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Real world importance of that emergency fund
Old 05-06-2015, 05:39 AM   #21
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Real world importance of that emergency fund

It's true you had a perfect storm but it was a bit of your own making...I'm glad you came through it. Sounds like you learned quite a bit.

I bought my first less-than-we-could-afford 1500 square ft fixer upper home (including the unfinished second floor) for a very reasonable $176,000. We had my wife's old Mazda to drive me the 1.5 miles to the station -I often walked. It was three years before we had our first child but by then our savings were substantial. Working as a division controller I had an appreciation for how quickly Our firm down sized. I witnessed wave after wave of layoffs.. It scared me and for a guy who grew up with very little I wanted to be prepared and most of all be the master of my destiny.

I was the plumber, carpenter, tile setter and general handy man. She was the painter and assistant plumber, carpenter and general handy man. We redid everything and what I couldn't do We farmed out. I mowed the lawn with a $20 lawn sale mower for the first 2 years.

We sold that house for $500k - we made extra mortgage payments all along and paid off the mortgage before we sold it in ten years.

Our mantra - brown bag your life.
1) no consumer debt
2) no $4 cups of coffee AND THE LIKE
3) buy on sale and less then you can afford...
4) never pay for what you can do yourself.
5) buy affordable and reliable non luxury cars with cash and drive them until they are uneconomical.
6) save your win falls - tax returns, bonuses everything..
7) big splurge take out Chinese or pizza. Always under $20.

I know what your thinking well they must have had big salaries ... I've done well these past few years but back then just about average. Oh you think those two skin flints didn't enjoy themselves - no actually we live and lived enjoyable lives.

I've got the three thousand plus sq ft home now and two cars a couple years old. What I don't have is debt, other then that mortgage on the first house we never did. There's something to be said for that live below your means thing.. The independence it brings is priceless.

Funny thing 32 years and the axe never found me...guess I learned to duck in every direction.

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Old 05-06-2015, 07:46 AM   #22
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rayinpenn- Nice post!
Have seen it all too often that financial hardship is set up by poor choices.
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Old 05-06-2015, 08:09 AM   #23
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Originally Posted by kgtest View Post

My point of the story is, even with four months of emergency funds the perfect storm can come along any day and drain you in less time than you may thing.
Congratulations on weathering this storm and best of luck with the new family!
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Old 05-06-2015, 08:13 AM   #24
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I can relate. This is close to the situation I was in after 911, when my IT consulting job evaporated in the post-911, post-bubble aftermath. We had just purchased a house we could barely pay for with my income. My wife was home with our one year old. We had only a few thousand in the bank and nothing saved for retirement. Thus was the closest I have ever been to being on the street.

Fortunately the client I was working at offered me a full time position when they heard the consulting company was laying me off, which I learned was the whole reason client fired consulting company--so they could hire the consultants as employees!

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Originally Posted by kgtest View Post
Six months ago I was flying high. My wife and I came back to our birth cities after spending a year on-island in Hawaii. The grass was looking extremely green.

We used the proceeds from the sale of our last home to put a nice down payment on a large 3000 sq ft house in a nice neighborhood. Rather than paying $4000 to ship both vehicles back home we decided to spend $1000 to rent a car when relocating from Hawaii and we would both buy newer vehicles when we got back to our "home town". I bought a new truck (instead of keeping the few year old truck) and she bought a new car which she needs to get around for work. We were finally feeling financially sound and decided to have a child. My wife was waiting for her job to become available with her old company so she had a few months off but eventually went back to work in September,

Then it came, the infamous call on the drive home from work from my consulting agency stating that the contract would not require my services any more. I was fired...well laid-off technically.

Here we were, two high-flying professionals who just bought a house, 2 new cars and my wife was pregnant.


The perfect storm.

Buying a new home, 2 new cars and gearing up for our first child depleted our savings...well almost.

Somehow, some way after these massive purchases and a complacent view on our futures we found ourselves sacrificing in ways we weren't used to.

Thankfully my wife had some money saved in her account,($4000) and I had some money saved in mine ($2500).

Fast forward four months later and I am finally gainfully employed after passing up the first (and only job offer) I received. We have about $4000 saved after I burned through a bunch of unemployment benefits, all of my savings and some of my wifes.

Now comes the hospital bills from the delivery and birth of our new child. They total about $4000-50000 after insurance. Thank GOODNESS for the insurance or they would be much more than that, roughly $20,000-25,000 in hospital charges were submitted to the insurance company for less than 3days in the hospital.

We get a 10% discount if we pay a majority of the bills in full, which is about a $400 savings. Our accounts will be empty when we are done paying the hospital bills. The bills we have leftover will be paid by my wifes taxable brokerage account that I had bought some AAPL and UNP stocks in prior to our relocation andy anything else is going on a 0% 18month credit card.

Now it's time to start building up our emergency fund again.

My point of the story is, even with four months of emergency funds the perfect storm can come along any day and drain you in less time than you may thing.

My dad is impressed at how we managed to "hand in there" without having to borrow money. I am just thankful we had a decent emergency fund after four massive financial events within the past six months.

Two critical facts that prevented our financial collapse were

1.) My wife carried the health insurance that covered most of our medical bills AND
2.) I did not get fired, but was laid off and had worked as a full time employee long enough that I qulified for unemployment insurance

Had I been fired, or had we not had health insurance we would be in debt...instead our investment accounts and retirement accounts have essentially remained unchanged experiencing some small growth in a pitter putter market this year.

Let this be a lesson for those who don't think they need an emergency fund.


For those with no pity, I understand I could have sold both vehicles, eliminated some monthly debt payments by doing so and then bought vehicles again later when we got back on our feet but I learned after moving from Hawaii that it will cost quite a bit in taxes and registration every time you buy a vehicle.

For those who can sympathize, We haven't missed a single payment for any of our financial obligations and we are now getting back on our feet.

Now it's time to weather the daycare payments.


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Old 05-06-2015, 08:56 AM   #25
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Congratulations on the baby and the "survival"!

Whether anyone here agrees or disagrees with your life choices (to which you are perfectly entitled!), the fact of the matter is the storm hit, you made good solid decisions to weather the storm, and came out the other side.

Thanks for sharing. I do have an emergency fund, and I'll admit that every once in a while I think "it's just sitting there - maybe I could do something else with those dollars...". I talk myself out of it and it's stories like this that reinforce that call! Plus, being single, there is no one else whose income and/or savings stash could be tapped in time of trouble.
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Old 05-06-2015, 09:02 AM   #26
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Originally Posted by ChicagoGal View Post
Whether anyone here agrees or disagrees with your life choices (to which you are perfectly entitled!), the fact of the matter is the storm hit, you made good solid decisions to weather the storm, and came out the other side.

Thanks for sharing.
+1

OP, don't be discouraged by the Monday morning quarterbacks. You had the skills and discipline to avoid financial disaster - well done.
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Old 05-06-2015, 09:07 AM   #27
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I went through similar tough times in the mid nineties losing a job after buying a new (fortunately small) home and car after a divorce, followed by a job loss and continued custody battle over my son. I managed to survive and recover. But when the dot com bust hit, followed by 9-11, I started to think a lot more about the "what if" scenarios that could have played out. So my new DW and I began doing some serious saving and investing, but always keeping a larger than most emergency fund. I know a lot of people look more at the missing out of potential gains by keeping too much in cash or CDs, but by having several years of expenses in cash, I sleep much better at night. We all saw the markets dive just a few years ago in 2008, and we were fortunate they rebounded within a reasonable amount of time. But the big "what if" scenario for those who maintain debt in a mortgage, car loan or other instruments, is what if the markets didn't come back like Japan has been seeing for a couple of decades. What if the bond bubble burst causing a liquidity and credit crisis along with a drop in the stock market. What if bond funds drop sharply in value or close altogether and bring the stock market down with it. Layoffs could rise and finding a new job may take longer than people are prepared for, and may be for less money. Home equity loans could be reduced/cancelled by the banks if credit tightens, just like they did in 2008. Retirees with everything invested may see a prolonged drop in their portfolios forcing a drastic reduction in the withdrawal rate.
I know a lot on this board don't believe this will happen, or think they have enough to weather any storm. But we're in a situation we've never seen before with global government manipulation of interest rates and such a high level of money creation and debt spending. Geopolitical tensions are rising that could easily trigger a crisis of some sort. Many think things will chug along and everything will be great. Others make fun exaggerating this to be some sort of apocalyptic scenario. I still have half my money in stocks, but I do sleep much better with a large amount of cash and some paid off real estate.
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Old 05-06-2015, 09:22 AM   #28
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@kgtest
Congrats on the baby! Glad to hear you pulled through. Can't imagine how scary that must have been.

Quote:
Originally Posted by ChicagoGal View Post
Thanks for sharing. I do have an emergency fund, and I'll admit that every once in a while I think "it's just sitting there - maybe I could do something else with those dollars...". I talk myself out of it and it's stories like this that reinforce that call! Plus, being single, there is no one else whose income and/or savings stash could be tapped in time of trouble.
I'm actually going for a 3-tiered approach.
  1. Cash in a savings account with the same bank as primary checking.
  2. Cash in a money market account on an online bank.
  3. Invested in low to moderate risk mutual funds (either Betterment Safety Net or Vanguard VWINX/VBINX/VSCGX/VTINX) as hedge for inflation.
Unfortunately, I depleted my emergency fund for downpayment on car and going on vacation to visit my two grandmothers overseas. Worth it though, since they're 89 and 91 years old and we want to spend time with them while we still can. Rebuilding the cash reserves first and once those are replenished, I'll start putting money in the mutual funds.
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Old 05-06-2015, 03:50 PM   #29
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Congratulations on the baby boy, isn't it amazing?
I still can't believe it, now if I could only get this ridiculous smile off my face!
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