The Power of an Emergency Fund in a Crisis
26 Feb, 2023
As I became aware of the weather event slowly unfolding in the upper North Island and, over the days that followed, the scale and breadth of the carnage it caused, it took me right back to the Christchurch earthquakes and our experiences of coping with a natural disaster.
To those impacted by Cyclone Gabrielle who also read my blog, you are in my thoughts, I’ve been in touch with a few of you, and I’ve willingly donated money for you to use as you see fit. I encourage every other Kiwi reading this to do the same. If you know someone, instead of saying, “let me know if there is anything I can do to help”, just get their bank details and drop $50, or whatever you can spare, into their account. Most won’t ever ask you for help because they can’t vocalise what they need. If you can’t physically help, donate money instead. If they need it, they will use it themselves; if they don’t, they can pass it on. Trust them to do what is right for themselves.
This blog won’t be much use to the people currently in the thick of things, but for those who have experienced something like this before, as I have, or want to know how to prepare should you ever find yourself in this situation, this blog will help.
Since the beginning of The Happy Saver, I’ve talked about Emergency Funds, and I’m not letting up. Although they are fantastic for solving minor money problems, like a car repair, they are even better for giving you strength when the absolute worst happens. An emergency fund comes into its own in a real crisis.
In the initial aftermath of a disaster such as what the North Island has just endured, instinct takes over, and we jump into fight or flight mode to ensure our survival.
Once the shaking stops or the floods recede, we get the following in order:
Is everyone safe?
Do we have shelter?
Is there food to eat?
We can endure a lot in those first days and weeks, working on instinct and doing what we can to get by as best as we know how while we try to stabilise our situation and work out where to go next.
In these early stages, money has little value.
It’s all about boots on the ground, saving people, pets and property and using the resources we have to hand to shelter and feed people. Kiwis are incredible in a crisis, and thankfully for the vast majority of us, our instinct is always to share resources and get stuck in.
In the initial aftermath, there is a surge of help and resources, but these fade and the support from others will begin to lessen, or you will find it is not located where you are, or due to communication issues, you may not even know about it. Although there are government agencies, community groups, and insurance companies whose job is to wrap around those in need, accessing their support is not always straightforward, and it’s after the emergency has passed that the scale of what is in front of us starts to become more apparent. Before long, the financial costs begin to mount up, and stress levels skyrocket.
I recall receiving a Red Cross pack of food and a chemical toilet (!) soon after the Christchurch earthquakes, and both were really welcome. But moving on from the immediate crisis, asking for help is time-consuming and comes with strings attached, and we found that in many cases, it's easier to just reach into our pockets and solve our problems. I remember also feeling that there were others worse off than us, and if we could stand on our own two feet, that would be better for all involved.
This is when an emergency fund, a sum of money that you have diligently saved and set aside that represents 3-6 months of your monthly expenses, comes into its own.
Cantabrians know this. Now people up north realise it too.
For everyone else reading this, I implore you to build up your defences, just in case, god forbid, one day it's your turn.
After the Christchurch earthquakes, we used our emergency fund to purchase tools like wheelbarrows, shovels, and brooms to clean up liquefaction. We also used our own money to make emergency repairs to our home. Our emergency fund let us fuel up our car and leave to live with family in another region while power and sewage repairs were started. Our emergency fund allowed us to contribute to the costs of our extended family.
Soon enough, the rest of the country will move on, but returning to everyday life is still some time away for those amid the disaster. As open-hearted and kind as they are, staying with family quickly gets old. Having the money to book a hotel for a week where you and your immediate family can just be alone and collect your thoughts can provide much mental relief. I know that as welcoming as my family were, it's emotionally tough to be in someone else's space as they are carrying on their everyday lives, as we were trying to work out what was to become of us.
Unlike many who were made homeless by Cyclone Gabrielle, we had a home, albeit a damaged one, to return to. Although we ended up being red-zoned and losing our home, that took years, and in the meantime, we stayed living in it and paying for repairs out of pocket to make it liveable.
Our emergency fund let us escape.
Our Emergency Fund gave us so many choices that we wouldn’t have had otherwise. We could pay for repairs or things that would make our time there more manageable. But the most significant thing it gave us was the freedom to escape when it all got too much.
Jonny and I remember two different pivotal conversations during that time.
Soon after the February 22nd, 2011, earthquake (the anniversary was this week), we walked along the now wholly ruined Avon River. I said to him, without a doubt, this is the biggest thing to have happened to our family, and I have no idea what the future holds for us, but of all the things we need to worry about, I can tell you with confidence that money is not one of them. Even writing that line still makes me emotional all these years later 😂. It was a great relief to know that, amidst all the chaos, money was a calm point. This was the power of an emergency fund.
The second conversation was when we reached a point of just needing to remove ourselves entirely from the situation. Every time we had another earthquake, which was often, the anxiety levels skyrocketed. We went to a travel agent and paid cash for a trip to America. The agent asked us how on earth we could pay cash, and I told her that for some time, we’d had a “rainy day fund” sitting there waiting. And right now, it was absolutely pissing down. We needed to go. Our emergency fund allowed us to leave the country at short notice and take a step back from the situation we found ourselves in.
A crisis shatters your illusion of safety.
It takes a massive psychological toll on your heart and mind when the home you thought was safe no longer is. Especially for those who never knew there was any chance of their home being flooded or at risk of landslide. It had never entered my mind that my home could be destroyed in an earthquake. But it was. And my illusion of safety was shattered. Although many stayed in Christchurch, we just couldn’t; the effect on our mental health, Jonny’s in particular, was enormous. One of the boldest things having an emergency fund and our finances in order allowed us to do was for Jonny to leave his job, so we could leave town and sort our lives out.
The Insurance Headache
When you see insurance advertisements, you would be right in thinking that because you pay them a monthly premium, they’ve got your back in an emergency. Yes and no. For us, it was a nightmare to sort out. My advice to others is don’t rely on your insurance company to get things sorted quickly. Some might, and for those, I am probably as relieved as you are. But for others, particularly if your home only has partial damage, you are about to begin a long process. Having an emergency fund will offset the stress of waiting. Our insurance company paid our rent for one year, allowing us to leave town and stabilise our lives, but it took about three years to sort out. And readers of my blog will know that 11 years after the disaster, in 2022, we got a final insurance payout.
I am grateful that we were fully insured and that we got there in the end. A personal emergency fund and insurance go hand in hand.
Kia Kaha Aotearoa
For those who have just been affected by Cyclone Gabrielle, Kia Kaha, you will need to be strong to rebuild your life. It may be different than before, but it’s a journey worth taking.
Don’t just sit there, do something.
For those in other parts of Aotearoa looking on with shock and compassion, there are a couple of things you can do for those affected and yourself.
Suppose you know someone who has been impacted; lean in and help. Ask them for their bank details and deposit some money in their bank account. Money helps in a time like this. If you don’t know someone, donate to one of the reputable charities that are actively supporting those in need. In my net worth millionaire questionnaire, I ask, “do you use your time or money to help others”. All too often, sadly, despite their wealth, the answer is no. As someone who often donates both time and money, I can assure you that you will open up a new part of your personality that you didn’t know was there when you are generous to others. Give with an open hand, don’t expect anything in return, and your reward is knowing you have done something good.
Others' misfortune may one day be your own. So be as prepared as you possibly can if, one day, it’s your turn. Start saving your emergency fund today.
How do you know how much money you will need?
You don’t, but you can have an educated guess. I budget using PocketSmith and can clearly see exactly what we have spent each month and each year. For example, our last twelve months' total expenditure per month on average was $6,000. My emergency fund is three times this amount, $18,000. I keep it on the ‘lower end’ of three months of expenses because both Jonny and I have relatively stable part-time jobs, and the chances of us both losing them at the same time are slim. We also have considerable investments that we could sell if push came to shove.
How long will it take to save up an emergency fund?
When we first set this up, it took TIME to save. An email I received this week beautifully illustrates this:
Ruth, I've done it! It took the better part of a year, putting aside regular amounts and exercising a little bit of patience, but I reached my goal - I now have saved up six months' worth of money into my emergency fund!! Tim.
Where should you put it?
In a bank account. Don’t let some crackpot weirdo tell you it should be in Bitcoin, invested, offsetting your mortgage, or on a credit card. Open a bank account, a high-interest but accessible one, call it “Emergency Fund”, put your money in there and let it ride.
How do you budget while in an emergency situation?
Budgeting still needs to happen in an emergency, but the focus changes. In our experience, a lot of regular spending is naturally cut, like going out to dinner, the movies, or away for the weekend. But many things continue as usual: paying rates, insurance, buying groceries. Therefore, we need to make sure that money is available for that. If you don’t have an emergency fund, you will find yourself spending all the money that should be used for regular expenses and soon run out of money.
When facing a period of crisis or uncertainty, I tend to just move a large chunk of our emergency fund into our everyday banking account; that way, I know we can keep swiping our card, and the money is there to cover our regular bills, plus unexpected extra costs. When the dust settles, I go back and add up what we spent and move money back into our emergency fund that was not used.
We both keep a level head and spend or don’t spend as required. In a way, paying attention to our banking and spending gives us focus and some control in tough times. Any sense of control you can gain in a crisis is worth it.
Don’t be afraid to use it.
In the past, I’ve referenced that we have dipped into our emergency fund to cover car repairs, oven repairs, and all sorts of unexpected expenses of either a few hundred dollars or a few thousand. But if something big happens, as it did for us with the earthquakes or like it has for those up north, this is your time to use your money. This is not the time to count pennies, save money, and worry about money. If there is something that you need that you can pay for right now and alleviate discomfort or stress, for goodness’ sake, use it! You will instantly feel a little better, and just those little wins each day, where you feel a little bit better about your situation, will help pull you through.
When it is over.
This time shall pass. I can’t tell you how long it will take, but it will. And when life returns to your “new normal”, you quietly set up an automatic weekly payment to build your emergency fund back up. Ready for next time.
