This is a repost that is part of a series that I did back on August 19, 2009 when this blog was on Blogger.

Expenses (Photo credit: Phillie Casablanca)

In continuation from part 3, of this series on “How I Got Out of Debt” and use of the book “Debt Proof Living” by Mary Hunt, today’s topic will be on the ever so glamorous tool called “the Contingency Fund”, aka emergency fund aka old-fashioned savings. This is in addition to the “Freedom Accounts” mentioned in part 2. It’s primary function is for large erratically occurring things like the furnace going out in the middle of winter, or even more prevalent in today’s environment, a job loss.

Now I went ahead and talked about the debt elimination methods before I talked about savings. That was assuming that your income producing situation is pretty stable, however IMHO, everyone should have some form savings that can sustain you for a while regardless. It keeps you from having to use the credit cards and paying interest because you did not have the money the pay bills before the due date. In my state it takes at least 3 weeks for unemployment to kick in. I know that the interest being paid on savings accounts is really sad to the point of being criminal, but unless you’ve been hiding under a rock for the last few years, the environment for the average person that loses a job due to no fault of their own, is less than ideal in terms of being supportive. If you are like me, moving back home is not an option, so basically you are on your own.

This fund if being used to sustain in the event of a job loss, is for expenses like rent/mortgage, food, utilities and other basic needs. The lower your expenses are, the longer your fund can sustain you if it has to be used as such. That’s why it’s great to be either debt-free or close to it.

OK, I did a hybrid of what many of the financial gurus including Mary Hunt, the author of this book we are currently discussing was recommending at the time. My reasons for doing that were 1) I was single  and as I mentioned earlier, moving back home was not an option if my job suddenly disappeared and 2) I had a rude awakening when my father passed away in October 1998.  I took off a week from work to help my mother. The job I was working at the time was the type where if you are not there, you don’t get paid and I had only been there 7 months so there was no vacation time that could be tapped into. Now I totally understand that so I’m not complaining, just giving background as to where I’m coming from. I had no savings at the time and was not offered any assistance from my mother. If it was not for a dear friend who had only known me for 7 months prior to this and my boyfriend of 9 months prior, now husband, who gave, not loaned, but gave me some money to at least pay the rent…I don’t know what I would have done. That y’all was a very low point for me, but at the same time a blessing from the universe that still makes me emotional to think about to this day, 11 years later. I vowed not to abuse that blessing by being stupid, continuing to live paycheck to paycheck when I knew better. Lesson learned.

So instead of the recommended at that time (2001) of 1-3 months of savings or pay off non-mortgage debt first before putting money in a lowly savings account, I got a bit of savings up equal to 1 months expenses, hurried up and paid off a couple of credit cards so I’d have that money and at the same time cut my everyday expenses back so I’d have a bit more to build up my savings to 3 months worth of expenses. Back then the job was pretty secure as I moved up. Then I eliminated all non-mortgage debt while at the same time putting at least 10% of my earnings into the Contingency Fund. That got me to about 6 months worth of expenses. Once I eliminated the non-mortgage debt, those payments went toward saving up 18 months worth of expenses. During this time I had a few major house repairs, like fixing a leaky utility room roof leak, replacing the 20-year-old central heat/AC unit, the A/C compressor, and a few other things that took that extra 6 month cushion. I stopped there letting any additions to the account be in the form of the earned interest. Once I paid off the mortgage I continued to build this fund as I could even though I’m no longer working as of December ’06 and my husband out of job since November ’08. This is not a plug for sympathy, just telling it like it is. If I had listened to what most people were telling me including my family, a few friends and DH, that I was crazy for putting all that money towards debt and savings, we’d be up the creek without a paddle in a boat with gaping holes at the bottom right now.

For you astrology students like myself, Saturn is transiting my 1st house right now, just as was 29 years ago. Of course, I was 13 back then but the basic context of my current situation was going on back then as well, just different characters being my parents. This is when my Dad had his fatal/near fatal heart attack. What I mean by that is he was dead for approx 2 minutes b4 he was revived, so this was a massive heart attack. As a result, Dad was not able to work at all for about 18 months and did not have a full-time job for 4-5 years after that, mainly due to employers being afraid to hire him because of this prior health issue. Along with that, Mom did not get a job until a few years after I left home at 19 years of age. Though it was not discussed with me at that time, I now know that this was only possible due to Mom’s material security consciousness and Dad’s good financial sense. I’ve mentioned it in previous posts… Mom’s a Leo, he was a Taurus. Now they were not debt-free but there were decisions made years earlier that looked at the long-term consequences of one choice over another. Many of those choices Dad made, even though Mom was angry about it at the time, made a whole lotta sense in the immediate days/years following the heart attack. Hmm, I hope that I’m learning the lesson Saturn is presenting right now.

I’m not a financial adviser or anything like that, just offering my personal story and opinion for you to learn from. Having said that, my advice would be to of course look at your situation because everyone’s is different. However “job security” is an illusion so if you have $0 in savings, pay the minimum payments on your debts right now, cut back on your lifestyle and get at least 1 month’s expenses aside. Then work your way up to whatever level of savings is comfortable for you. Once you get there, start getting rid of that debt like a mad person while continuing to build your savings.

One more note, this is not to be considered an investment account. It is money that is to be liquid and that you can get to in a reasonable amount of time. So it should be in a safe bank, credit union or something like that. I was teasing at the beginning when I called it glamorous but in my reality, it really is just that and I’m exceedingly grateful for it.

Stay tuned for part 5.

Related articles

• Gettin’ Outta Debt pt3- The Debt Snowball (ceraisis.net)
• Gettin’ Outta Debt Resources I Used to Become Debt Free pt2 (ceraisis.net)
• Resources I Used to On the Road to Being Debt Free pt1 (ceraisis.net)