Emergency Fund Secrets: How He Was Ready for a $5,000 Surprise Bill

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Car repairOne of the key reasons we bought our Honda (HMC) Accord in late 2002 was the company's reputation for reliability. For a decade, the car served us incredibly well. Indeed, until the past month, it cost us very little beyond gas, insurance, normal wear and tear, and scheduled maintenance.

And then, over the past month, Murphy's Law applied itself to our car.

First, we busted a tire on a road hazard. Then, the transmission gave out, the battery corroded, and an oxygen sensor went haywire. And as if to add insult to injury, while the car was at the dealer for the oxygen sensor, they discovered that our timing belt needed to be replaced. Of course, they mentioned that the damage if the belt broke would be far more expensive than having them go ahead and take care of it while they already had the vehicle.

It'll Cost How Much?!

All told, in the space of a month, we spent more than $5,000 on unanticipated automobile expenses. On top of it all, this major auto emergency fell right on the heels of Christmas -- not exactly an inexpensive time of the year for our family.

What Amount
Two tires $338.52
Transmission $3,319.44
Battery $132.17
Oxygen Sensor/Timing Belt $1,316.87
Grand Total $5,107.00
Data from author's Quicken records.

A four-figure out-of-the-blue expense is the kind of thing that can easily push even the most frugal family's finances over the edge. It's emergencies like these -- not wanton spending on non-necessities -- that often trigger the downward spiral into overwhelming credit card debt.

Thankfully, we are going to be able to avoid that particularly ugly financial path. We expect to have the credit cards we charged those car repairs on paid in full by the time the bills come due. I'm not saying this to brag; I'm hoping that our story will help you avoid a worst-case scenario, too.

A Simple Strategy for Saving

What kept our car troubles from becoming a full-fledged household financial meltdown was a simple trick that anyone who buys a car (or is paying down any type of loan) can follow: After we paid off the loan on the car, we kept making payments -- only instead of writing checks made out to Honda Financial Services, we made the monthly payment to ourselves.

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Since we had already been making that monthly payment we got used to not having that money to spend on other things. Because of that, we didn't feel a loss when we started directing the same amount into our own savings account. By continuing to make "car payments" over the years, we built up a cushion that could cover that huge car repair bill.

It still won't be fun to raid that account to write the checks to pay off those bills, but it's a whole lot better than not being able to cover the cost at all. And it's all due to a straightforward strategy that you can use to build your own savings cushion to cover your own unexpected expenses.

Keep making the payments to yourself after you've paid off your debts. It's a simple step that makes a huge difference.

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