look at what it would take to sustain our family for approximately 6 months with no income. After all, that’s what the experts suggest, right? But what other “emergencies” have you considered? Unexpected travel due to family death or illness? Pet illness? Car failure? Home damage your insurance won’t pay for? Medical expenses you thought your insurance would cover?
Yep, that’s the one. Medical expenses I thought my health insurance would take care of.
So here’s what happened. Any of you who follow my blog may know/remember that I’ve had a hip injury for quite some time. I’ve spent most of the last year jumping through hoops trying to get this thing fixed. I finally had a surgery date and the doctor’s office calls and tell me that the insurance company has denied part of my claim and if I progress with my (already scheduled) surgery I would be responsible for $6000 out of pocket. Yes. Six. Thousand. Dollars. <insert choking, gagging noise here> Obviously the surgery has been postponed.
I do have the right to appeal the decision but if that doesn’t go though I’m looking at a $6000 worth of a completely unanticipated expense! You see, my husband is military and our health insurance is generally pretty awesome. For the most part if you play by their rules they pay for everything. But now, the one time I need them most, they’re hanging me out to dry!
So what does this have to do with my Emergency Fund?
Well, if my appeal is denied, I will be faced with continuing to deal with my injury OR use over half of our emergency fund for something we never though we would have to pay for. Sad face. Even though this isn’t “emergency” surgery I still think (and my husband agrees) that this constitutes use of our savings. This just isn’t something we anticipated.
We knew we might dip in to it when it took me 6 months to find a job after deciding on a career change. We plan to use it if one of our cars dies without warning. But I just never expected to have to pay for something like this. In fact, in a conversation with my father about emergency funds recently, I shrugged off the idea of needing to increase ours because of the very fact that military health insurance in generally so all-inclusive! (Should have listened to you, Dad!)
My point is this, if you think you won’t need money for medical expenses, save for it anyway. If you think your homeowner’s insurance will cover just about anything, have money set aside for home repairs regardless. In hindsight, I would take what I thought I needed for a standard emergency fund and increase it by 20%. And be prepared to use it. That’s the hardest part, parting with those funds that we have worked so hard to save.