Six Month Stretch – Making An Emergency Fund Last

One of the most common pieces of personal finance advice is to save three to six months of living expenses in case of an emergency like illness, job loss, accidents, or disasters. As many people know, it’s easier said than done. It can often take a couple of years to build that type of cash reserve, especially when you’re trying to pay off debt at the same time. However, the emergency fund is critical to avoiding the need for more debt when major expenses or loss of income happen.

Notice I didn’t say if financial emergencies occur. Life is such that it is only a matter of time before the roof caves, the basement floods, the pink slip arrives, or Murphy rears his head. The hope is that the calamities have the courtesy to not show up prior to thorough preparation. Some of us are luckier than others with this roulette game. Even though I’ve had some major home repair costs in the last twelve months (Goodbye $3000. Hello new water heater), I’ve been able to cash flow the expenses without touching my emergency fund (full disclosure: that doesn’t mean I haven’t taken a few “loans” from it for less noble reasons).

Thankfully, in spite of my periodic tendencies to “borrow” from it, as of September 1, 2017 my emergency fund had a balance equivalent to a healthy four months of living expenses. I had just replaced over $700 I’d withdrawn the prior month and recommitted to cutting back on spending to avoid any further dips. This renewed resolve could not have come at a better time as I was laid off less than two weeks later. I am pretty sure that imminent (f)unemployment counts as an emergency situation.

As I think about it, I’ve heard endless admonitions to save more, but I’ve never seen anyone show how to spend the savings during long term emergencies.

Come January 1, 2018 I will be living off my cash reserves so that gives me about three months to figure out how to make my funds last the six months that they are supposed to. Here is my plan so far.

1. DO NOT TOUCH THE EMERGENCY FUND BEFORE 2018! I will be receiving my regular income through the rest of the year and will handle all major year end expenses with that cashflow (medical bills, life insurance premium, etc).
2. DO NOT CREATE MORE BILLS! This includes large one time purchases as well as new monthly expenses. Wait. Do international flights count?
3. REDUCE RECURRING EXPENSES. At the beginning of the month I fortuitously canceled the $79 monthly donation I make to Chicago Athletic Clubs. Running outside is free.
   
   On the days that I just can’t, the good folks at Daily Burn will stream torture workouts to my computer for $15/month.
   
   I’ve also reduced the premiums on my beloved Silver Betty. She’s a 2005 Pontiac but she was insured like a 2017 Infiniti. While I couldn’t bring myself to only do liability insurance I did reduce the coverage levels and increase my deductible to save $21/month.
4. PUT AGGRESSIVE DEBT REPAYMENT ON HOLD. I have just under $32K of student loan debt remaining after knocking out $20K of it over the last year. My plan was to throw the majority of my bonus at the loan to finish paying it off by the end of the year or by February at the latest. With the layoff notice I decided against this and added the bonus money to my emergency fund to bring it up to six months of net pay. Additionally, I will cut my regular monthly payment in half. I currently pay almost 3X the minimum payment. However, at a 3.5% rate (albeit variable) it doesn’t make sense to continue to be this aggressive while I do not have income. While I can’t bring myself to only budget for the minimum I feel comfortable decelerating my payments for a while.
5. SUPPLEMENT HOUSING COSTS WITH AIRBNB INCOME. I have been an Airbnb host since 2015. Normally, I rent out my condo for no more than 14 nights per year in order to avoid having to report the additional income on my taxes. Since I am expecting to be in a much lower tax bracket in 2018, I can host more nights without the income costing me a $1000+. I’m currently deciding between renting the entire apartment for 1-2 months while I live rent free with my family in Africa or staying put but renting out my second bedroom for ten to 15 nights a month. I feel like that is a good alternative to getting a full-time roommate.
   
6. COLLECT UNEMPLOYMENT BENEFITS. If I stay stateside I will collect unemployment benefits. I would be silly not to do so.
7. SECURE PART-TIME EMPLOYMENT. I have been wanting to open a business for a year. A grocery store to be exact. After seeking advice from industry experts it was suggested that I build my bonafides for investors by working in a grocery store. With a full-time 9-5 this would have required giving up my evenings and weekends. Being (f)unemployed I could work 15 to 20 hours a week without killing myself to do so. While it would reduce my unemployment benefits I think the upside is well worth it.
8. COVER ENTERTAINMENT WITH MYSTERY SHOPPING. I have been an avid mystery shopper for a year and especially gravitate toward the ones that offer generous reimbursement for dining out and amusement. I’ve been able to treat friends to dinners at damn good restaurants at little to no cost. The key is to let your guest know the shop reimbursement limit and requirements before going out and having an action plan for who will order what. I have also been to MLB games (with good seats too!), museums, and movies for the can’t beat it price of $FREE.99. I do have to pay for everything up front. However, reimbursement is no more than 6-7 weeks later, shorter if I complete assignments toward the end of the month.
9. BUDGET, BUDGET, AND BUDGET SOME MORE. The key to not blowing through six months worth of income in three months is to stick to a realistic budget. Although I am interviewing for new roles, I am mentally prepared to not return to full-time employment for some time. Living on finite money requires not only creating a plan but abiding by it too. We know that hasn’t been my strength. I respond well to accountability so I will be doing monthly budget breakdowns on the blog to keep myself honest.

If I follow these nine steps I am sure that I can go well into next summer without either needing employment or liquidating any of my stock portfolio. The one caveat is healthcare coverage. My employer is covering six months of COBRA which will take me through early May. After that I will either have to pay for my own COBRA premiums or find a new plan on the market.

I currently have excellent coverage which I am loathe to give up as I use a whole lot of it. Between now and my termination date I’m getting all the care I can while I still have employee coverage.

Anyone else ever lived off of their savings for more than three months? Any advice for me on further cost cutting? What did you do about health insurance?

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