Conventional financial wisdom is that you have anywhere from 3-12 months of your living expenses in the bank at all time. That advice always drives me a bit crazy. I will flat out admit we never had even the minimum of that much money sitting peacefully in the bank waiting to cover emergencies until my mid-30s. In the first ten years of adulting, people buy their first starter house (that usually needs some fixing), have babies (requiring time off work and lots of new expenses), and are just starting to grow their income in their new career while simultaneously adjusting to student loan payments that suddenly appeared after graduation.
I can’t think of a sudden “due right now” expense we’ve had to deal with that was more than $10,000. Therefore, because we prioritized paying all our non-mortgage debt off early, just $10,000 was usually our savings target during those years. We always could have taken the option to stop our extra debt payments if we needed that money due to an emergency.
But even 10K can seem like a lot if you are cash strapped. Just $1,000 in savings is a great goal to start with that may feel more attainable than 6 months of total living expenses, then you can step up to 2K, 5K, 10K and so on. Granted, more than one emergency could happen close together, but you’ll see later on how we avoided actually draining our savings dollars when a large expense did come up to replace our heat pump.
So, although I agree having several months’ living expenses is a goal to strive for, and having emergency cash is definitely a part of my strategy of how to view and manage your savings account, I am not going to tell you here how to build up emergency cash.
This article is more for that phase of life when there isn’t much cash around and how to get through. What to do when you have no money, if you will. Or, if you’d rather not touch your savings to weather an emergency, read on. You will get to the point of having substantial savings if you stick around here, but until you do, being smart about emergencies along the way is key to your eventual financial stability. Stuff happens and it happens to everyone!
What's In This Post
1. Anticipate & prevent emergency expenses
First, anticipate your emergencies as much as possible. Do you drive an older car? Is your roof or furnace late in its life? If you rent, you can mostly ignore home repair items, a huge hidden cost of home ownership. But if you own, you should know an emergency water heater replacement could occur any time and have a sense of what that costs. If you have a pet, you may need emergency vet care with no money- do you know how you would handle that? How stable is your job? Could a layoff occur at any moment? Think about your income sources and the things in your life you are responsible for, and know your financial weak spots for each in terms of what could go wrong. Anticipating can go a long way towards being more prepared.
An ounce of prevention is worth a pound of cure. Anticipating what financial risks come with certain aspects of your life might sway your decisions on those particular things in the first place. For instance, if you have no cushion in the bank, choosing a more stable job early in your career may be a better choice than a start-up with a colleague. Waiting to buy a house can also protect you from catastrophes you can’t afford. Always be sure to consider a lack of emergency savings when you’re making various life choices. In short, realize the decisions you make today impact your risk of financial emergencies tomorrow.
2. Distinguish true emergencies
Another helpful way to handle emergency expenses is to be able to define a true emergency need. A hospital bill is one thing. A broken iPhone is another. You can’t survive safely without heat in winter, but you probably can without air conditioning. The point is, some expenses can and, if you have no savings, should be delayed. Your smart phone can be repaired, or replaced by a second-hand lower end phone. When you don’t have the money, you don’t have the money, so be willing to accept that you may have to go without until you get there financially.
For a few years in grad school, my car was doing whatever it could to die on me. The radiator, the ball joints, the automatic windows for cryin’ out loud! I remember many conversations with the repair shop requesting whatever “bubble gum and duct tape” fix they could come up with because I just didn’t have the money. Sometimes, they’d come up with some cheaper way to get it good enough for me, like a used part. Sometimes, they’d let me know what the worst case scenario was if I didn’t fix it and let me on my way aware of what I needed to keep an eye on. For awhile my front blinker light rode along in the backseat, having popped out during an unfortunate skid off a gravel road one day. Granted, I lived in a small town out west- such things wouldn’t be allowed in states with mandatory vehicle safety inspections!
But the point is, fixing your car may be important, but if you can’t afford to fix it, you can’t afford to fix it. Exercising a little bit of grit until you have a few hundred more dollars to get a fix completed is definitely a strategy to employ. In my situation I did what I had to to keep it still moving forward, and didn’t pay for really anything else. This strategy got me through without accumulating debt, ensuring a better financial future where I would not be forced to make such decisions.
3. Negotiate & ask for less expensive options
When you are genuinely cash strapped, people can sometimes help you out by adding in a discount or finding a less expensive solution. I’ve certainly experienced a wide range of repair costs on everything from cars to HVAC systems. Ask what a less expensive option is to keep things working. Sometimes the usual fix is not the rock bottom, least expensive fix. So be sure you know your options when it comes to car and home repairs, especially.
Our furnace humidifier never worked properly after our new heat pump was installed because the electrical aspects were just incompatible. We were quoted about $4,000 to replace it (just the humidifier system, not the furnace!)… for the ‘proper’ fix. A different technician a year later quoted us $1,400 for a more basic, lower end type humidifier that would get the job done with corrected electrical issues. That’s a big difference in cost! (Although we still haven’t pulled the trigger on replacing it because sheesh, $1,400 also seems like a whole lot!)
Similarly, if you’re paying for healthcare on a high deductible plan or other situation where you’re footing part or all of the bill, ask up front about costs. Certain procedures may not be particularly needed and you could opt out. Certain drugs may be incredibly expensive, but have an equal replacement. Doctors generally have no idea what the price tag is on medications they prescribe (but the pharmacy or GoodRx.com will!).
Ask questions and be sure you know what you’re paying for. We once had a prescription for a compounded skin cream (three drugs blended together) that was going to cost something like $400. A call from the pharmacist to the doctor’s office and we were able to have a prescription for those three creams separately for a muuuuuch cheaper price. We go through a similar hullabaloo each year for our son’s epi pens. Get informed, be persistent, and find solutions.
4. Improvise, DIY, & hustle
For home and vehicle repairs, think of ways you can improvise or fix the problem yourself where feasible. Do you have a handy friend that could give you some pointers, or better yet come teach you how to handle the problem? Or perhaps there is a ‘band-aid’ fix you can rely on until you can comfortably afford the ideal improvement? I once replaced an electrical relay in my car after getting the shop quote I couldn’t afford. It’s amazing what instructions you can find on the internet! When it comes to DIY, we usually go by the mantra, “As long as you don’t burn it down, it’s still fixable.” So, get in there, learn what you can from family, friends, and YouTube, and give it a try.
And I’ve said it before talking about how to effectively get yourself ahead of yours bills, but it works in this scenario too- hustle! There are so many options out there for person-to-person services that you can fit into your schedule to make extra money when it’s needed. Can you or your spouse drive Uber of Lyft some? I talked to a driver once who ended up quitting his day job he was making so much doing this sort of work. Can you be a Sudster and process some laundry over the weekends? Are you available during the daytime to walk dogs or pet sit in your home? Are there lawns to mow around your neighborhood? What about earning money with Instacart or other grocery shopping and delivery services? You can work in something like this to pay for (or pay off) a major emergency expense, and perhaps pick up a longer term side hustle (to build that emergency fund for next time!) in the process.
5. Ask for help & always take your obligations seriously
When you’re learning to get better control of your finances, sometimes it’s necessary and wise to ask for help. Perhaps you could ask your landlord to pay a couple weeks late without penalty. It at least doesn’t hurt to ask. Do not make this a habit, however, or it will slowly degrade the trust. This is another reason why always paying your obligations on time is so critical- when the time comes you need some leniency, people are usually more willing to offer it because they know you are reliable. Similarly, asking for help is better than paying late and hoping no one notices. Deal with the problems up front, whether it is with your landlord, mortgage company, etc. Pick up the phone and work with people to find solutions.
6. 0% credit card self-financing
If you have good to excellent credit, and a proven track record of controlling your spending, opening a 0% promotional 12-24 month credit card is a fantastic way to buffer an emergency expense. Right after we pinched every penny and cut every excess expense to hire a nanny after baby #2 arrived, our heat pump died and cost about $10,000 to replace. It was only 7 years old, so it was completely unexpected.
We used money we had in the bank to write that check, but it cleaned us out. To offset this missing cash and keep our debt payoff plan unscathed, we opened a credit card with an 18-month long 0% promotional period and used that for all our discretionary spending (always respecting our monthly cap!). The money we would have used to pay that discretionary spending bill each month instead went to our savings account to rapidly replenish the missing cash. After doing this for about 4-6 months, we had all our money back in the savings account and 12 more months to more slowly pay off our new heat pump.
So, by shifting costs around using a promotional 0% interest credit card, we effectively got ourselves a no interest loan to more easily pay for the heat pump. This way, we didn’t have to continue forward with our savings emptied out and very little space in our monthly expenses to replenish it. The HVAC company could have offered us 0% financing, but that offer would have been in place of a few hundred dollars in discounts. I’d much rather ‘finance’ the cost myself, if needed, via shifting all spending to a 0% credit card than lose those up front discounts.
It goes without saying, but I’ll say it anyway, you MUST pay off the balance by the end of the 0% promotional period, and not cut it close. Worst case scenario, you must open another 0% card and pay a 3% balance transfer fee to move it. DO NOT let the promotional period end with a balance of any kind on the card! When I do something like this, I generally have the full amount of money in our bank account- it’s just that I’m trying to avoid being totally cleaned out for cash. So, technically at any time I could pay off the balance if I chose to. Never charge up a temporary card with more money than you actually have access to… just in case.
In conclusion…
When you need emergency money now, it is very stressful. I hope these strategies help you to take a deep breath and find ways to get through this tough phase, just one careful step at a time. Between making do, finding some fixes with the help of family, friends, or the internet, and shifting money around strategically, these methods can help you find a way to weather the storm. And hopefully, some can be relaunched as ways to grow and protect a savings account for the next emergency, even if you start very small.