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How My Emergency Fund Saved My Finances

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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In 2012, Heather Vernillo, then 33, learned she had kidney cancer. The Tampa-area nurse had emergency surgery days later. While her health insurance covered 100 percent of her care, the experience left her unable to work for 15 weeks. This translated to more than four months of missed income, plus a $1,100 monthly bill for COBRA, which kept her health coverage intact during her involuntary hiatus.

Vernillo’s emergency fund turned out to be her saving grace through an ordeal that cost her roughly $7,000.

“The situation pretty much wiped out my savings, but it was worth every penny,” she told MagnifyMoney.

Vernillo’s experience underscores the vital importance of keeping a cash reserve on hand. Still, two-thirds of Americans would struggle to cover a $1,000 emergency, according to a 2016 poll conducted by The Associated Press-NORC Center for Public Affairs Research.

Vernillo is no millionaire. As a nurse, her annual income fluctuated between $95,000 and $50,000 before her diagnosis. (She took a pay cut when she moved from New Jersey to Florida in 2012.) Nonetheless, she says her approach to building her rainy day fund was simple: She set up automatic monthly withdrawals from her checking account to her emergency fund, treating it like any other line item on her budget. It took about two years to build up a fund sufficient enough to cover the expenses she incurred during her medical crisis.

Now, she is focused on rebuilding her fund. This wasn’t always financially easy, she admits, but after her health scare, it was a top priority.

“I’ve been able to partially replenish [my savings] and currently have about two months’ worth of expenses tucked away, just in case,” she says.

Choosing your best worst option

When people don’t have cash on hand for emergencies, they’re more likely to turn to alternative borrowing methods that could wind up costing them much more down the road. (Hello, payday loans.) Sometimes, it can feel like a painful choice from an array of bad options.

If you’ve exhausted all your best options for cash — you’ve emptied your bank account and asked friends and family for loans — then it’s time to look at your next best alternative. And at this point, it’s about choosing the option that will cost you less in the long run.

If you’re overwhelmed with medical bills, for example, ask the doctor or hospital to put you on a payment plan. Or consider a personal loan or a low-interest credit card — whichever option carries the lowest APR. Check out our ranking of the 10 best options for cash when you need it fast.

“If you don’t have any other options, then using a credit card or personal loan to pay for an emergency is better than defaulting on a bill, which can negatively impact your credit score,” Natalie Colley, a financial analyst with Francis Financial, tells MagnifyMoney.  “You’ll pay more in the long run with interest, and ultimately you’re setting yourself up for financial instability and getting caught in a debt cycle.”

The key is to use these methods as a last resort and create a plan to pay down the debt as soon as possible.

Thanks to consistent monthly contributions, Marvin Fontanilla, a 35-year-old marketing professional in San Jose, had $8,000 tucked away in his emergency fund. It was enough to cover three months’ worth of expenses, and it came in handy back in August, when the battery on his hybrid car called it quits. A replacement cost $2,200, and an additional $622 for a rental car to use during the repair.

“It didn’t make a huge dent in our savings because my fiancee and I live way below our means,” Fontanilla says. “We’ve actually already replenished it by taking money we normally use to make aggressive student loan payments and redirecting it back into our savings account.”

While we certainly can’t anticipate every financial emergency that lies ahead, he adds that the death of his car battery didn’t come completely out of the blue; he knew when he bought a hybrid that the battery would likely have to be replaced once he hit 200,000 miles, so the expense was already in the back of his mind.

How much should you save?

Just as there’s no way Vernillo could have predicted her cancer, it’s impossible for any of us to really know what financial twists and turns are in our future.

“We can plan until we’re blue in the face for what lies ahead financially, but no matter how great our planning is, emergencies happen,” says Colley.

She tells her clients to live by a basic rule of thumb for savings: Save for at least three to six months’ worth of expenses.

“That’s a large number, and it’s going to take years to get there, but the important thing is to establish the habit of putting money aside every month and having it automatically transferred from your checking account to your savings account,” she says.

How much you contribute each month depends on a number of factors, not the least of which are income and expenses. After accounting for fixed bills and variable expenses like food and entertainment, what’s left should be divvied up between your financial goals. If your emergency fund is at zero, Colley suggests starting small and focusing solely on the first $1,000; a safe cushion in case of a minor setback.

Once you hit that milestone, you can begin redirecting some money toward other financial goals (like paying off  high-interest debt, dialing up your retirement contributions or saving for a down payment on a home) while continuing to build your emergency fund. Everyone’s goals are different, but the main takeaway here is that it isn’t an either/or situation. Rather, it’s all about saving for multiple goals at once.

Where to stash your savings

Where you keep your emergency fund matters. Colley likes the idea of keeping it at a bank that’s separate from a regular checking account. (Out of sight, out of mind.) She recommends going with an online, high-yield account, like Capital One 360, Ally or Synchrony. While a traditional savings account at your local bank will likely only pay 0.01 percent, these online accounts dole out 1.20 percent with no minimum balance requirement.

Another plus is that it typically takes three days to transfer money into your checking account, which reduces the likelihood of impulsive withdrawals. The idea is to build an emergency fund that’s liquid, but not so liquid that you’ll be tempted to dip into it when the mood strikes.

For smaller pop-up expenses that leave you needing cash on the spot — a flat tire or overdraft protection, for example — Colley says it’s not a bad idea to keep a few hundred dollars in a traditional savings account that can be tapped immediately.

“Having a fully funded emergency savings doesn’t happen overnight, and it also shouldn’t be your one and only focus,” Colley says. “If you do that, all your other goals will come to a grinding halt while you build your savings account.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
Marianne Hayes |

Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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Strategies to Save

When Is It Okay To Tap My Savings?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Most personal finance advice preaches the gospel of saving, admonishing you to resist the temptations of restaurant meals, shopping sprees and other extravagant expenses. Sock away as much money as you can bear in some sort of savings product, they write. Prepare for the worst!

Let us reassure you that all those nights you suffered from FOMO and dined on leftovers were worth it. We’ve assembled a panel of expert financial planners to weigh in on when and why you should tap your savings, and how to do so intelligently, without derailing your plan for financial security.

You just lost your job

“Short-term, emergency savings are perfect for using when a need arises, but should really only be used in true emergencies such as a job loss,” said Jason Speciner, CFP at Financial Planning Fort Collins based in Fort Collins, Col. And while a week or two of “funemployment” may sound appealing at first, that hoard of pelts you collected in Red Dead Redemption 2 won’t go far with the landlord or your creditors.

Common sense dictates you should cut back whatever expenses you can while you’re in between jobs, but depending on how you lost your job, you may not have to rely completely on your savings to keep you afloat.

Collecting unemployment benefits

If you’ve recently lost your job, you may be eligible to collect unemployment benefits through the joint federal-state unemployment insurance program. The particulars of who can collect unemployment varies from state to state, but in general you must meet the following criteria:

  • You are unemployed through no fault of your own. (The exact definition of which depends on the state, but if you were perhaps fired for showing up to work inebriated, you shouldn’t count on collecting unemployment).
  • You worked a certain amount of time as required by the state to be eligible for unemployment, usually the first four out of the last five calendar quarters prior to the time you file for unemployment. In other words, you will have needed to be working full time for at least a year in most states.

You’ll have to apply for unemployment with your state’s unemployment insurance agency, either in person, over the phone or online. When you do so, make sure you have information such as the dates you worked for the employer, how many hours you worked, and other important details.

Check out this list of links to state unemployment insurance agencies, and also see MagnifyMoney’s detailed guide to filing for unemployment to help ensure you get all of the financial assistance to which you’re entitled.

You just got hit with a huge medical expense

Sometimes an illness or injury can take a greater toll on your financial health than on your body. A recent Kaiser Family Foundation poll found 67% of the country lists unexpected medical bills as their biggest worry when it comes to paying for healthcare, and given the thousands of dollars of debt you can rack up with even a single visit to the hospital, it’s easy to understand why.

“Life happens, and these types of expenses are why financial planners are always adamant about establishing an emergency fund,” said Rick Vazza, CFA at Driven Wealth Management in San Diego, Calif. “Without one, the cost would normally be covered by credit, and if the credit on a large expense can’t be paid off immediately, the interest charges can be significant.”

If your health insurance doesn’t cover enough of the costs to protect you from a bill you can’t afford (or you aren’t fortunate enough to have insurance in the first place), you still have some options before charging that medical bill to a credit card and potentially setting yourself up for years of debt.

How to knock down hospital bills

Getting a hefty bill from the hospital can be enough to send you in a panic, but you should avail yourself of every opportunity to lower the amount you owe before forking over a payment. In general you can:

  • Contact the hospital’s billing department and ask about its bill reduction or forgiveness policies — this will depend on the individual hospital, but depending on your income level and the particulares of your situation, you may qualify for a reduced bill.
  • Offer to pay the hospital in cash (or using a flexible spending account) — sometimes hospitals and other medical facilities will give you a discount if you’re willing to settle the bill right then and there.
  • Charge the bill to a 0% APR credit card — assuming you can qualify for one of these cards, it’s important to remember that the 0% interest only holds for a limited amount of time, so if you’re unable to pay off the money you charge to the card before the time is up, you’ll be stuck making interest payments.

Find out more by consulting our guide on how to get your hospital bill reduced and minimize the drain on your savings.

A major appliance breaks

You don’t want to get in the habit of leaning on your savings to purchase big-ticket items you could do without. But sometimes things fall apart, and if your furnace went on the fritz, you wouldn’t want to wait until your next paycheck to restore heat in your home. You could always charge the repair (or replacement) on a credit card, but make sure you’ll be able to pay off the balance by your next billing cycle if you want to avoid interest payments.

“A good rule of thumb is to dip into the emergency fund whenever the alternative would require carrying a credit card balance to pay for the irregular expense,” said Vazza.

Building a budget for repairs

One way to help soften the blow of dipping into your savings to replace a major appliance is by having a well-planned budget that includes money for such incidentals. Ditch your pen and paper, and try one the many budgeting apps available to help you track your money.

Making a budget means taking a long, hard look at how you spend and save money, which is why it’s often so unpleasant. To begin, you’ll need to determine a few facts such as:

  • How much money you take home every month.
  • How much you spend every month, both on necessities such as rent or mortgage, and luxuries like eating out, entertainment and shopping.
  • How much money you want to save monthly — not only for retirement and long-term financial goals, but also for incidentals such as major appliance repairs.

Learn more about how to use these apps and set up your first budget at MagnifyMoney’s ultimate guide to budgeting.

You need to seize a once-in-a-lifetime opportunity

Dipping into savings to seize an opportunity is more open to interpretation than the other items listed above — is it worth taking money out of your account to invest in your brother-in-law’s dating app idea? But at the end of the day this is your money (and your life), so only you can decide if an opportunity is worth spending the cash.

Consider taking a loan

Depending on the opportunity, you might find a personal loan from a bank can help you cover expenses along with dipping into your savings. Lenders (both traditional banks and online financial institutions) offer plenty of loans to help you out with the associated costs.

Of course, not even the most lenient lenders just hand out sums of money to anyone, and if you find one that does, you should run in the opposite direction — it’s probably a deal too good to be true. Some other things to keep in mind when applying for a loan are:

  • Your credit score, which sums up how big of a risk you are to lenders considering giving you a loan. The higher this score, the more dependable you look to lenders which gives you access to better loan terms such as lower interest payments.
  • The interest rate charged by lenders. This varies depending on the type of loan — personal loans, which usually aren’t backed by any sort of collateral, tend to charge higher interest rates.
  • Is there an origination fee? Some personal loans charge a fee based on a percentage of the total loan amount that must be paid upfront. For example, a $35,000 personal loan with an origination fee of 5% would mean you need to pay a $1,500 origination fee.

Read our guide to find out more about the ins and outs of navigating a personal loan.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James Ellis
James Ellis |

James Ellis is a writer at MagnifyMoney. You can email James here

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Strategies to Save

Five Easy DIY Repairs That Can Save You Money

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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If you’ve always relied on your landlord or a contractor to fix things in your home, you may be tempted to just pull out your phone the next time something breaks. But as many seasoned homeowners will tell you, it’s not always worth dialing a professional — especially if you’re dealing with a simple fix that almost anyone (even you) can master.

Not only are contractors sometimes hard to book for smaller jobs, but their costs can add up quickly, experts say. “It’s often pretty expensive to have somebody come and fix something that you might be able to fix really easily with an inexpensive part,” said Don Vandervort, founder of the home improvement site HomeTips.com.

It can also be empowering to tackle a job yourself, says Danny Lipford, host of the home improvement show “Today’s Homeowner.”

Just be prepared for some surprises — especially if you’re a first-time fixer upper.

“Keep a sense of humor,” says Los Angeles resident John Morell. When Morell decided to install wood floors in his home, he underestimated just how tricky the job would be to finish. It took him twice the amount of time that he expected, and he made a number of mistakes. But he doesn’t regret trying, he says — “It came out great.”

5 easy DIY repairs

If you don’t have a lot of experience wielding power tools or taking things apart, try to stick with smaller projects and work your way up, Vandervort said.

There’s no shortage of relatively simple projects that you’ll likely be able to do yourself. Most will take just a fraction of the time it would take for you to call and then wait for a professional. For example, some projects that you could take on now before working your way up to bigger jobs include:

Fixing a leaking faucet

Cost to hire a professional: $200 or more, according to HomeWyse.
Cost to do it yourself: As little as $2.48 to $30 or more, depending on the parts you need.

This classic home repair project often just requires a screwdriver, pliers, a wrench and some basic know-how to complete. Before you call a plumber, look for some step-by-step instructions and try fixing the problem yourself. “Taking apart a bathtub or shower valve that’s defective or a kitchen sink that’s dripping or not working properly — those are some pretty easy repairs,” Vandervort said. “They usually involve taking the handle off and opening up the body of the valve and replacing a washer or a cartridge inside the valve.”

You may need to purchase some individual parts, like a new O-ring or a faucet repair kit, but there’s a good chance you won’t have to spend more than $5 to $20.

“It depends on the make of the faucet,” Vandervort said. However, a lot of common faucet parts are available at home improvement stores. Just make sure you bring the parts with you when you go to buy a replacement, he adds; that way, you don’t accidentally buy one that doesn’t fit. “That’s the case with parts of almost anything you’re fixing,” he says.

Rescuing a jammed up garbage disposal

Cost to hire a professional: $200 or more, according to HomeWyse
Cost to do it yourself: Potentially $0 if you held onto your disposal wrench; less than $5 if you need a new L-shaped wrench

According to Vandervort, a malfunctioning garbage disposal is another common household problem that’s often relatively easy to fix. Often, people don’t realize that reviving a locked garbage disposal can sometimes be as easy as pressing a reset button at the bottom of the disposal, he says.

You may also be able to unclog it with the help of the L-shaped hex wrench that came with your appliance. “You stick this hex wrench into the bottom hub, you crank it and it breaks free whatever you have in the garbage disposal,” Vandervort said.

Replacing broken or dated hardware

Cost to hire a professional: $65 to $200 or more, according to HomeWyse
Cost to do it yourself: $3 to $10 or more, depending on the part

These days, hardware parts are often so standardized that it’s relatively easy to find a replacement if you need one, says Lipford. Just make sure you carefully compare your old hardware to the new hardware that you’re considering purchasing, he says – especially if you’re trying to replace something that has a lot of parts that need to match, such as a cabinet hinge.

With the help of a screwdriver, you can swap out basic drawer knobs for something more stylish, or purchase new knobs for interior doors that aren’t closing properly.

“We had a few where the door would not latch,” said Stephanie Tilton, who runs the blog Dogwood DIY and has fixed up several houses. However, removing the old, defective doorknobs and replacing them with new ones was relatively simple, she says.

Working with hardware isn’t foolproof, though, so be careful. For example, New York City resident Ellen Sheng says her husband tried to fix a loose hinge on a bathroom cabinet by repositioning it and wound up botching the job so badly he later had to duct tape part of the cabinet. Now, she says it looks like Frankenstein. “I think he watched some YouTube videos and was like, ‘I’m just moving the hinge; how hard could it be?” Sheng said.

Repainting the interior or exterior of your home

Cost to hire a professional: $300 to $700 or more, depending on the job, according to HomeWyse.
Cost to do it yourself: Less than $50 for a smaller project.

One of the easiest, most cost-effective DIY repair jobs is to paint an area of your home that sorely needs a refresher, Lipford said. “There’s no better value that you can bring to something without almost no tools and limited skill than painting,” he said. “It could be painting your mailbox. It could be painting your front door, which is a significant return on your investment.”

You could even paint the sides of your home gradually over time, he says, rather than hire a painter to do it all at once.

Unlike other home improvement projects, painting is relatively low risk, Vandervort said. “You can easily correct any mistakes that you’ve made,” he said. “It’s not permanent and it gives you an opportunity to express your creativity and personality.”

Just be sure to follow some basic safety protocols before you pick up a brush, he says. For example, make sure you have a solid ladder and are comfortable using it if you plan to paint some hard to reach areas. Also be sure to test any paint from before 1978 for lead – especially if you plan to scrape the paint from older woodwork.

Fixing a drafty attic

Cost to hire a professional: $800 to $1,500 or more, according to HomeWyse
Cost to do it yourself: Around $145 to $500 or more, according to Home Advisor

Even repair jobs that seem big or intimidating can turn out to be relatively simple or rewarding. For example, Danny Lipford recommends adding insulation to your attic in order to save money on your next energy bill. “One of the least sexy home improvement projects you can do is putting insulation in your attic,” he said. But it can later make it much cheaper to heat and cool your home.

Installing insulation can come across as complicated, so you may be tempted to hire help rather than attempt it on your own. But if you have the time and energy, you can do it yourself, Lipford said.

You don’t necessarily need to do the whole attic at once, he adds. “You might just do one corner of the house,” he said. With every little bit that you do, “you immediately are getting money back.”

The bottom line

Tackling your own repair and home improvement projects can be a great way to save money and build your confidence as a homeowner. Starting out with small, low risk projects can also help give you the experience and foundation you need to move on to bigger jobs. “It gets you comfortable and more confident with using tools,” Vandervort said.

Just try not to get too overconfident right away. Some projects may seem like they’ll be easy, but they require far more skill and craftsmanship than you might realize, Lipford said. For example, you’ll find a number of YouTube videos and articles teaching you how to finish drywall. But even experts struggle to get the finish right.

“I’ve done drywall for 40 years,” he said. “I still can’t stand it. I still have problems with it all the time.”

There are also some projects that are just too dangerous to do yourself, such as fixing your home’s wiring, or are too risky to take on without the help of a professional. For example, if you attempt to sand your own wood floors, you could accidentally ruin them by sanding too far into the floor, Vandervort said. Similarly, a bad plumbing job can force you to go without water until it’s fixed.

“Avoid things where a high level of craftsmanship is important to the end result,” Vandervort said. “Craftmanship is something that becomes very visible in certain projects.”

If you’re not able to match an expert’s quality on something that’s highly visible, then you could come to regret trying to do it by yourself.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kelly Dilworth
Kelly Dilworth |

Kelly Dilworth is a writer at MagnifyMoney. You can email Kelly here

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