Emergency Funds (once you have them) generally bore the crap out of me. You stash some money away in a “high interest” savings account or even in a brokerage account* and let it sit, hopefully forever, or until you have need to access cash quickly. They are the pace car of racing. The halftime show of the super bowl. The “How to start a blog” of blogging. Boring.
I say “generally bore the crap out of me” because I recently underestimated our cash stash and it did a wonderful thing for our finances. Simply having the money sitting there paid us dividends. I’m not talking about the measly 1.5% either. It has potentially saved us thousands of dollars.
This post continues on my trend of finding ways to optimize your finances, saving a few thousand dollars might not seem like a big deal in the grand scheme, but it is necessary for us to sneak these wins in whenever we can.
*Something we will consider once our kids are a little bit older, I feel like having money on hand during pregnancy and delivery is necessary due to the higher potential for medical costs.
When your Emergency Fund Starts Paying Dividends
First, a quick story so everyone knows where I am coming from. A few months ago we switched out our car for something slightly bigger. We considered this a priority due to the second car seat situation and decided to buy a certified pre-owned car (yay for avoiding the first 3 years of depreciation!).
After we agreed on the purchase price with Mr. Salesman, I knew what was coming next. Time for the dreaded extended warranty pitch. As you will see below I was not about to get jerked around and decided to end the conversation as quickly as possible.
Car Finance Man: “You are covered for 1 year/12,000 miles because you bought a certified pre-owned car. Let’s go through the options for warranty extension”
Slides over a piece of paper with the cheapest option just under $2,000
Me: “We can skip that, I don’t want to waste your time. We aren’t going to extend the warranty”
Car Finance Man: “I can work on the numbers if you feel they are too high”
Me: “No thank you, we are set”
Car Finance Man: “May I ask why you don’t want one”
Me: “We self-insure for car repairs and at the off chance the engine dies at 70,000 miles I will pay out of pocket to fix it”
Car Finance Man: “Ahhhhh. Ok”
This guy also tried telling me that I wasn’t approved for a 2.49% interest rate by our credit union because “they work with them” and the best they get is 3.49%. He was wrong. If he only knew who he wanted to talk money with!
Having Money, Saved Us Money
After thinking back over this conversation a few times, I started thinking to myself. Ya know what, maybe that Emergency Fund isn’t so boring. It allowed me to take a risk that I might not have taken if we didn’t have that buffer.
As long as our car doesn’t blow up in the next few years, we come out ahead by a few thousand dollars minimum based on the extended warranty options. Considering it got all the recommended scheduled maintenance under the lease and only had 57,000 miles when we bought, the odds are in our favor that we won’t be paying out of pocket to fix something major.
Other areas your Emergency Fund can pay out some dividends
- Skip out on minor insurance coverages (Pet/Travel Insurance for example)
- Drive an older car without having to worry about covering the repair costs
- Every warranty ever offered, EVER, at the checkout line (especially on appliances)
- Paid full in cash discount for medical bills. (you tap the emergency fund but I have heard of people getting 10% discounts on their medical bills for paying right away with cash)
The same way my FU fund allows me to be more bold about how I look at work, our Emergency Fund allows us to take some calculated risks that can save us money. It also lets me sass people at the car dealership that question my financial situation and isn’t that what it’s all about?
Kinda funny how it all works out, once you have money you get to save more of it.