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How An Emergency Fund Saved My Family

  November 4

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how an emergency fund saved my familyThe following is a post by my friend Syed. Syed is an optometrist by day and a blogger by night. He’s also enrolled in my coaching program and is doing very well! So I’m quite pleased to welcome him to the blog today to share his story.

The best way to describe having a baby is being on a roller coaster. There will be a lull right after a precipitous drop, but it usually won’t last long as the next drop is right around the bend. And just like a roller coaster, parenthood can be fun, exhilarating and stressful. One thing I wanted to make sure not to get blindsided by is the financial impact of having a baby.

I did my due diligence by interviewing other new parents and looking up the best prices for the thousands (yes there are a thousand) of things our boy would need. One aspect I thought I had in control was the hospital bills. I knew that health insurance wouldn’t cover everything, but it would cover most of it and with my FSA from work, I figured I could cover a good chunk of it tax free. To use an FSA effectively, it’s all about timing. I learned this the hard way.

The Good News

My wife learned she was pregnant around early April 2012. The doctor said that the baby will most likely be due early to mid January 2013, citing the fact that most initial pregnancies will result in delivery being on time or a little later (Wrong, doctor, WRONG!). The FSA enrollment period at work was in October, so I figured I could elect to have the max amount of FSA money ($2,500 at the time) to pay for the hospital bills, and cover the rest out of pocket if need be. Well, if need be became my only option because my son decided to come into the world almost 3 weeks early! Not surprised considering how he always has to be on the move nowadays (he’s almost 2 now).

Being the newbie that I was, I figured it wouldn’t make a difference. I triumphantly paid the first few hospital bills with my FSA card and thought I was all that. But a few days later I got an email saying my payment was denied and I had to call customer service. I talked to them, and they explained that in order to pay for the service with FSA money, the service had to have been performed in the same year. Which means my FSA is only good for procedures done in 2013. I was on the hook for all the bills out of pocket!

Never fear

While this was not good news to hear, all was not lost. When I first started working full time, I set up an automatic transfer from my checking account to my savings account every month. I read that this was a good idea, so I set it up and never thought about it. Well it is an amazing idea and it saved my hide. This was the first time I was taking a significant amount of money out of the emergency fund, so I had more than enough to cover the hospital bills. And my God they just kept coming! One bill for the hospital services. Then one for the anesthesiologist. Then another one for blood work. I think the last few bills came in when my son was 6 months! American health care bureaucracy at its best.

I was also able to use my reward credit cards for the payments. I had a few cards which I needed to spend a certain amount for a sign up bonus, and I was able to charge the bills on the credit card and then simply move that amount of money out of my emergency fund to pay for the credit card bill. Score! I realized later I could have done this with my FSA as well by just submitting the receipts in, but that sounds like a lot of work.

Bottom line

Emergency. Funds. Matter. There are some in the finance blogosphere that look down on emergency funds because you can “put your money to work” in other places. Well if I listened to them and stashed that money in a retirement account I wouldn’t have been able to pay those bills with minimal stress! I would have had to work a lot more, gone into credit card debt or borrowed money from family and friends, none being very enticing options. Having an emergency fund on hand in an easily accessible online savings account is something I will never ever abandon. I knew that financial emergencies happen from time to time with a baby, but my little guy didn’t want me to wait!

As fate would have it, my wife needed a dental procedure that year and we both needed glasses so we were able to use the FSA money anyway. Things seem to work out for the best. But only if you have an emergency fund!

Syed is a personal finance blogger at The Broke Professional, which focuses on giving useful financial advice to new graduates. He also works as a full time optometrist. He has a beautiful wife and son who mean everything to him and is a really, really big New York Giants fan. Follow him on Twitter at @thebrokeprof

Editor’s note: I feel you 100%, Syed. Before I uploaded your post, I wrote 4 checks for various medical bills from the twins’ birth. They are 7.5 months old now and we’re STILL paying for stuff for them. It’s crazy!

Readers, has an emergency fund ever saved you in a bad situation?

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37 responses to “How An Emergency Fund Saved My Family

  1. I am glad you were wise enough to have had money put aside Syed! Having a healthy E-fund brings such peace of mind in the event of unforseen financial events! When I was younger, I didn’t bother with one and in one instance I found myself in a jam when I didn’t have enough cash to pay for a car insurance deductible after an accident. I did eventually learn the importance and I was able to fully fund the E-Fund after paying off debt.

    1. It really does bring piece of mind. Life throws curveballs at you from time to time so might as well be ready for them. Thanks for the comment Kassandra.

  2. We have a large E fund, about a years worth of living expenses, which many bloggers think is way too large and just wasting away not being invested, but what matters is making sure you are comfortable with your situation. So I’m glad that your e fund served you well and you didn’t regret not having one readily available.

    1. Wow one years worth is awesome! You’re exactly right having that large e fund is giving you more piece of mind than investing can buy. Thanks for the comment Robin!

  3. Like you our emergency fund has saved our family….many times over. Recently it has come to the rescue again! I had to have dental surgery and the dental insurance didn’t cover it like we thought they would, my husband had to have a CT scan, both cars are acting up and just last night my cell phone was damaged beyond repair! Murphy (Murphy’s Law) has moved into our spare bedroom! If it wasn’t for our emergency fund I don’t know where we would be financially right now.

    1. Wow emergency fund to the rescue! Yeah dental work can be a pain (pun intended) since insurance never really covers as much as you think. Thanks for the comment Tenille.

  4. Glad that it worked out. Hopefully it didn’t mess you up on the other end in that you had probably set your FSA contributions for 2013 and might not have needed them all, in which case they could have been wasted once the year ended.

    1. Yeah the use it or lose it rule was worrying but we had some dental and vision expenses so we were able to use it up. That’s one reason I like my HSA the money is yours forever. Thanks for the comment.

  5. Hooray for a defense of the emergency fund! I feel like they’re a dying account in the PF world, with our focus on opportunity costs. What about unexpected costs? 😉

    1. I agree. To each their own I guess but I would much prefer having some easily accessible money in the bank as opposed to not having it. Thanks for the comment.

  6. I’ve had to use mine for my car a couple of times already. I haven’t been successful in getting my EF up to my $1k goal yet, but even still I’ve been happy to have what I did in savings when my car repairs struck…

    1. Something is better than nothing. Cars and babies increase your chance of needing some money in a pinch, so emergency funds are integral for me. Thanks for the comment Kayla.

  7. Yikes! How great that you were able to tap into your emergency fund and take care of it. It’s ridiculous how expensive fast money can be. A great reminder to make sure my own emergency fund is where it needs to be…

  8. We love our EF! Sometimes you just need those assets to be liquid. Sorry about the stroke of bad luck with the FSA, but good thing you were prepared and glad it all worked out in the end!

    1. Yeah I would say love is the appropriate emotion when it comes to an emergency fund. Thanks yeah I’m happy things worked out the way they did.

  9. Babies certainly come when they’re ready. I think it’s very important for parents to keep a larger E fund than people without kids. We had three ER trips before age two for various reasons. It would be easy to go into debt if you didn’t have money saved up. As an adult, I would put of going to the ER unless it was dire. I would not hesitate if it was my kid.

    1. That’s a good point. We want the best for our kids and that means we need to be willing and able to pay a little more than we would on ourselves. Thanks for the comment Kim!

  10. Wow, the land of the (nothing for) free huh! Out of interest how much does it cost to give birth in the States? I harbour daydreams of moving to the US but the health insurance issue is the sticking point. Coming from a country with nationalised health care it would be hard to give that up. I had my son in Australia and it cost me $70 for the initial doctors visit, everything after that was free. The care I received was top notch.

    1. Yeah healthcare is not a reason to move to the US. For $70 I’m not sure if a doctor here would acknowledge you! America does have its perks, but count your blessings that you don’t have to endure our healthcare system. Thanks for the comment Emma.

  11. Saving for long term like emergency fund is really advantageous. We know how it feels when an accident has happened and we are not financially prepared. Gosh, I wouldn’t like to find myself in that situation.

    1. That’s definitely a tough situation to be in. The best time to start saving for an emergency fund is when you don’t need it. Thanks for the comment.

  12. This has definitely motivated me to start growing my emergency fund even more. Unexpected, expensive dilemmas can happen instantly and it’s always better to have cash readily available in those types of emergencies. Great article!

  13. I used to think it was unwise to have emergency savings while I was still carrying credit card debt, considering the interest I get on my savings account is so low compared to the interest I get charged on credit cards, but having a savings account has been a huge part of my getting out of debt plan. I was essentially using credit cards as my emergency funds, thereby perpetuating the vicious cycle. It’s nice to have real money now, for when life pops up and happens.

    1. I have read some people who propagate using a credit card as an emergency fund. This can be potentially disastrous to your finances since you will end up paying huge interest rates. Even a few hundred in the bank can help. Thanks for the comment.

  14. Totally agree on the value of an emergency fund! It was the first thing my husband and I ever saved for and we’ve maintained it for years now. You’re so right that you just cannot predict when you might need an influx of cash, even when you’re as careful a planner as you were! By the way, many congratulations on your baby :)!

    1. yes you never know when you’ll need the money, but you can be sure that you WILL need it at some point. Thanks for the comment and for the congratulations. He’s a little crazy rugrat with seemingly unlimited energy now but we still think of him as a baby!

  15. We went through our emergency fund during my maternity leave. We had saved for the time off but underestimated the cost of medical bills and baby supplies. We were slowly building it back up when the water heater burst- destroying the basement. Sometimes you just can’t anticipate costs. I started a second job to help, but just can’t seem to get ahead!

    1. Sorry to hear that. Seems like everything that can go wrong does go wrong. But think how far behind things might have been with no emergency fund at all. Hope things work out! Thanks for the comment.

  16. We too, learned the hard way of the expense of having a baby with our first. Hospital births are ridiculously expensive and I love how you brought up the point of your FSA only being good for 2013. That is a problem a ton of people have when faced with medical bills because the enrollment periods are always in October and November leaving part of the year to go.

    Love your story! Emergency funds ROCK!

    1. Thank you for the comment Jessi. Yeah it speaks to the nature of our healthcare system that the baby decides if I can take advantage of my FSA but it’s all about timing in the end.

  17. Wow! We’re so lucky in the UK to be covered from those medical expenses. Great work in preparing beforehand!
    One of my goals for 2014 after clearing my debt was to build up an emergency fund. Upon achieving this a few months it feels amazing! To know that I am no longer living hand to mouth and if anything ever happens I am completely covered for over 4months. Emergency funds are sooooo important!

  18. I’ve always thought FSA funds are a bit of a gamble – while you are starting your family anyway. Hard to know the right amount to get in there and you have to diligently use it. But, glad you had that emergency fund to dip into!

    Both my girls were “late” by 7-8 days. We paid out of pocket for both of them in order to be able to birth with midwives. Good news is that they are much, much cheaper!

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