As some readers may be aware, I’ve never had an emergency fund.
During the ‘dark old days’ when I wasn’t in control of my finances, whenever there was an emergency, out came the credit cards and I just got into more debt.
When I eventually paid off my debts, I still didn’t build up an emergency fund – I used credit cards again, only this time, at 0% with plans to pay them off in full before the 0% ran out. It’s worked for me for the past 5-6 years.
So it did kind of surprise me that most PF/FI blogs I read advised building up an emergency fund equivalent to several months of your salary (some even recommending 6 months!). The more I read, the more I warmed to the idea of building such funds, so as one of my goals for 2016, I set a target to build an initial pot of £1k by the end of the year.
I know £1k isn’t much, but I have to start somewhere. In fact, at the end of December 2015, I had a starting emergency pot of £237.47.
The thing is, we’re still only in January and I’m having to dip into my fund already!
Emergency!
The other day, I broke part of a tooth (I was eating fish fingers and yes, they were cooked, which is what both my boss and my dentist asked me, haha!).
Fortunately, it wasn’t one of my front teeth, which would have been devastating but one of the back ones. Â However, I needed to get it patched up quickly or risk more damage being done to the tooth.
The cheapest option to sort it out was £222.50 and that’s NHS price! The days of free dental treatment on the NHS while I was a student are long gone!
If I wanted it done on private healthcare, the cost was in excess of £600… I of course went for the more reasonable option!
The work’s not covered under my company medical policy because it’s classed as ‘cosmetic’. Â I have a dental plan where I can claim back around 50%Â but it takes a while for the claim to be processed, so I’m most grateful to dip into the emergency fund to pay the dental bill in full.
I do make an effort to look after my teeth – I always attend my twice-yearly check-ups, use an electric toothbrush, floss fairly regularly and even use those funny little inter-dental brush things that dental hygienists recommend. My diet these days is pretty ‘teeth friendly’ too, ie plenty of calcium and I don’t tend to snack on sweets or chocolate.
Unfortunately, I have to admit that I wasn’t so great looking after my teeth when I was younger, had a far greater penchant for sweets and chocolates than I do now and by the time I was a teenager, I had a mouthful of fillings.
I now have the task of dealing with the expense of maintaining the repaired teeth which will continue to suffer from wear and tear as I get older.
This has really convinced me of the importance of building up an emergency fund to cover things like this, so I’ll be making all efforts to balance investing with saving into the fund this year.
I did consider setting up a ‘Teeth Fund’, but that sounds too much like I’m saving up for a full set of dentures – really, I’m not that old or there yet, haha!
Anyway, fingers crossed no more mishaps before I get the emergency fund topped back up!
Weenie
Sorry to hear about the tooth, hope it wasn’t painful.
I have always struggled with the concept of an emergency fund as the thought of the money not working fully for me goes against my nature. However, when the inevitable happens and I need to call upon it I am glad that it is there.
Ironically in the current market conditions I am probably making more on the interest I get from my emergency fund that I do from my other investments.
Cheers
Richard
Thanks Richard, and no, fortunately it wasn’t painful.
Yes, I think I need to get used to the idea of cash just sitting there and whilst there’s no danger of me dipping into it to spend, I could be tempted to dip into it to invest!
It’s great that even with the current market conditions, your money is still ‘working’ for you!
Hi Weenie,
Hope you have a good dentist!
As for the Teeth Fund – nothing wrong with that! I think this is a good idea.
I have visits to the dentist priced into my monthly expenses so it goes out with all the other standing orders and then sits in the cash ISA until it is needed. Any money left of it at the end of the year just rolls over into next year and builds up the pot some more.
ATB, Pinch
Hey Pinch
Yeah, he is a good dentist but does like to chat and ask questions while you’ve got your mouth wide open haha!
Re putting aside monthly for your dental expenses, I do something similar for Christmas gifts and holidays, although I think I should still do more.
I’ve now set a standing order to pay into my Emergency Fund anyway.
Thanks for stopping by!
I hate it when that happens!
I had to have a tooth extracted because I had broken it, split right down the middle. Not nice, that cost me a bit (had to pay private dentist charges) and my emergency fund came into play then. Where I live it is hard to find an NHS dentist who will take you on so I’m having to pay private fees. I hope the filling holds and the tooth doesn’t give you any hassles for a very long time….
My emergency fund came in useful to give me my ‘freedom break’ so it can be used for multiple purposes and now I am building the fund back up.
Hi SparkleBee
Ouch! Fortunately, only the corner of my tooth was broken so extraction not required!
My dentist does both NHS and private work and I believe there’s a waiting list for his practice.
Thanks, as long as I continue to take care of my teeth and not eat anything daft (there’s stuff I used to eat, which I would not touch now, eg toffees!), I should be ok for a good while!
Yep, certainly you are proof that emergency funds are vital – your fund enabled you to take a break from work and got your batteries recharged to boot! Hope’s all well with your new job.
“I was eating fish fingers and yes, they were cooked” – how many people eat them raw!?
Selling investments to pay for your teeth right about now would have been painful!
MrZ
Haha, I think both had visions of me eating the fish fingers frozen!
Yes, being forced to sell investments to pay for my teeth now would have really been painful!
hi Weenie, sorry to hear about the tooth – there are much nicer things one can do with one’s day than go to the dentist! I have to agree with you about the emergency fund though – I had an unexpected bill this month but it wasn’t as bad as it could have been simply because I had the money in the bank. I didn’t save/invest as much as I could have this month as a consequence, obviously, but I still met my goals for the month and came out a little bit ahead so it could be worse.
I used to have dental insurance but gave up on it because the insurance company was winning, basically – I was getting less back than I was putting in – do you find that overall with yours, or do you think it is worth it? ..
Hi Cathy
I don’t know anyone who likes going to the dentist, so yes, there are much nicer things one can do with one’s time!
I know what you mean about the dental insurance company winning, hence I switched a few years ago to my current plan which covers dental and optical but also stuff like physiotherapy, prescriptions and hospital stays/NHS car parking. Most years, I just claim or dental and optical, in which case I get slightly less than I paid in. I guess I’m grateful that I’m not often ill but if I were, then at least I could claim back the cost of prescriptions, etc.
I don’t like the idea of not have a good cash buff, call it partly an emergency fund will you.minhave £10k cash. For me it acts as money to use on any big purchases, unexpected outgoings and if I lost my job would pay me in the interim. This gives me a nice feeling as well as the more practical elements of not locking in losses in having to sell stocks at a bad time for example and losing part of my ISA tax wrapper as I’m still in my accumulation phase and don’t want to sell.
Hi Chris B
I’d probably rather resort to credit cards than be comfortable having £10k just sitting in cash. Although I would probably build up the cash as I get closer to retirement, I’m not sure that I need so much right now as back up. Dipping into my ISA or selling stock would be a last resort – I’ll be covered by redundancy pay should I lose my job.
Yeah its all what works for you personally really. I don’t like having all my money sitting in stocks / bonds despite how I feel about the likelihood that it will all be fine and grow etc. It’s just nice thinking even if I lost it all, I’d still have my home and a nice chunk of cash. Don’t want all my eggs in the same basket kind of thinking. Using the money due to a job loss is prob one of my main reasons. Get 3% with Santander so not too bad..
I thought about credit cards but the kind of things that I may need the money for wouldn’t always work with them. I actually think 10k cash is fairly low considering its going to be about 3% of my target liquid portfolio with 97% in stocks / bonds. That sometimes concerns me but I’ve got confidence that the world will still prosper going forward 🙂
Thanks for your reply weenie. Do you have a ceiling figure on your amount held in cash then? I presume you wouldn’t like 10k sitting in cash due to feeling you are missing out on growth?
Chris
Hi Chris
No, I don’t have a ceiling figure as such – I’m just throwing more at investments right now and yes, you’re right, to have £10k just sitting in cash would feel like I was missing out on equity growth.
I will review my situation in 5 years time as I do want to have a cash buffer to smooth things out.