I’ve long said that you can gauge whether something is an emergency if the following three “U” words describe the situation:
I use this metric to be able to distinguish between actual emergencies and things that feel like emergencies but aren’t.
For example, if your home hot water heater dies, that’s an emergency. After all, having hot water is almost every case a necessity and you can’t really hold off on that.
On the other hand, a really good deal on a car you’ve been looking at is not an emergency. It might be unexpected and or urgent, but it’s definitely not unavoidable.
On the other other hand, if your car dies and you live in the 95% of the country that requires you to have a car to get around, well, that is an emergency.
You catch my point, I hope.
However, there is another situation here worth talking about that’s slightly different: it’s an event that is urgent and unavoidable, but not unexpected.
It turns out that this is a type of emergency too.
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Congratulations! You’re having a baby.
(Okay, perhaps this is a bad example, in that babies can sometimes be unexpected. But work with me here.)
And babies cost money. A lot of money.
According to the U.S Department of Health and Human Services (via NerdWallet), in 2014 the national median charged for childbirth is the U.S. was:
- $13,524 for delivery and care for mothers
- $3,660 for newborns.
That’s assuming that there are no complications. Complications can put you well over the $20,000 mark.
And that’s just the beginning.
May all of our offspring be totally healthy. But as we know that medical costs for us can be effectively infinite (it’s the primary cause of bankruptcy in the U.S.), imagine what would happen if your doctor came to talk to you, with that look on her face…
My point being, you know you’re expecting in 9 months or so. Do you feel like the best use of your money is to pay down your debt and or contribute to your retirement fund?
No, of course not. If this is you, you need to stop all investment and debt payoff right away, and pile away as much cash as possible. No investments, no slick deals, nothing. Just as much money as you can pile up.
And this is all about an emergency with a positive outcome.
You’ve just learned that your job is ending in six months. You’re not getting fired, maybe, but your job is ceasing to exist.
(That does happen. As the most minimal of examples, I worked for a department store some years ago that filed for bankruptcy and liquidated while I was there. I wasn’t dependent on that job for my income, thankfully, but if I had been, it would have been an emergency.)
If that happens, you’ve got six months to prepare for the event. It won’t be unexpected, but it’s still an emergency.
You’re going to need cash. Lots of it. Nothing tied up in investments.
If you don’t have a fully funded emergency fund (six months of bills and expenses) because you’re focusing on paying off debt, you need to stop that right away. Don’t get behind, of course, just pay minimums for now. Debt will still be there, don’t you worry.
When the storm passes
Whether exciting or challenging, some life events count as emergencies, even if they are expected. When that happens, you need to stop everything and put away money. After all, it’s an emergency! Sound the alarm!
Might you put away more money than you need? Of course. Maybe your baby is totally healthy, and the birth is magically covered by insurance. Maybe you find a new job before your old job ends.
If that’s the case, you might have a pile of cash sitting around that you didn’t actually need.
In which case, you can restart your plan right from where you left off.
Let’s say you have $10,000 in cash that you didn’t need for your emergency. I would recommend using that to just pay off your debt (though minus an emergency fund, the size of which is determined by your comfort level). If you have no debt (mortgage aside), you can restart your planning for retirement.
In short, once you restart your plan, just go back to doing whatever you were doing before the “expected emergency” happened.
Perhaps you lost a few months on your plan. That’s fine. Just be grateful that the emergency wasn’t a bigger one.
But enough about me. Do you have any “emergencies” you’re expecting, good or bad?