Success Story: Saving for a rainy day takes the stress out of life
It took two years of scrimping, but Michael Kimsal and his wife, Lesley Burgess, have nine months of expenses in the bank — and the peace of mind that comes with knowing they have an emergency fund to fall back on when times are tough.
"I’m far less concerned about finances these days because we have spare cash,” says Kimsal, 39, an independent Web development specialist who lives in the suburbs of Raleigh, N.C.
Financial experts recommend having at least six months of expenses socked away in an account that’s easily accessible but off-limits except for emergency situations.
That’s not six months of salary, but whatever it would take to pay bills for six months. So if that number is $2,000, an emergency fund should contain at least $12,000.
Those caught without a reserve can be forced to rely on credit cards during crises or face unpaid debts and a serious credit score hit.
Although he was never an over-spender, Kimsal admits he never had any substantial savings, either. “I was lazy, completely undisciplined,” he says.
That translated to him making major life decisions — whether to work full time or as a freelancer, what contract projects to take on — based solely on the fact that he was living check to check and needed to stay afloat.
Looking back, he says, many of those decisions “turned out, in retrospect, to be very bad decisions.”
Kimsal can point to a couple of specific events that led to him and his wife changing their ways.
In 2004, Kimsal was left with about $35,000 in debt after a company he owned with his brother closed.
He “crawled back to zero” in just over three years, but that took him working full time during the day and consulting at night. Later that year, he left his corporate job for a full-time consulting gig, which ended abruptly after just four months.
Unfortunately, Kimsal was practically still at zero savings-wise. Rather than be income-free while seeking full-time employment, he decided to join his wife in the ranks of the self-employed.
Lesley Burgess sells miniature collectible foods she designs and creates for dollhouses through her company The English Kitchen.
Kimsal did well enough, landing enough clients and projects to pay the bills.
But he once again felt the consequence of having no savings when a client stiffed him on a large project that had been so demanding he had passed up other work to finish it.
“Something was slapping me in the face, saying you have to get more serious about saving,” he says.
So, between 2008 and 2010, Kimsal and Burgess took some extreme measures to save money.
They intentionally cut expenses on just about everything, starting with everyday luxuries like eating out to larger niceties like vacations. They combined trips to cut down on gas usage and to save time, bought in bulk and shopped more at discount stores.
The most aggressive measure was turning in a vehicle when its lease was up and becoming a one-car family. Because their other car was paid off, they immediately were able to save the amount of a car payment each month.
They also raised the deductible on their health insurance policy, which lowered their monthly premium by a couple of hundred dollars a month.
Kimsal also took on extra work. “As much as I could,” he says. “When times are good, I can make money. It’s feast or famine.”
All of this added up quicker than the two imagined, and by 2011 they had accumulated about 16 months' worth of reserves, which they split between a money market account and a savings account.
When they were hit with a few emergencies last year, they were glad those reserve funds were there.
An unexpected hospital trip resulted in a $2,700 medical bill, which they were able to pay for in cash. Then they needed to replace their washer and dryer. Two deaths in their families required last-minute flights to Florida and Australia.
“Before, we would’ve charged those, without a doubt, especially in a crisis situation,” Kimsal says.
With some of their emergency fund depleted, they intend to add to it over the next year, especially during “feast” times.
Refinancing their home last fall cut their housing costs by several hundred dollars a month, Kimsal notes.
That allowed them to afford a second car payment and go back to being a two-car family, a necessity now that his consulting business requires more travel.
Since they weren't in a rush to buy, Kimsal says they were able to snag a decent deal on a 2010 Chrysler PT Cruiser.
Kimsal enjoys no longer panicking about money.
“I don’t think I was ever truly at ease,” he says. “I’m quite at ease now.”
Kimsal’s advice for building an emergency fund you can depend on:
- Reduce credit card use. A credit card payment is a monthly payment that can be avoided, and that money can be saved.
- Discuss expenses out of the norm. Kimsal and Burgess tell each other about purchases over $50, and those over $100 require a conversation. “It’s usually not a problem.”
- Establish guidelines for when to dip into your emergency fund. “It’s generally one of those ‘we know it when we see it’ situations."