12 Month Emergency Fund Challenge

12 Month Emergency Fund Challenge

Why you need an emergency fund

In 2009 my young children were having a sleepover. We had moved our couch to set up some pop-up tents in the lounge for a bit of fun. Later that evening I was playing chase with them around the house. As we ran through the lounge the children jumped the couch like jackrabbits through a fence.

Wholeheartedly engaged in my role as the scary monster I completely forget about the low beam that ran through the middle of our lounge ceiling. That same beam was now positioned right above the couch.

As I placed my foot on the couch and stood up I hit the top of my head with full force straight into the beam. It was was like someone had taken a sledgehammer to the top of my skull. The pain was incredible.

I saw nothing but white light as my head filled with a high pitched ringing and my brain felt like it was going to explode. The next day I could not walk, I was slurring my words, I couldn’t stand any amount of noise nor bright lights. Injuries like this can prove fatal. In that respect I consider myself lucky, I got away with a severe concussion, the effects of which would last over a year.

The not so lucky part was that I was unable to work. I had no income insurance, no health insurance and worse still I was self-employed as an I.T. contractor. That meant if I didn’t work, I didn’t get paid.

I was forced to take four months out of work and then over the next 6 months or so I took a gradual return to work. The headaches limited how much I could focus on my job. I was tired all the time and in constant pain, more so when I did anything that required any level of concentration.

We got through that period by freezing our mortgage for 3 months and living on credit cards. It was the only way.

It didn’t end there!

Twelve months later, as the headaches began to subside I began to experience intense pains down my neck, back, arms and hands. This was no ordinary pain, this was crippling.

After turning to chiropractors, physiotherapists and osteopaths it transpired that I had crushed a disc in my neck. The sticky fluid was rubbing on my spinal chord in the middle of my neck causing intense nerve pain.

As it continued to rub it was wearing away at a protective sheath that wraps around the spinal cord. The pain got worse by the day. I desperately needed time off work. Every time I would move my fingers to type on the keyboard I would experience intense, emanating pain.

I could hardly work, I couldn’t sleep, I couldn’t play with my children. It was one of the worst moments of my life. Pain medication would do little to calm the effects. Morphine gave me a few brief weeks of reprieve before my body got used to the drug. I began to slip into depression.

There was light on the horizon. I was scheduled to have a cervical disc replacement, an operation to remove the perforated disc and replace it with a metal device drilled between the two vertebrae in my neck.

In an ideal world, I would have spent my days in bed not moving until I could have the operation. But we were in intolerable debt from the twelve months prior. We would not survive another twelve months of me not working. I had no savings. no emergency fund and thus no luxury to take time off work when I needed it the most.

If only I’d had savings and an emergency fund!

Twelve months after experiencing the first of the nerve pain in my arms, neck and back I had the operation. It was an incredible success.

Never again would I take my health for granted. And from that point, I vowed to get myself out of debt, stay out of debt and build some savings so that I could navigate any storm that life would throw at me.

More importantly, that was the moment I knew that I needed to change my income so that I would never again be reliant on income based on my time. I would begin a quest to earn passive income online.

But I tell you this small part of my story to explain to you the utter importance of at least having an emergency fund. It’s crucial because you never know when life is going to hand you something unexpected.

Life can throw you varying degrees of unexpected challenges. More recently I had used all my income to pay off debt. In fact, I made a huge mistake and opted to use my emergency fund to pay off debt, thinking I could build it back up before something bad happened.
Then, my washing machine broke, my car needed some maintenance and my son ended up in the hospital. All of these unexpected events would have warranted dipping into my emergency fund. Paying off debt was not a good enough reason and it left me short when I really needed it.

What is a good emergency fund amount

The general advice on how much you need for an emergency fund is $1000. This is money you should prioritize before paying off any debt. Think of this money as your lifeline when things go wrong.

And, because it’s your lifeline, you don’t touch it until you are desperate! If you find yourself in trouble try to find all kinds of other ways to find the money before using your emergency fund. Read this great post setting out three questions you should ask yourself before using your emergency fund, it will help.

How to save for an emergency fund

If you’re in debt you’ll probably want to start paying off debt fast. High-interest debt and the interest it costs you can often pressure you to not focusing on putting money aside for an emergency fund.

If that’s the case for you then you can break your emergency fund payments into manageable chunks throughout the year. The 12-month money challenge will help you save $1050 over the course of a year. It makes it easy to start saving and it reduces your payments into your emergency fund in the run up to Christmas and New Year so you don’t feel the pressure.

You set aside the following payments in each month as follows:

  • January: $25

  • February: $50

  • March: $75

  • April: $100

  • May: $125

  • June: $150

  • July: $150

  • August: $125

  • September: $100

  • October: $75

  • November: $50

  • December: $25

At the end of the year, you’ll have $1,050! This makes it an easy and fun way to build up an emergency fund.
If you get paid weekly or want to break up the emergency fund challenge into weekly bite-size pieces then check out this post.

Should I invest an emergency fund?

A lot of people tend to ask whether they should invest their emergency fund. I tend to think that an emergency fund is a pot of cash that’s easily accessible.

For example, in the instance when my car had a problem I couldn’t get to a cash machine. When my son ended up in the hospital I dropped everything and went, stopping off at a cash machine was the last thing on my mind. Having cash to hand in these moments is a life saver. So personally, I prefer to keep my emergency fund as cash.

There is some sense to putting some of your emergency funds into a savings account which you can access via an ATM, for those moments when you can’t get home for example. You may also feel that having this much cash in the home is safe. In this respect, you could always keep a percentage in the bank and the rest at home.

Whichever option you choose, remember it’s for an emergency!

The difference between emergency fund and savings

There is a big difference between an emergency fund and having some savings. Dave Ramsey recommends to build up your emergency fund first, followed by six months of savings for unexpected life events.

When I banged my head, $1000 of emergency funds wouldn’t have taken my family and me very far. Granted, it would have helped, but for these bigger challenges, it’s always best to try to put six month’s of living expenses aside.

You may or may not be in debt but I’m assuming you don’t have an emergency fund if you’re still reading. If so, I can imagine six months of savings would feel like a mountain. You should focus on building the emergency fund first, then pay off your debt and finally work on those savings.

Your savings are things that you should invest, preferably in a term account that pays you a higher rate of interest if you don’t touch it for a particular period, yet gives you the ability to access it if you really need it.

My final thoughts

Life can get pretty stressful when you have unexpected challenges thrown at you. It was pretty stressful to have my son in the hospital and my car was broken. When I suffered the head injury the stress levels went off the charts! The increase in stress hindered my recovery and along with the pain I plunged into depression. No one expects these things to happen but it’s imperative you plan for them and an emergency fund is the first small step to covering yourself financially. An emergency fund can give you some breathing room when you most need it. Start today, use the 12-month money challenge, it’ll make saving away this crucial cash easy!

Tell me about a time when you wished you’d had an emergency fund, or if you had one and it saved your bacon in the comments below. I’m sure your experiences will help guide others to making this sensible choice to save some money away.

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