When the Emergency Fund is Depleted

I am sure many people have experienced anxiety when they dip into the emergency fund.  Recently, I had a meltdown with my computer, literally.  As in I plugged it in and there was a very large sound, then the smell of burning plastic, then, yup my computer was pushing up the daisies.  Since it was a relatively old model, and I have been contemplating a new computer, and I had been fairly good about backing up data, the decision to buy a new computer was relatively easy. However, the trepidation of taking the money from the special account designated for capital equipment which has been accumulating nicely for some time, somewhat surprised me. This is the same feeling my friend Karen had when her car broke down and she had to take the money from the emergency account for repairs.  Obviously, both expenditures were necessary, but made us see that management and vigilance with these funds is a good thing, especially to help us sleep better at night.  I realized that I like having nice full emergency funds and targeted long-term savings and need a plan to re-stock them and target them better.  Here’s what I’m planning to do:

–Double up on contributions to the depleted fund for several months — the goal is not to immediately replenish the fund, but to build it back up (in case of an unplanned second emergency) at a faster rate.  The funds will come from what was targeted for savings/investment, but doesn’t derail any long-term goals.

–Re-evaluate the size and liquidity of existing emergency funds and long-term expense accounts – with monthly recurring bills, it is easy to see if the budget amount actually corresponds to a reasonable amount.  With one off expenses that happen rarely, this may not be the case.  In my case, the equipment expense fund may be increased by 10-20% going forward, largely to take into account the necessity of things like a laptop to conduct everyday activities.  The funds were also being held in an ING Direct savings sub-account, making it easy to access with no penalties.  This has been my preferred vehicle since opening these accounts a few years ago.

–See if there are areas to cut back on, even in a small way — for me, the obvious is on extra spending, eating out, and upcoming Christmas gifts.  Instead of other things, I may request some specific software for my new laptop, which can be thought of as both utilitarian and fun.  It isn’t that these cutbacks will replenish the fund, but that it is useful to have compensating behavior to offset some of the spending impulses.

–Try to relax a bit — many times, stressing over large (necessary) purchases and accounts is counterproductive. I will be able to pay off the purchase in full and a good plan is in place.  Added worry is not helpful.

shared at this week’s Carnival of Personal Finance