Okay, first off, I have to apologize - I get a little crazy sometimes and I love this subject so much that I can come across as a know it all, a crazy person, and a jerk all at the same time. I get so wrapped up in wanting to bury you with information that I forget to ask questions! Had I been thinking yesterday, I would have asked "what emergency are you worried about?" The three biggies: Medical emergencies, car repairs, house repairs.
Out of the three listed about, only one is a true emergency. Which one? Medical. Because we all know our bodies are going to break down, but the extent of our bodies breaking may not really be conceivable. You could easily rack up thousands of dollars in medical bills. Hopefully you have health insurance which transfers some of the risk to your insurance company. But even with health insurance, a 20% co-pay could mean a $10,000 medical bill. Emergency, you bet! Will your $1000 BEF cover it, not really. But guess who is awesome about settling bills and taking payments - the medical industry! Worst case scenario, you make payments to the hospital that saved your life. That's the one place I wouldn't mind making payments to!!
Car repairs - I know, they seemed like an emergency all those times you needed to fix your car and you were broke and didn't have the money to do it. Car repairs are not emergencies. Nope! If you know that you average $1200 in repairs a year, then car repairs need to be a part of your budget. You will want to set up a sinking fund of $100 a month just for car repairs. This is different than an emergency fund. An emergency fund is for unforeseeable events. Cars break down. We all know that. So therefore, not an emergency. Go ahead and save for it, but don't call it a part of your emergency fund. It's your car maintenance sinking fund.
House repairs - if you are renting, good for you!!! You are in a good position in that you don't have to pay for repairs. Thank your lucky stars because house repairs are pricey!! Again though, house repairs are to be expected. If you know your roof is old, and you will need to replace it in a few years, then yes, by all means, add that to your budget and start saving for it. But don't call it an emergency. An emergency, when it comes a home, is a fire, lightening strike, flood etc. In which case, hopefully you have good insurance to transfer some of the risk to your insurance company. If something trully catastophic happens, you will only need to pay your deductible. See? House repairs are not an emergency.
What if I don't have enough in my budget to cover sinking funds? What we did, is we didn't start sinking funds until just recently. But what I would suggest, is focus on getting one or two of your smallest debts paid off to give you some breathing room in your budget, THEN start sinking funds. Does this make sense?
For instance, if you have a snowball of $1000 a month, dude, go ahead and set up a sinking fund for car repairs! But if you have a snowball of $50 a month, then go ahead and focus on knocking out your smallest debt with that $50. Also, start selling stuff. Clothing, tv's, DVD's, furniture, whatever you can! Get that snowball up because the faster you get some breathing room in your budget, the sooner you can start saving up for the non-emergencies that will visit you!
What would Nic and I do if we had a true emergency? We would sell our stuff like crazy. Before we would ever go into debt, you better believe that we would not own much except maybe some clothing.
Here's what we would sell in the case of a true emergency:
1. Dining room set - would probably sell quickly for $500
2. Guitars, amps, pedals - I have no idea what these would go for, but we could get some money quickly.
3. Two bedroom sets, all of which were free to us but in really nice condition - probably could get $400
4. Couches - would not bring a lot since they were used when we got them, but hey, $50 is $50
5. Car - sell it, walk to work, car pool to church. Yep....we would do this. Maybe buy a beater for $500 which means saving the difference of our car which is worth more than that.
6. House - if it came down to it, we would sell and rent. You can rent a nice studio apartment in Raytown for $400 a month. Sweet!
Okay, I know this is a long post, but I had to get it out. I do not ever want to go into debt again, and I am willing to be a crazy person to not do it!
Okay, I'm done....thanks for reading!
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3 comments:
I'd just like to add my 2 cents about selling things....
One downside to selling miscellaneous items to pay down debt would be the usual hassles and expenses often associated with that. For example, eBay requires very difficult accounts to be set up, they charge a percentage AND a flat fee as I recall, and then you have to worry about shipping (an enormous hassle for large items). Classified ads cost money, etc.
But craigslist.org has a number of excellent advantages for this application:
1. It gets hits. I got substantially more traffic from a Craigslist ad for my car than for a $50 premium Auto Trader ad when I was selling it.
2. It is free!
3. It is locally based, so you don't have to worry about shipping.
4. Payment is easy because transactions are face to face and in cash...no worries about Paypal accounts, money orders, etc.
So if you have stuff that is worth anything, craigslist is a great way to start getting stuff out of your house and money into your snowball.
Number two on the list of items to sell, made me well... shiver, cry, faint, and generally feel nauseated. I'm not 100% positive, but I think I had some type of emotional reaction on the thought of me having to do the same.
Hehehehe...yeah, I didn't ask him about that before I posted. That would be an EXTREME emergency. It would have to get pretty bad before we did that!
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