My 2016 Budget Challenge: Reduce Debt or Save for an Emergency?

By Max Wong on 23 December 2016 1 comment

[Editor's Note: This is another episode in Max Wong's journey to find an extra $31,000 this year. Read the whole series here.]

Uh oh. Mr. Spendypants' contract is up. We anticipated that he might be out of work in mid-October and have been putting money into an emergency fund all year long for just this occurrence. The situation is not completely dire, as his company has paying work until March 2017. We have a very minor reprieve.

Very minor.

As luck would have it I am also under-employed. I got furloughed this week by not one, but two jobs until a date that has yet to be named in 2017. Ugh. Really? I guess it's not just me who is strapped for cash at the end of the year.

The big conversation Mr. Spendypants and I have been having all week is this: Should we continue to put money toward the $31,000 Budget Challenge, or should we put that extra money into our emergency fund in the event that Mr. Spendypants is unemployed come March and I am still under-employed?

The Argument Against Staying the Course

Who knows what impact the new administration will have on the economy? We currently have slightly over $13,000 in our emergency fund, enough to live off of for four months. But what if the job market tanks and we can't find jobs for six months or a year? Putting all our money into the emergency fund is obviously the less risky move.

The Argument for Staying the Course

Mr. Spendypants is really good at his job in video games. He's had his choice of companies to work for in the past. Also, the video game industry is fairly recession-proof because games provide cheap entertainment for the out-of-work masses. We do trust that with his talent and his 20 years of connections in the industry that he has a 90% chance of quickly finding another paying job, perhaps even before his current job ends in March.

Naturally, the real financial wildcard in this situation is me, Mr. Spendypants' deadbeat wife. If Mr. Spendypants can't find full-time work quickly, will I be able to get a job that pays me enough to cover 100% of our bills? Probably not.

That said, if push came to shove, we could definitely cover the mortgage with my current collection of little jobs. I will just have to freelance that much harder, with no weekends or evenings off. And, even if Mr. Spendypants couldn't find a full-time gig, he could also rustle up some part-time freelance work to cover the rest. The worst case scenario: He goes on unemployment and we have to stop putting money in our retirement fund every month.

Also, if we continue to aggressively attack our $31,000 debt instead of putting all the extra money into the emergency fund for the next two months, we're potentially saving money in the long run on interest. Our debt load won't be so bad if we find ourselves in a financial pinch four months from now. It's much easier to weather a financial downturn, be it personal or global, if you have a small nut to cover.

How to Hedge Our Bet

After a lot of discussion and number crunching, we have decided to stay the course and continue to put money toward both the emergency fund and the $31,000 budget challenge.

This is the riskier choice. To hedge our bet, we've decided to sell off anything in the house we don't totally love to make some extra money. This is a win-win situation for both of us. I get the hated clutter out of my house, and Mr. Spendypants gets more peace of mind.

Initially, Mr. Spendypants wasn't sure that we could make enough money selling used housewares to keep us afloat. Unlike me, he hasn't sold a lot of stuff online. When a copy of Kuon, an old video game that I had listed on eBay for $199, was snapped up in under an hour, he was convinced.

Although I would love to systematically go through our house Mari Kondo-style, Mr. Spendypants doesn't want to have to look at a giant stack of merchandise in the middle of the living room. As a compromise, we're going to do a series of mini-purges where we only pull the things that we can sell that week into a common area for sorting and packing. Since I will be the one managing our online inventory and sales, this means a lot more hunting and packing for me, but I'm not going to argue about it. I have been trying to get Mr. Spendypants to downsize since we moved into Dinky Manor eight years ago. If a little financial panic is what it takes for him to get rid of belongings that have gone unused for years, I'll take it.

Progress So Far

I had the death flu for most of October. One of the suckiest things about the gig economy is that there are no sick days for people who work from home. If I don't do work, I don't make any money. Because I was sick in bed through the middle of the month, I only made $324 creating a database for my real estate agent and $199 selling Kuon on eBay. I am now, also, two weeks behind on all my work, which is kind of a nightmare. The only positive thing about getting the flu is that I was too sick to go shopping for anything, even food, so we didn't actually spend any money.

While I was suffering at home, Mr. Spendypants was suffering at work. His schedule was so crazy, that his bosses ordered dinners in to incentivize him to work late. Between the long hours and the catered meals, he was too busy to go shopping for anything, even food, so he managed to sock away $1,101 from his paycheck.

Goal: $31,000

Amount Raised: $25,219.17

Amount Spent: $12,853.66

Amount Left to Go: $18,634.49

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Tricia

So glad to see this series back up and running! I hope you will continue into 2017 - I find your columns speak to issues that come up in many of our lives.