After getting dragged into the world of pf blogging by Mr & Mrs PoP, Mama PoP clarifies some of her changing views on “emergency funds”. Take it away, Mama PoP!
According to many experts, an emergency fund is what you would use if your water heater died suddenly or your car needed expensive repairs that weren’t covered in your budget. I’ve never really thought that those expenses were worthy of the term “emergency”, although they are darned inconvenient. (Mrs PoP – We don’t like the term emergency fund either, so we call it a cash buffer.) But, why would you need to save three to six months of post-tax income for those kinds of problems?
I was naively viewing the emergency fund as the money someone would live on temporarily if they got fired or suddenly decided to quit their job. I always thought that this was unnecessary for me because I never really knew anyone who actually used an emergency fund that way. I thought that since I was good at my job, I wouldn’t need an emergency fund, either. I’ve recently learned the error of my thinking when Mr. PoP’s little brother was injured at work.
The injury was one of those fluke accidents that, while it was bloody and painful, at first it didn’t seem to be too bad. (Mrs PoP – Readers, we have spared you the bloody pictures that Little Bro thought were necessary to send to family and friends immediately after the accident. So. Gross.) After the emergency run to the hospital and stitches to sew up the deep cut in his finger, he was back at work the next day.
But That Wasn’t The End of It
Unfortunately, the full use of his finger was impaired and he had a lot of pain because of severed tendons and nerves. Surgery was required plus 6 weeks in a cast and no work at all during that time. Add in the required physical therapy and you have a significant outlay of money and time.
Direct medical costs such as diagnostic tests, exams, surgery, and physical therapy were covered in full by Workmen’s Compensation, but the need for cash showed up immediately in lots of out-of-pocket expenses. For example, each time he had to be seen by a doctor, surgeon, or physical therapist, it required him to take a whole day off from work. This was because he works on an island and the doctors who would take payment from Workman’s Compensation were all on the mainland several hours away. Each time that he needed to see a doctor, he lost a day’s pay. Cash flow became a serious problem.
Travel to and from medical treatment was very expensive. Some of his travel costs were reimbursed, but he had to pay up-front and then submit the receipts for payment. For example, a single doctor’s visit cost $390 in transportation fees alone (taxis and ferries). There were five doctor’s visits in addition to the emergency room and another trip for x-rays. On the day of his surgery, he was required to have a responsible adult with him who would be there during the surgery and provide transportation to his home. The surgeon would not release him to a cab driver, so I had to be there. I live three states away and took time off from my full-time job to do this.
Once he had the surgery and couldn’t work for six weeks due to the recovery time and the hand and arm casts he had to wear, Workman’s Compensation reimbursed him 60% of his average gross pay. But there was no reimbursement at all for the first five days that he was unable to work. Since he already had trouble making ends meet at 100% of his pay, this was a real problem. We decided that he would have to move back home with us during his recovery because he couldn’t afford to live independently on this drastically reduced income.
What Did He Do?
Without an emergency fund, Little Bro turned to the bank of Mom & Dad for loans. This worked out for him, but in many cases there is no family member who can shell out that kind of money and wait around to see if it will be reimbursed. There were so many delays in getting the appropriate care because everything had to be approved in advance by Workman’s Compensation. We even had to have a lawyer help out by calling the Workman’s Compensation office and asking them to take care of business!
I don’t think this experience is all that uncommon, hence the recommendation for an emergency fund. However, it seems to me that the very people who are the most likely to need an emergency fund might be the ones who have the hardest time saving money because they are barely making ends meet. In fact, those with the most uncertain jobs are told to have the most money saved.
At what age did you develop an emergency fund and start saving for the unexpected?