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Having an emergency fund for surprise home costs

By on March 10, 2014


Today I want to wax poetic for a bit about the importance of having an emergency fund when you’re a homeowner.

Having an Emergency Fund for Surprise Home Costs | Rather Square

Actually, most financial experts (if not all) will tell you that EVERYONE needs to have an emergency fund, regardless of whether or not they own a home. An emergency fund is simply an account where you save a certain amount of cash to be used for unexpected life expenses. It’s something that you can access easily if you need to, and use to pay for large necessary purchases without incurring credit card or other debt (and therefore additional interest costs).

There are different arguments for how much you should have saved in an emergency fund (anywhere from $500 to a year’s worth of living expenses/salary), but the basic idea is to have something set aside for those times when a sudden financial emergency occurs so you can be prepared. (For more reading on this subject, check out these articles from Get Rich SlowlyKiplinger’s and GoGirl Finance.)

When you own an old home like we do, having an emergency fund is even more important. During our home inspection, even though our house is in relatively good condition for its age and had been well-maintained over the years, the inspector pointed out several issues that would be expensive to address. Our garage, for example. Even though it has a new roof, it’s not as structurally sound as it could be, and the cement floor is heaving due to old tree roots underneath.

Garage, Before | Rather Square

The inspector also pointed out that our furnace was very old and would probably need to be replaced sooner than later. And the electrical system throughout the house was a mixed bag of wiring and grounding and circuitry, and would have to be updated as soon as possible.

Basement Electrical Box before

John and I had been saving money toward future house expenses even before we bought our house. We strive to live as debt-free as we can, and our practice has been to to actively put a certain amount each month (we even have an automatic deposit set up so that we don’t forget) into an all-purpose savings account. We’ve been able to fall back on this cash reserve in the past – for example, during my income-less maternity leave, and when John was laid off from his job while we were engaged – so we know how valuable cash savings can be.

With some of the money in our savings fund, we were able to address some of the house’s inspection-report issues right away, such as having the electrical and asbestos problems fixed.

Asbestos

We also replaced things like the non-working dishwasher, the worn and germy carpet, and the old laundry machines that came with the house. But other things we decided to try and live with as long as possible, such as the old but still-working furnace and the old but still-standing garage.

While we also did a lot of cosmetic improvements to the house after closing, we were very mindful of being frugal with these updates and holding onto as much cash as possible in the event that something bigger and unexpected might happen. To keep expenses in check, we did all the painting ourselves, DIY customized our built-in bookcase, and bought secondhand furniture. John even installed a security system, smart thermostat and humidifier himself.

Priming Wood Paneling | Rather Square

Replacing an Old Humidifier | Rather Square

By being frugal and thoughtful with our lifestyle, we were able to build up a pretty healthy amount of savings in our emergency account. And then recently, that emergency account suddenly became ever so necessary. One cold winter night last week, our furnace broke down. And the next day we found out it couldn’t be repaired and we’d have to pay for a whole new system.

The Night our Furnace Died | Rather Square

Among our first reactions to this news: “Thank God we have an emergency fund!” Heating and cooling systems are not cheap, and it’s not a project you should DIY or skimp on. These systems cost a fair bit of money because they are integral to your home’s wellbeing. You could even think of a furnace being the heart of the house, pushing warm air through the ductwork “arteries” to each room and keeping the home livable. So when we were put in the position of hastily researching a new system and getting several estimates, we felt fortunate that our careful saving habit kept us from being stuck with the cheapest (in price and quality) option. We were able to think long-term and invest in a upgraded system that’s efficient and the best fit for our particular needs.

How We Pay for Surprise Home Costs | Rather Square

Having an emergency savings account can have a domino effect of saving you even more money as time goes on. In addition to avoiding interest payments (that we would have incurred if we’d used credit to pay for our new furnace), we will be paying less on a monthly basis for our energy costs because we’ve now invested in a much more efficient heating and cooling system. And by having enough funds to pay for this large purchase up front, our monthly expenses won’t increase (in fact they will probably decrease because of the lower energy costs).

How We Pay for Surprise Home Costs | Rather Square

The only real financial pain we’re feeling from this major event is the depletion of our carefully hoarded savings account. It will definitely take a while to rebuild it back up to the nice cushion it once was, and we’re evaluating our finances and expenses for the near future to accommodate this. But the bottom line is: our emergency fund did its job. We literally could not stay in our house for about two days while we were between furnaces because the single-digit winter weather made living conditions too dangerous. This was a real emergency, and we were fortunate to have the resources to address it quickly and correctly.

Now if the garage can just hang together for a few more years… fingers crossed!

What about you: do YOU have an emergency fund? Or have you ever had to use yours for an actual emergency?

(linked on Remodelaholic)

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March 10, 2014

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