A few weeks ago, I took my son to a Tampa Bay Buccaneers football game. We had a wonderful, carefree experience, the home team won, and all was well. When we got home, I opened the door to enter our house, and…recognized immediately that the air conditioning was not working.
Crud.
Earlier this year, I wrote about having to pay almost $2,000 from our Emergency Fund to cover an air conditioning repair. I had been told at the time that the system would likely be good for another two or three years.
Or not.
When I bought the a/c unit back in 2016, I knew I was not getting the best system. I was still a long way away from understanding how to not spend every penny I make, so my wife and I had no money saved. Since borrowing money was all I knew, I financed the cheapest machine we could find. I didn’t take my time to do homework or find a company we felt most comfortable with, and we rushed to get the deal done so the house could be cool. Unsurprisingly, we had several problems over the years, got zero support from the awful company that did the original awful installation, and so I decided that once the machine failed for the second time this year that it was time to do a full replacement rather than wasting any more money on expensive band-aids.
This time around, there was no panic, rush, or desperation. We caught a break of a cold front that came through that same night I returned from the football game, so everyone was able to get a good night’s sleep. The following morning, I informed my boss that I needed to take a few days off, did some research online, and scheduled five highly rated companies to come out and convince me how their company could provide me with great installation, follow-up service, and a price for a great new air conditioning system within my budget.
After two days of learning more about air conditioning systems than I ever cared to know about, I settled on the one company who stayed within my price range, which I was very transparent about. I had a firm budget which I communicated I was not going to exceed. Because I no longer borrow money, I also made it clear that I did not want to hear about financing to be able to “afford” a more expensive option, as I had an emergency fund that would be used to pay cash for the new system. Only one company was able to get to my number without negotiating games (one guy texted me to follow-up and said that I could finance with zero percent interest for 18 months and he did not understand why I wouldn’t take “free money”), and I got a very nice system that our family is extremely blessed and happy to have…that set us back $10,000.
As luck would have it, literally two days after the new a/c was up and running, our garage door broke down and we had to pay $800 for a repair to the door and to have a new opener installed. Seriously?? Come on Murphy go pick on someone else!!
Unfortunately, this means that our Emergency Fund is no longer fully funded.
Again, no panic, the money was there and served its purpose. But now it’s time to get serious and build this fund back up. I’ve been here before, and as I’m preparing to get back to my pre-air conditioner/garage door fail cushion, I want to share some tips with all of you that I am going to follow to accomplish this urgent goal over the next several months.
WHAT TO DO
1.) Take a deep breath…THEN GET YOUR HUSTLE ON TO BUILD BACK THAT FUND ASAP!
What can you sell? What extra shifts or side hustle can you pick up? How can you accumulate a large chunk of cash in the shortest amount of time? As I was going through the 12 stages of grief in knowing I was writing one of the biggest checks of my life for the air conditioner and asking myself these questions, I thought about my collection of basketball cards, which have sat in various closets for my entire adult life. In between meetings with the air conditioning companies, I made an appointment at a local sports card store, and was able to sell a few pieces from my collection for some cash that is not a huge amount, but was tangible progress towards putting money back in that Emergency Fund account. If you need money, what valuables do you have that you could sell on eBay, Craig’s List, or Facebook marketplace? Are you able to take on additional work to boost income? Yes, selling collectibles or working more stinks, but it would really stink to have another big emergency without the money to pay for it!
2.) Cut your lifestyle.
But I can’t wake up without my morning Starbucks! I refuse to give up my Netflix shows! I deserve to go out to eat! I already booked a cruise! Dude, stop. How would you feel if you spent your last on a filet mignon and then had a car accident, medical issue, or something break at your house? Probably not like Mensa material. So for real, what non-essentials can you cut from your life while re-building your Emergency Fund? You can cut subscriptions for a season. You can meal plan and cook your own food (and shop at Wal-Mart or Target, not Whole Foods or Publix). You can iron your own shirts. You can have a staycation. In my household, we had been considering adopting a dog, and I’ve already sat my kids down and told them “Sorry guys, but we had to get a new air conditioner. I need to save up some more money before we can afford all the things our dog will need like food and going to the vet. We will get a dog once mommy and daddy have taken care of this.” Restaurants, vacations, and non-humans are gone from the Terry budget until further notice. I even told my regular golfing buddy that my clubs are staying in the garage for a while. Yes, it stinks to temporarily give up enjoyable things in life, but it would really stink to have another big emergency without the money to pay for it!
Rebuilding your Emergency Fund after disaster strikes should be tackled with as great of a sense of urgency as getting out of debt. Fortunately, there are many non-essential items you can choose from to cut from your budget and re-stuff this cushion as fast as possible!
3.) Pause ALL OTHER saving and investing until the Emergency Fund is full again.
Prior to the air conditioning and garage door fiascos, my wife and I had an Emergency Fund that we were in an amazing rhythm with. Once we reached the target amount of which we considered the emergency fund to be “fully funded” we continued to chip in a nominal amount each month that helped cover two flat tires, a new car battery, the air conditioning repair that didn’t last long, and a few other mosquito bites. We also have been depositing money each month into Roth IRAs, College Funds, and other investment/retirement accounts, in addition to paying way above the minimum on our mortgage so that sooner than later we are living the dream with a fat nest egg and no house payment. All that is now on hold, but what’s awesome is we are so used to living on less than we make to make all of that saving and investing possible, we now have a ton of wiggle room to add a huge chunk into the Emergency Fund account each month until the target goal is hit. I anticipate getting back to our target amount within the next four to five months. Yes, it stinks to temporarily pause our non-emergency saving and investing, but it would really stink to have another emergency without the money to pay for it!
WHAT NOT TO DO
1.) Don’t panic…Desperation and feeling stuck often lead to bad decisions.
Like I said, with the first a/c I was in panic mode and made a rushed decision because I couldn’t stand the heat. Now I know I caught a break with the weather being cool during the week of the company interviews/install process, so what if this machine had broken in the middle of a summer heatwave?
I would do the exact same thing and take my sweet time to figure out the best long-term option. I mean I basically just bought a car!
Hearing the naysayers screaming: BUT HOW COULD YOU SLEEP WITHOUT AIR CONDITIONING FOR AN ENTIRE WEEK? Dude, I live in Florida. I’ve been through several hurricanes and tropical storms that have knocked it out. We survived. We could also find a hotel for a few days. Yes, that adds to the final cost, but I’d rather invest in a cool place to sleep as a last resort than rush to get ripped off by a company that doesn’t care about the job they do. I’ve said this before; the buyer always has more power, not the seller.
It's the same deal when your car breaks down. You don’t HAVE to go to the closest dealership and finance the first car you can’t afford. You can rent a car, you can work with your spouse to carpool, or take your time to compare prices at one of the hundreds of other dealerships. Another option if you are diligent and have good attendance at work is that you can take a few days off and do some research to figure out your best course of action. I rarely miss work if it isn’t an illness or other emergency, so I’ve saved up around 140 personal and sick days at my job. Not only can I take a boatload of paid time off if I need to, but will also be able to cash in a lot of that time if I move to another organization or when I retire, and get a nice check!
2.) Don’t take money out of retirement or college investment accounts.
If you are reading this section, I’d first like to congratulate you for being on the right side of the coin flip, because sadly, nearly half of American households have no retirement savings, according to usafacts.org. It may be tempting to pull money from a 401K or other type of retirement fund, but here’s the inconvenient truth: First, you are borrowing from your future self, which is totally lame. Second, you will be charged a 10% penalty from Uncle Sam for pulling money early from a retirement fund, PLUS pay income tax as that’s what this transaction would be treated as. In other words, you are basically borrowing from your future self at super-high interest. That’s almost as crazy as using credit cards!
Also, please don’t steal your children’s college money! Not only will the same 10% penalty and income tax apply as described above, but you are adding risk to your child(ren) participating in the TWO-TRILLION DOLLAR STUDENT LOAN CRISIS because you couldn’t figure out how to get some cash together. Like Paulie warned Henry Hill in Goodfellas, “Just don’t do it”. If you haven’t seen this movie, it’s a must-watch (once the kids are asleep). Spoiler alert: Henry didn’t listen to Paulie, and there were consequences.
3.) Don’t borrow from your home’s equity.
In current times, if you’ve owned your home for as little as two or three years, you probably have a nice big chunk of equity built up already. I’ve owned my current home for eight years and would walk away with around $300,000 net profit if I sold the property today. It can be tempting to tap into that future equity and stock up on cash with a home equity loan or HELOC. Again, listen to Paulie. Per investopedia.com, there are many risks that come with these loans, the most obvious being that if something goes sideways and you can’t make the payments, you could lose your home to foreclosure. The article goes on to say that “The best alternative to a home equity loan is a fully funded emergency fund”. I would concur!
There are many options at your disposal to consider when re-growing your Emergency Fund, so don't panic! After you have gotten into a calm, rational mindset, avoid pitfalls such as paying for the cost of the emergency with a credit card, or stealing from your future and being heavily penalized by borrowing from retirement/college funds/your home's equity.
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