Emergency Fund Lessons from an Unexpected Tax Bill

We’ve all been there. Things are going along nicely with our goals of frugal living. We’re saving money and paying down debt. Then, when you least expect it, something changes. An emergency happens. Take my most recent story as evidence.

My husband and I paid off our Tahoe last month. We’re now officially debt free (except for our mortgage). Yay!  Our emergency fund is (almost) where we want it. We have money in our retirement funds that is growing (even though we’re not adding to it right now). We have two paid-off cars (with lots of miles). We have (some) money set aside for (some of) the upcoming house projects we’re hoping to tackle. It’s a good feeling.

Then, we received our annual property tax notice in the mail. This was not a good feeling. I was shocked to see that our taxes went up almost $1400! I read through all the enclosed paperwork and saw that we lost our homestead deduction. I didn’t know why! We’re still living in the house as we have been for the past 5 years.

The next day, I made some phone calls of inquiry and found out that when we refinanced for a great interest rate in 2013, the homestead exemption did not transfer. Because it’s retroactive, there is nothing we can do for this year. I’ve refiled and we have already been approved for our homestead deduction next year and all future years. For this year? We have to pay an extra large tax bill.

Ugh. Taxes. I don’t like them in the first place and now it was more than expected! It’s frustrating, to say the least. I spent a day (or two) stewing over the issue before I realized it wasn’t doing me any good.We still have to pay the tax bill and there is nothing we can do to change that fact. We have an emergency fund that can cover emergencies just like these. I can choose to be thankful that we do have the money available to pay the bill. We’re still doing fine. It wasn’t how I wanted to spend our money but I have to move forward.

Yes, it’s a set-back, but it encouraged me to keep working hard at our financial goals. These up and down money moments are part of life. Sometimes, we can plan for them and sometimes, we can’t. It’s why we put money aside in an emergency fund. Emergencies happen!

Fast forward another two weeks. We received another tax bill in the mail. This time, it was for the amount we had anticipated – and the $1400 difference? Gone! The homestead deduction was added back onto our taxes for 2014! I was beyond surprised and immensely thankful for this change. (I said a very sincere thank you prayer that night!) I still don’t know why it happened. I want to think that the nice guy at the Auditor’s office heard my frustration and fixed it for us. My husband thinks it was just a glitch. Whatever happened, we are very thankful!

While we don’t have to pay the tax bill, this has reinforced our desire to get our emergency fund to the full 3 to 6 months expenses (as recommended by countless financial experts) as soon as possible. Knowing that you have a financial cushion makes unexpected tax bills – and other money surprises – less of a stresser.

The purpose of this story is to show you that we all have emergencies. I don’t want anyone to feel bad about where they are with their budget. We can all make progress forward, although some days (and years) it seems slower than others. The lesson to be learned is that emergency funds are important. 

Do you have an emergency fund?  If not, I encourage you to set something – anything – aside. We lived with a $1000 emergency fund (Dave Ramsey’s Baby Step 1) for many years. Even having $1000 as a cushion helps me to sleep better at night.

If you do already have an emergency fund, is it funded where you would like it to be? Every family has a different set of needs so only you can determine what is right for you. Our goal is 3 months in our emergency fund, knowing that we have another 3 months in cash-value life insurance policies. What is your goal for your emergency fund?