Greetings Friends of Defined Sight!
Earlier this year we we shared an article how a budget and an emergency fund go hand-in-hand. Both are underappreciated and can be overlooked; only 39% of Americans can cover a thousand dollar expense. You don’t have to be an economics genius to understand this doesn’t cut it when life throws you curve balls.
Today we bring to you 3 scenarios of why you might need a huge @$$ emergency fund. These are 3 very real life situations that could happen to you, but we hope never do.
1. Your Home Is Damaged And Insurance Doesn’t Cover It
We shared in the last post our home was damaged by a flood, caused by our neighbor and we were in the midst of battling it out with insurance companies.
Our insurance company gave us the middle finger. Nothing covered.
This put a great deal of responsibility on us to go after our neighbor’s insurance company on our own. Or the back-burner plan of having to sue our neighbor.
After a few months of battling it out with them, their insurance company finally came through to cover the cleanup and depreciated value of our loss. Future article idea: it’s who you know.
Here’s the breakdown of what would have been on us if insurance would not have covered some of our situation:
Cleaning Services: $6,000
It cost about 6K to suck up over 1,000 gallons of mud and water out of our home. As well as for ripping out all the carpets, tiled floors and the bottom 2 feet of drywall. And hauling the crap off in a dumpster the size of a train car. This was for about 1,632 square feet of damage.
Day 1 our insurance stated that everything was on us to pay until our claim was accepted by them. I was only 8 weeks pregnant at the time, as well as we have a toddler, and so living in these conditions was unacceptable and a no-brainer for us to call an emergency cleaning service to get the job done asap. Bonus: it was in the hot summer months. 2 days of letting it go would have turned our home into a petri dish. I am thankful they were able to come out within 12 hours.
We had to provide a $1,000 check before the cleaning services even stepped into our home and the rest was billed to us a week later.
If you are tight on funds, you can pretty much stop here and enjoy living in your now naked home.
Restoration Services: $26,000.
If insurance doesn’t cover your claim, you can buy the material to re-finish your home and do it yourself to save try and some money.
However, timing to get the job done was a factor with a baby on the way, another wild child running around in a construction zone and we are not in the Newlywed Phase of DIY, so we went with the same cleaning company to do our restoration because they are locally owned and have a rock-solid reputation.
We opted to not go with carpet and instead went with vinyl plank which was more expensive but…OMG ya’ll I love it and hate carpet.
The depreciated value their insurance covered was about 21K.
Personal Loss = $10,000 + Priceless Memories?
The estimated price of our personal belongings (furniture, clothes, etc.) would have been about $10,000 to replace with new. Their insurance covered the depreciated value, only $4,500.
We pretty much put that value toward the additional cost of the flooring and are enjoying a more minimalist lifestyle with less clothes, furniture, toys, etc. Who needs photo albums and other priceless memorabilia and scrapbooks? Meh – it’s just clutter at the end of the day. Bright side: we are ready for RV life.
Situation 1 Takeaway: if you are a homeowner, be prepared to have an emergency fund or alternative cash flow to fund disasters if insurance fails you. My heart goes out to all of the states that have been affected by hurricanes and flooding and I can’t imagine the stress of what a total home loss is for them.
2. You Get The Opportunity To Buy A House Worth 185K For 25K That’s In Perfect Living Condition
Umm. Hello. Where do I sign up for this house flip investment?
This past year my grandma moved into an assisted living wing of a nursing home to be closer to her partner who has Alzheimer’s. Since she’s physically and mentally healthy, she wanted to downsize and sell her home while she was still alive and not place the burden on her children.
Unfortunately, when my grandpa passed away almost 20 years ago, she put the house in all of her children’s names (she has A LOT of kids). This is a big no-no. Especially when some of those children have filed bankruptcy, had gambling issues or other financial constraints.
Needless to say, about half the kids wanted the house to sell for what it’s worth to get a bigger inheritance and the other half wanted it to stay in the family. Specifically, give the opportunity for my sister and her family to buy it who live in a 35 year old trailer that will likely burn down some winter since it hasn’t been kept up.
They asked if my sister could come up with 30K.
She couldn’t get a loan for it.
However, after many negotiations with the bank, they allowed her and her husband to borrow up to 25K against their retirement accounts.
Naturally, my sister and the rest of the family (not me, I stayed out of this family drama!) argued for a few months over the situation. Quite a few family relationships are now broken. All the kids have finally signed the sale of the home. And my sister and her family are starting to move into it.
Most couples we know our age, who have been financially conservative with their money and invested wisely over the years, could easily have come up with 25K in a day, or a loan, to purchase a great property flip or cover an emergency fund situation.
My sister is likely not that bright to think of it as a property flip. I am trying to have faith they will take care of it. Not turn it into a hoarder’s home. And I hope they are able to enjoy this house in a great neighborhood close to the schools they are already attending, to raise their kids in it for many years to come.
Situation 2 Takeaway: Work hard when you are young. Pay off your debt. Budget. Stay out of foolish money spending activities. Make your money work for you. And most importantly, work on providing safe living conditions for your family. Duh.
3. Don’t Depend On Inheritance To Float Your Retirement
This is a spin off of number 2, but one of my aunts is almost 70 years old and was depending on the sale of my grandma’s house to live off of it.
Her cut would have been about 23K if the house would have sold for what it’s worth.
What do you and I know about 23K? Yeah, that’s peanuts in your retirement.
This aunt was bold enough to write a letter to each family member stating her social security check was only $369/month. And that’s it. No further income. No savings. And a piece of crap car to get her by in life. But it’s her birth right to have an equal, fair share of everything her parents earned in their lifetime.
Let’s break down my aunt’s life choice fails that got her in this financial situation:
- she had no jobs in high school. I realize many kids don’t work in high school. But my opinion: working when you are young establishes a hard work ethic early.
- she went to college until she was 28. We would call most people doctors by that age, but nope. She finally graduated at almost age 30 with a masters in art. Yup. Like painting on a canvas with a stick.
- she sprained her wrist in her 30s which ended her aspiring artist career and also prohibited her from cleaning people’s houses which was her side gig. I don’t judge people’s pain, but I will say that I also severely sprained my wrist several years ago. It took about 2 years to heal, 3 months of physical therapy, I wear a brace during contact sports now or excessively cleaning or painting my house and it slightly aches in the winter. But it didn’t prohibit me from paying off my personal debt or stop me from working my way up to several successful positions in a workplace.
- she married a man who was also living off his very wealthy parents and took care of her student loans and personal debt. He worked at a hotel his parents owned. And she pretty much just stayed at home and cooked meals. No kids. No other main activities but a few social events and vacations for weeks at a time throughout the year funded as gifts from her in-laws.
- she buys 100% organic food and clothing (is that even possible? I can’t find this at Walmart).
- she divorced the man after his parent’s died thinking she was going to cash out on his inheritance. Nope. His parents were apparently financially savvy with their money and had measures in place to distribute cash and properties to their kids and grandkids appropriately. She walked away from the divorce with about 100K in cash and the existing car she had in the marriage.
- she moved from a relatively low-cost, mid-America state to one of the most highest cost of living places in the southern USA (can you guess which one?). Needless to say, the 100K in cash was blown pretty quickly with no other sources of income.
- she was getting paid about $20/hour to take care of a wealthy, elderly man in his home after he had a stroke this past year. We are talking basically make his meals and helping him get in/out of chairs or the bathroom. That’s it. He recently died. She’s out about earning 30K/year which covered her rent and monthly expenditures. And has no other back-up job (it took her about 3 years to get this one).
Situation 3 Takeaway: Don’t depend on anyone else to improve your life or your financial situation. And for goodness sake, don’t depend on an inheritance to float your retirement. The Declaration of Independence says we have the right to pursue happiness. But no where in there states we are entitled to it. If you aren’t happy with your financial situation, audit your life decisions or circumstances and identify solutions on how you can fix it. And hopefully, not at the cost of others or breaking relationships.