The importance of the emergency fund

I have heard a lot of names for the Emergency fund: Back-up fund, F-U fund, Opportunity fund, Rainy-Day fund…whatever you want to call it, it is just semantics.

The purpose of said funds is the same: to have some cash in hand when s**t happens. And yes, s**t will occasionally happen, no matter how much we pretend it won’t.

I have written about having an emergency fund before. My views on this matter haven’t changed. With this post, I want to go from theory – i.e. having an emergency fund- to practice -i.e. dealing with an emergency-.

ENTER MY DRIVING WOES

It all started in 2014. That year, I was involved in a minor collision for which I was found 100% responsible. I had to pay a deductible when getting my car fixed. At the time it was $300, no big deal for my wallet.

In British Columbia, it is possible for the at-fault driver to reimburse the insurer for the repair costs to both vehicles, provided there is no injury claim. Doing so also “protects” the insurance premiums of the at-fault driver from increasing.

In my case, the other driver claimed injuries so I could not do this and was assessed a premium surchage over a 3-year period. In any case, I wouldn’t have been able to repay , as I simply didn’t have the extra money back then.

DRIVING WOES-TAKE 2

Fast forward to 2017, I hadn’t had any at-fault accident since then, when I was involved in another minor fender-bender for which I was also found 100% responsible!

My deductible was $ 500 this time, again no big deal for my wallet. However, because of the 2014 accident, I was looking at a hefty premium surchage. The only way for me to avoid this was to pay for the repair costs on both vehicles, AND that the other driver did not claim injuries.

THE CASE FOR THE EMERGENCY FUND

I was extremely lucky that the other driver did not sustain injuries. I was also lucky the collision was minor. The total extra costs came at just over $ 2 800.00, which I was able to repay and this is what I actually did.

All in all, the total amount I forked up-front for my driving mishaps was $ 3 600.00. The upcoming surchage I was looking at was 3 times that amount!

I might be Captain Obvious here, but I am glad  my emergency fund was here to get me out of the hole I had dug for myself! If I hadn’t had one, it would have cost me an extra  $10 000, on top of the regular premiums. That would have been a big chunk of dough!

CONCLUSION

I have yet to hear anyone -including myself- wishing they didn’t have an emergency fund when s**t hit the fan.

Much has been written and said about the good, old emergency fund. There is no question pretty much anyone needs one, including those with a hefty saving rate and those financially independent. A portion of assets should be designated as emergency fund.

Whether one needs $ 10 000, 3 or 6 months of expenses and whether said monies should be held in a plain savings account are discussions for another post.

In the meantime, and in light of these car events, I may need to devote some money for driving lessons….and that is also a discussion for another post!