My mom and I got into a bit of an argument over the weekend over an emergency fund. I think it’s an interesting point so I decided to share it with readers. Someone we know recently got laid off from their job. Fortunately their spouse is still working. They have two children, but only pay for preschool for their 4 year old and their 7 month old baby is watched for free by their parents. This person also rents a home. My mom and I, made the assumption that they have an emergency fund, and that possibly their bills exceed the solo income they are now living on. But it’s possible with unemployment that they family could meet all their bills.
So where’s the argument?
My mom thinks these people should immediately cancel their rental agreement and move in with their parents. This way they no longer have to pay rent and can NOT touch their emergency. I believe that’s what an emergency fund is for. Job loss, emergencies. If the couple have it saved they should use their money.
My mom’s argument is that since I don’t have kids I wouldn’t understand. If I had children, I would be saving that emergency fund money for an emergency. I’d be conserving as much money as possible instead of paying rent.
My take? Well it’s an emergency. This is only happening because the couple is RENTING. If they had purchased a home and had a mortgage, do you expect them to walk away immediately from the mortgage and move in with their parents? Wouldn’t they have to use their EF to try and keep their home while looking? And no I don’t have kids, but whether you have kids or not, when you lose your job, do you immediately run away from a mortgage or rental and move in with your family to save money?
I believe that an emergency fund should be used in cases when it’s an emergency. I also believe that running away from your problems (ie not using an EF, but moving home with your parents), is part of the problem afflicting society today. People run away at the first sign of trouble from their mortgages and rentals. They don’t consider the consequences of their actions.
What do you need good credit for if you live with your parents? What do you need good credit for if your parents cosign your loan or they give you a huge down payment on a car or home?
But the real question is, do you save an EF to be used only after you’ve used up your parents or family’s resources? The you start tapping them? Or do you drain your EF and then look for help?
What is your EF for? Mine is to be used when we lose our jobs, I consider that an emergency.
19 responses so far ↓
1 Little Miss Moneybags // Jul 28, 2009 at 9:24 am
I think it depends on more than the job loss. For some people (and I can think of quite a few), living with their parents as adults temporarily during a time like this would not be an imposition or running away from their problems. For others, it would be damaging to their relationships (in the marriage and with the parents) and could exacerbate overspending. I don’t think it’s the kind of thing one can generalize about.
Personally, I would not move in with my parents if I lost my job. I have an emergency fund and could survive for a while on that and unemployment (and my boyfriend’s help). My parents are halfway across the country and there are no job opportunities for me unless I changed fields. It’s not even that I’d be running away from my problems but I’d be leaving my entire life behind. However, a friend whose father lives in town moved back in with him to save money to move across the country. I don’t find that avoiding her problems or otherwise irresponsible–she’s now saving almost three times what she’d be able to save living alone. Again, context is everything.
Does your position change if this family DOESN’T have an emergency fund?
2 R. May // Jul 28, 2009 at 9:52 am
I feel you only touch the emergency fund when you have cut everything else! Pull the child from preschool, cancel cable so on so on. It’s not an emergency until you have no other resources – then you touch that fund.
Breaking a lease in not a good idea. Many times you are responsible for the amount of your whole lease. They wouldnt be saving money on rent by moving in with parents because they would still owe it!
Incidentally, when my lease agreement is up next month, I am moving in with my sister and her family – they have lots of room for us and my rent will be half what I pay now.
It’s my impression that in a two income household – if one person loses their income and you can’t rearrange things to compensate then you haven’t been living wihtin your means.
3 LAL // Jul 28, 2009 at 11:25 am
That’ll be another discussion, what to do without an EF.
And R. May, yep that is a great point about the lease being responsible until it’s rented out again, but the landlord doesn’t have to work hard at finding tenants to fill your vacancy.
4 amy // Jul 28, 2009 at 12:11 pm
I would never move in with my parents. God, how depressing.
5 Meg from FruWiki // Jul 28, 2009 at 12:43 pm
I hate how some people’s answer to everything is to move — as if that was so easy!
They should cut expenses like cable, eating out, etc., but I don’t see a compelling reason to move assuming they can afford to stay in their place until they improve their income situation (even if that means using their EF).
For one thing, moving isn’t free. It takes money and A LOT of time. It costs money to ship your stuff (even if you’re just driving across town) and money to break a lease. That money would probably be better kept in savings till it is really needed. And the time it would take to pack things and update their address everywhere could be better spent looking for a job — especially since with two kids there’s rarely an abundance of time anyhow.
Plus, how far away are their parents? Do their parents even want them to move in? Is there room there for four people? Is there room for all their stuff? Would they have to downsize or pay for storage somewhere (either way, we’re talking more time and/or money)? Would it be stressful to be under the critical eye of their parents/in-laws now that they are adults? Are the job prospects better there? Do they have a support network there of friends and other contacts to help them find a job? Would the one spouse have to quit their job?
Hopefully, this will be very temporary. In which case, it would seem really dumb to make such a life-changing and stressful move just so that they didn’t touch their emergency fund since yes, that is what it is there fore. If it’s not temporary, then it still sounds like they have time to decide to move. And even if they move, maybe it’ll just be into a cheaper place nearby.
6 JoeP // Jul 28, 2009 at 1:03 pm
If they could still make ends meet with 1 income, then I’d say there is not too much of an emergency.
If their expenses exceed their income, then it is time to start cutting unnecessary expenses (cable, cell phones, sirius/xm, eating out, vacations). At the same time, the laid off individual should start looking for ANY job to help fill the gap, even if it means part-time.
Only after all that, if their income is not enough, would I consider tapping into the emergency fund.
7 Roshawn @ Watson Inc // Jul 28, 2009 at 2:24 pm
I agree with R. May. They don’t seem to be necessarily acting like it is an emergency. I wouldn’t move in with my parents unless I had to. They should be surviving on 1 income if that is feasible and not be using their emergency fund to maintain lifestyle they can no longer afford.
8 jj // Jul 28, 2009 at 3:26 pm
I would go through most of my emergency fund before taking the drastic step of moving with my parents, especially with kids! I’m a renter but we’re pretty attached to our house and have A LOT of stuff to pack up. Just because we rent doesn’t mean it’s not a home.
9 dogatemyfinances // Jul 28, 2009 at 4:38 pm
I say MYOB on stuff like this.
I wouldn’t wish it on anyone to move in with their in-laws, especially with their kids. Hell, I’d consider THAT the emergency!
Besides, she might get another job, they might have more savings than you know, their rental might be really cheap. Who knows?
10 Wojciech @ Fiscal Fizzle // Jul 28, 2009 at 7:30 pm
I would consider a job loss an emergency, although thankfully not one that has an immediate financial effect, like a sudden hospital stay. So there is a little more time to react…but certainly the financial impact can be similar and traumatic.
Cutting loose on a rental lease can sometimes be just as hard as walking away from a mortgage – you would almost certainly lose out on the deposit and can even face a lawsuit!
Living with your parents is definitely a good consideration if things are really that desperate, but with a substantial emergency fund, I would draw on that first before making any rash moves.
11 fengshui // Jul 28, 2009 at 10:48 pm
“My mom thinks these people should immediately cancel their rental agreement and move in with their parents. ”
H*LL NO. There is no way I would just move in with my parents. I’m in a position where I am separated from my husband, have the house to myself, am paying the mortgage by myself (which is about 45% of my income right now), and I REFUSE to sell this house and move in with my parents. I would feel like such a loser. I am willing to not contribute to retirement and my EF to make it through this transition. I’m currently draining my EF as we speak to make it through this rough patch. People say I’m stupid for doing it, but my independence and freedom are “worth it” to me. The thought of my parents waking me up at 6 am on the weekends (with a hangover) and making me do “chores” when I’m 33 years old is just beyond what my sanity can handle…. lol
12 LAL // Jul 29, 2009 at 1:32 pm
Meg, the parents live in the same town and watch the children. They do not live far away. Moving is the cost of the uhaul and well breaking the lease is the biggest problem obviously.
I’m not sure if they can survive on one income.
The argument more is my mom thinks even if they can survive on one income, they should be saving, saving, saving. Not “wasting” money on renting when they can pack up and move in with their parents.
I think their parents have the space to take them in, but their stuff would have to go to storage.
The real problem is the lease. My mom said “good thing they don’t own a house.” They can’t just walk away, I don’t think she even realizes how difficult leases can be to break.
13 Meg // Jul 29, 2009 at 3:53 pm
I think it’s fine to dip into emergency funds while looking for a new job and maintaining your basic standard of living (minus any excess like spa visits, shopping and vacations of course).
First of all, moving is a big expensive pain, especially if you lose your deposit and your last month’s rent for breaking your lease (and in many states you’re actually liable for the whole rent during your lease agreement, even if you move, if the landlord can’t get another tenant in there). Then once the fam is ready to move back out on their own, they’ll need another security deposit and first and last month’s rent.
I even think it’s ok to rack up some things on credit cards to avoid moving IF your prospect of having another job soon is good and you aren’t having to charge very much per month.
But if you only have a month or two of emergency funds and you can’t make ends meet by cutting costs or bringing in extra income between jobs, then you may as well consider more drastic solutions like moving before you empty your savings.
14 Meg // Jul 29, 2009 at 3:56 pm
Also in this case, the family knows that in the worst case they can pack up and move in with their parents who live right there – so why rush to do it immediately if they are making ends meet? If the wife can’t find another job or if the budget gets uncomfortably tight or if their savings start to get very low THEN they can always pick up and go and quit paying rent.
Landlords rarely pursue delinquent tenants because it’s time consuming and costly and there’s rarely anything to get out of it.
15 LAL // Jul 30, 2009 at 2:47 pm
It’s the husband that lost his job, not the wife. Can’t the landlord go to small claims court and get their rent?
16 R. May // Jul 30, 2009 at 3:33 pm
I dont know Meg – the one complex I used to live in, eviction notices went up on doors the 15th of every month. They definately pursued court action.
Even if you luck out and the landlord let the money ‘go’ it’s not expensive to put a mark on your credit report – then good luck renting for a long time. At least anywhere nice.
17 LAL // Jul 30, 2009 at 4:19 pm
In complexes they probably have standard procedures. In a landlord with 1-2 properties it probably is harder to chase someone down. Although they can give you bad references for your next rental and a black mark on credit.
18 TT // Jul 30, 2009 at 11:17 pm
I agree that the emphasis is on context. Being a single person with not alot of household “stuff” yet or children, I think it would be quite easy to move into my mom’s house (in the same city.) First, she travels extensively for business and leisure and I house and pet-sit for her at least one full week and maybe a couple weekends a month anyways. The home is large and spacious with almost a separate living unit upstairs so it would be no imposition for her nor would it make me uncomfortable. And there’s no doubt I would be charged rent for the rented living space. So cheaper for me then my apartment but by no means free. In my culture lots of families live together not so much after the children are married though.
19 LAL // Aug 3, 2009 at 11:45 am
I wonder how many parents would charge rent? My mom certainly would so moving in with them would be a moot point.
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