Emergency fund on crack.

October 18, 2011 · 23 comments

From age 0 to 21, my parents were my emergency plan. I had no job, no income, and no assets. I was dependent. Upon graduation, I got my current job and started putting money in the bank. While it took a few years to completely cut the proverbial umbilical cord from my parents, I am now completely mostly self-sufficient. This means I’m now responsible for all emergency planning.

Girl Ninja and I have $10,000 sitting in a savings account specifically marked for emergencies. If the car breaks down, we tap this fund to fix it. If someone is in the hospital, we have the ability to buy a plane ticket to visit. Our emergency fund provides peace of mind.

But what if Girl Ninja and I were faced with a $20,000 emergency? Or a $50,000 emergency? Or a $200,000 emergency? What would we do then? I’d never thought about it before, so I figured I’d make a list as to exactly how Girl Ninja and I would handle expensive emergencies. Hopefully it makes sense…

$0 – $10,000: Use up all of our emergency fund.

$10,000 – $50,000: Above, plus use up all our liquid cash.

$50,000 – $55,000: All of the above, plus a loan from a bank (guesstimating we would qualify for a $5k unsecured loan).

$55,000 – $65,000: All of the above, plus selling one of our vehicles (we like having two cars, but we could definitely survive with just one).

$65,000 – $85,000: All of the above, plus ask family for help. Depending on the type/urgency of the emergency, I’m guessing we could get up to $20,000 from relatives (likely more if it was life/death issues).

$85,000 – $105,000: All of the above, plus liquidating my Roth IRA.

$105,000 – $120,000: All of the above, plus use of credit cards up to $15K.

$120,000 – $140,000: All of the above plus taking out a 401K loan (keeping in mind it might end up a withdrawal if I can’t pay it back due to whatever said emergency was).

$140,000 or more: Beg people (even you readers) for money, sell my blog, all of our possessions, and anything else that has monetary value that we don’t need.

And that’s as far as I could get. Don’t know what I’d do if we were faced with a $200,000 imminent emergency. Where does one get cash when all resources have been exhausted?

Never really thought about an emergency exceeding our $10,000 e-fund account, but that could obviously happen so it’s worth thinking about. We like to pretend life is going to go according to plan, but unfortunately that’s not always the case. I live by the mantra you should hope for the best and plan for the worst. Can’t go wrong there, right?

My list is probably way different than yours. Maybe you would use credit cards before tapping your parents? Maybe you wouldn’t ask your parents at all?

If you don’t want to be lame, you should probably share in the comments below how exactly you would handle an emergency. Try and list amounts and ways you’d get the money like I did above so things stay simple. If you want, you can comment anonymously and provide a fake email address so you don’t have to worry about your personal information being out there.

So reader, how much of an emergency could you handle, and how exactly would you handle it?

{ 23 comments }

1 slug | sunkcostsareirrelevant.com

I’ve always thought I had the skills to pull an armored car job. Perhaps a $200,000 emergency is all the incentive I would need. Of course aside from pirate kidnappings off the coast of Somalia, I’m not really sure how one could find oneself in an emergency that large.

Whatever happened to that guy who stabbed your brother in the neck by the way?

2 Larry

Maybe he needed a $200,000 emergency fund to post bail.

3 Jon - Free Money Wisdom

Haha, I laughed at this comment. Perhaps you could show me how to pull a job like that off too? Yeah, I wouldn’t know how to recover from that type of emergency either. I’d be sunk.

4 AMD @ amomsdime

My first thought was that if I had a $200K emergency I could sell my house…only it might end up creating another side emergency without having a place to live. If the emergency were big enough I could hopefully count on moving back in with family if that were the case!

5 Daisy

LOL. A $200,000 emergency would be crazy unlikely. If I had one, I would have to just NOT deal with the emergency. I have a $5000 emerg fund right now. My parents don’t have $195,000 cash hanging around, though I’m sure they’d help me as much as they could, but that’s even overwhelming to think about!

6 Beef

Bankrupcy

7 Emily@Skinny Jeans, Fat Wallet

A $200,000 emergency? That’s PROBABLY going to be something medically-related.

I would imagine if significant other or I had cancer or an immediate medical emergency, I would tap my parents for cash before asking for a loan from the bank or selling my car.

I would imagine most parents would be very willing to give in that instance.

8 Joe C Skrizel

i have 2,000 in savings for emergencies anything more than that would go on a credit card up to 10K i cant imagine any emergency costing more than 10K in a short time, like a week. Anything longer than a week could be planned for with other means. i have good insurance, both auto and health/life which provides some peace of mind.

9 Jules

That’s why insurance is an important part of under-30 personal finance, and it’s where lots of Gen Y get stuck. Since we don’t always have the deep cash reserves to pull from, we have to have some type of safety net. I carry only catastrophic health insurance and, even though it costs me $80 a month to have, I know that if I get cancer or injured in a car accident or something that I will be covered, even if it’s a high deductible plan.

Most of the friends I know with financial struggles have them because they had an illness or injury without insurance and are now thousands of dollars in debt. One girlfriend was sledding and shattered her pelvis. She’s more than $40k in medical debt now on top of her student loans, all to save less than $100/month on insurance.

My parents advised me to have a specific emergency fund just for my deductibles and it has been a great peace of mind to me (also, it helped me set a smaller, more reachable goal for emergency fund saving). I added up all my deductibles for car ($500), renters ($1,000), & health insurance ($3,500). If something crazy happens and I need to pay all of them at once, I’ve got the $5,000 on hand at all times to pay them. I went on to save my own $10,000 emergency fund for 6 months of living expenses, but my deductable fund stays put no matter what.

10 changeonabudget

This is why I love the public healthcare system in Canada. That is probably my biggest emergency fund.

11 Ann

Well, we haven’t had the 200k emergency yet, but we have had the 100k. We liquidated our savings, and borrowed from one 401k. Emergency come in all shapes and forms and also they basically (the bigger ones) come later in life. Like when your children (28+ years) need your help. Maybe they aren’t life threatening just lifestyle threatening – whatever – have to be addressed and funded! Thanks for sharing, very thought provoking!

12 Jenna, Adaptu Community Manager

I’m not anticipating a $200,000 emergency since I don’t own a home and I have health insurance. But it would go:
1. My emergency fund.
2. Hit up my parents.
3. Credit card.
4. Retirement accounts.

13 krantcents

What kind of emergency are we talking about? Someone ransoms my wife? How much is she worth to me. I would call in the FBI for that one. If I replaced 2 cars, I would take a loan. I could handle anything within reason.

14 Kristin

The only emergency I can think of this big is if somehow you got sued for something or for medical debt. I had a friend that pulled a prank that unintentionally hurt a stranger quite badly while in college, and there was a lot of legal issues and work needed. He ended up having to pay a really large fine because of it, and I was told he was covered under his parent’s insurance of some sort and so he didn’t have to pay it out of pocket. I’m not really sure how this works, though. That’s why you want to make sure that, for example, your car insurance policy insures you up to the value of your assets. That way, someone can’t take everything you own if you get into an accident.

15 changeonabudget

To follow your format:

$0 – $15,000: Use my emergency fund ($2000) plus all available liquid cash.

$15,000 – $20,000 – Search for any and all charities that might be able to assist me.

$20,000 – $60,000 – Dip into the cosigned Line of Credit with my parentals, who would have my back (unless it was for bail)

$60,000 – $65,000 – Cash out my RRSP and investments

$65,000 – $70,000 – Max out credit cards or beg a bank to loan me anything else they can

$70,000+ Sell everything I own, consider illegal ways to make money, freak out and rock slowly in a corner until it’s all over.

My risk tolerance for an emergency is pretty minimal at this point. Thank god Canada has public health care or I might be too afraid to leave my house!

16 MommaStar

Scary to even imagine a $200k emergency can happen.

17 Donna Freedman

My daughter became very critically ill when she was 19; in fact, she nearly died. I never got a close look at the hospital bills because I was living in the hospital for a few months. Mynow-ex took care of them.
If we hadn’t had good insurance, we would definitely have been looking at a $200k+ emergency. Just the first two weeks on life support in the ICU could have run that much, given everything they had to do at that time.
Had we had to pay for it out of pocket? We couldn’t have. No doubt we would have sought forgiveness of some of the costs and paid the remainder in monthly installments for the rest of our lives.
My point…and I think I did have one….You can’t really anticipate a $200k emergency. Stop thinking about it or you will go mad. Save what you can and be as careful as you can. Oh, and don’t have the bad judgment to be one of the 10 of every 1 million people predisposed to get Guillain-Barre syndrome.

18 Emily

Me thinks you might be driving yourself to the edge of reason. Hope you have your seatbelt buckled. Not sure what type of emergency you anticipate being in the 200K range, but of the ones I can think of (house burns down, life threatening medical emergency, you run over some meandering pedestrian) there are insurance policies in place usually that will pick up the bulk of the cost (homeowner’s, medical, umbrella) leaving you in a position where you won’t have to come up with 200K cash overnight.

19 Mortgage free Mike

A 200K emergency? First thing that came to mind is medical. And that’s why it’s so important to have quality health insurance.
Let’s all hope no one reading this has a 200K emergency, EVER!

20 Jason

So jealous of your E-Fund. I hate to say it, but anything more than a few hundred dollars at this point and I would need to head to the national bank of Mom and Dad. Hopefully that will change in the near future!

21 Drew @EpicFinances.com

I would just like to make one comment – if you are hit by a giant disaster, say you have $50k saved and you get hit for $250k —

DO NOT RAID YOUR RETIREMENT ACCOUNTS for the remaining 200k.

It is time to declare bankruptcy.

Your retirement accounts are for the most part — completely immune to your debts. Bankruptcy will clear your debts and retain your retirement accounts. I understand it kills your credit, but you are retaining that 200k.

22 Trina

I honestly couldn’t sleep last night thinking about a $200,000 emergency. That would be quite a doozy. All I could imagine was a terrible medical expense. I definitely don’t want to be lame..so we would probably (in order) use our e-fund $3,000, use our credit card $5,000, empty travel, down payment, kids savings and stock accounts 15,000, sell car, sell rental property. Ick. I’m grateful that we could get there, but it is a depressing thought. Thanks for that Ninja.
Short term goal is to get e-fund to 10k asap!

23 Rafiki

I think you have a pretty good plan and we will always hope all emergencies come within a 10k limit. My plan is similar but what I’ve been considering recently is a bottomless emergency fund. That is, once my emergency fund is at a limit I am comfortable with, I will set up a small transfer to continue to keep funding it, that way, the longer I go without emergencies, the bigger it will be.

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