I think the last time I even considered the emergency fund was back in 2016.  Back then, we were still putting so much towards loans that we were otherwise living paycheck to paycheck.  That meant that we were bouncing from one bill to the other.  It wasn’t all bad, we did get all our credit card debt paid off, paid off the car, and paid off at least one student loan as well as my bar study loan so something was working.  But we were always on the edge.

Over the past year, I think, we’ve really come out of that mentality.  We eased up on the loan repayments so that we could actually put money aside for irregular expenses, and kept enough in our slush fund so that this month’s paychecks are put aside for next month’s expenses.  These two things alone have made such a big impact on my mental state because it feels like we’re finally getting ahead of our finances, instead of always playing catch-up.

However, and in something of a surprise to me, the spouse has gotten bitten by the debt pay-off bug much harder recently than I had ever anticipated.  He’s been asking more and more when we can start increasing the student loan payments again.  Well, with a move and a baby on the way, I keep saying this is really the time to be putting money aside for those two big changes, and then we can reassess once we’re settled.  As we get closer to having the baby as well, I feel like I’m going into hoarding mode a bit.  I want to save up every cent possible, so that if something goes wrong we have the funds to cover it.  Suddenly the idea of having an emergency fund has become a lot more important.

Fortunately, I think the spouse agrees with me.  He’s said he’s willing to forgo increasing our student loan payments until we’ve built up a sufficient emergency fund.  “Sufficient” in this case means we’ve settled on a 3-month emergency fund.  We spend around $4,500 to $5,000 a month, including on loan payments, so for a 3-month fund we’d aim for $15,000.  Fortunately, based on our current cash and investment holdings, as long as the birth doesn’t get really complicated, we are pretty much there.

Just as a side note, I disagree with Dave Ramsey on not needing an emergency fund until the debts are paid off.  That’s not really “step 2” when you’re looking at a payment timeline as long as ours.  There’s just no way, in reality, that we are going to make the next 10 or 20 years without an emergency fund.  Something is bound to come up in the meantime for which we are going to be really happy that we have money socked away.

Currently, we have about $13,000 in savings, and $6,500 in investments.  We also have about $34,000 in retirement, but that’s pretty useless in terms of an emergency.  The savings is split between about $6,700 in medical expenses, $4,000 in savings for moving, and $3,000 in actual emergency fund.  If we’re lucky and the birth of the baby is straightforward and uncomplicated, the total cost should be only $350 out of our pockets.  In that case we can add the $6,700 to our emergency fund.  We think we’ll use all the moving money we’ve saved so far for moving, between getting all our stuff to the new place, and first month and security deposits.

If we’re lucky, after the birth that’ll give us about $9,000 in savings for the emergency fund plus the $6,500 in investments, or $15,500.  That puts us right at the 3-month emergency fund level.

I don’t mind having some of our emergency fund tied up in the market.  We have a $15,000 limit on our credit card, and that’s where we do all our spending anyway.  If we have something come up, the plan would be to put the expense on the card, and then use the cash from the savings account to pay off the credit card expense.  If we run out of cash, we start selling off investments.  Since credit card bills are only due once a month, that gives us plenty of time to sell and move things around if worst comes to worst.

We put $50 each month into our investment account (it also grows via dividends), and $175 each month into savings. Theoretically, we could let the investment account continue to grow through dividends (and at least in theory market gains, but let’s see how that goes) and let the savings account grow through interest and put that $225 per month towards debt repayment instead.  That would knock a year off the spouse’s loan repayment schedule (4 years instead of 5 years), and save us roughly $1,500 in interest.  If we throw “extra” money (tax returns, christmas gifts, etc.) at the loans as well, that will decrease time and interest.  And then we can start getting stuck in with my loans.

Of course, if I decide to go back to work and manage to land a well-paying job, then that will help even more.  In that case, we may decide to go to a 6-month emergency fund and then funnel my paycheck towards student loans.