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Ask Dave

Not Enough Emergency Fund

Ryan has $1,000 in his emergency fund. Last summer, his air conditioner stopped working. Ryan is concerned it could go out again. Should he increase the emergency fund to prepare for this looming emergency?

QUESTION: Ryan in Dallas and his wife have $1,000 in their baby emergency fund. Last summer, their air conditioner stopped working. It was able to be repaired, but Ryan is concerned it could go out again. Should he increase their emergency fund to prepare for this looming emergency?

ANSWER: One thing that’s bumping around in my head is the same thing happened to us. We were so broke we couldn’t pay attention. You’re way better off than we were when it happened to us. We had made the decision we don’t borrow money for any reason, so we spent about $300 putting an old used compressor into a heating and air system that caused it to be able to last two more years until we got back on our feet after bankruptcy days. When the thing came up, we were able to pay the $2,000 or $3,000 or whatever it was at the time to replace the heating and air system, which did ultimately happen eventually.

I just don’t know how tenuous this air system is. It’s hard to tell based on what you told me. It kind of sounds like you charge it with Freon and go another year. If you want to slow down and do this, that’s fine. As a part of that, though, I’m going to tell you that you need to do something to crank up and accelerate the pace at which you’re getting out of debt. It’s a little slow. A thousand dollars a month on $70,000 is slow based on what other people do that have gone through our courses, that call in here with their debt-free scream and everything. So you’ve got some more cuts to do and maybe some extra work to look for. In 12 months, $1,000 a month on $70,000—that means you’ve got another five years. That’s not okay. You’re going to have to jack that up a little bit.

Having said that, then every time something comes along, I don’t want to derail your purpose and your focus and your passion and your zeal to sacrifice, cut deep, and get there. But if you want to jack that thing on up maybe to $3,000 or something, maybe even $4,000, that’s fine, but then you’re going to have to find somebody to do the work for that if it comes up. But you kind of know this is coming, so if you want to do that, that’s fine. But under no circumstances are we going to borrow money.

If it goes out and you don’t have the money to fix it, you’re going to buy some window fans at Walmart and make it. That’s what we did, and that’s how we limped through, and we had babies in the house and it’s August in Tennessee, which means you can cut the humidity with a knife. It was miserable. I remember it like it was yesterday, and it was 25 years ago. I don’t wish that on you. I want you to get out faster, and I want you to be able to solve this.

Yeah, if you want to beef it up a little bit knowing that this thing is hanging on by a piece of baling wire, then yeah, that might be a smart thing to do.