Why Is Standby Cash So Important

In my book we talk about the 5 steps. And as you would know, step 2 is to save $2500 in standby cash. Then step 4 is to add $7500 to bring your total standby cash to $10,000.

You might think, is this really important? Do we really need this additional cash sitting in a bank account somewhere? Well the answer is yes!

Last month proved this fact to me more than anything. At the start of 2010, Renee and I sat down and talked about our house. We talked about some of the things that might need to be replaced in the house over the next couple of years. As our house is 16-years-old we have bits and pieces that are on their last legs.

The following is a list we came up with:
Toilet: Giant cracks around the base
Hot water system: Have had several people including a hot water system expert tell me due to its age its lucky it’s still working.
Air conditioner: The air conditioner really struggles on any day over 37; the time when you need it the most. And it seems to be getting worse.
Garage Roof: Over time rain has caused it to buckle and it is letting water in quite quickly.
Oven: Our oven has become very temperamental. It only works if you treat it very nicely.
Washing Machine: Due to it being a 10-year-old washing machine, its age is beginning to show. In fact, it has given up half way through a wash more than once this year alone.

So our list was very large. However everything on this list could break down on the same day. Could we afford to replace it? Of course, we have $10,000 sitting in a standby fund. It would probably clear the fund to almost zero dollars, but we would not have to go into debt.

Had we had no standby fund to replace these items we would have to get it on interest free or go without?

Well, they say things happen in threes. Last month we did have three things happen, but would you believe it none were on this list. In fact, these three things were completely out of the blue. 

1. Our automatic roller door nearly came off its hinges. We got out two experts to look at it; they both said it would need to be replaced. We even had to stop using it and park our cars on the street, fearing it would fall down. (New roller door cost $1040)
2. Our trusty TV that we have had for 7 years decided it didn’t want to show colour anymore. In fact it went to 100% black and white. We got it repaired to restore the colour again. (Repair cost $115)
3. Our TV aerial on the roof gave up the ghost. We couldn’t watch TV on any television. (New aerial cost $180).

Would you believe we paid out $1335 in upkeep, right out the door? Plus to add insult to injury, we really didn’t know these three items were anywhere near breaking down. So we hadn’t added it to our list of possible breakdowns.

As hard as this was to swallow, we felt grateful that we could just draw down from our standby fund. Now we have moved back from step 5 “kill the home loan”. We have reduced our payments back to the minimum required by the bank. We are quickly rebuilding our standby fund to the $10,000 it should be at.

The problem with items breaking down is you just do not know when it will happen. You might have an incredible run of several years with nothing breaking down. Then bang a flood of things in your house experience problems.

If you have no standby fund when this hits, what would you do? This is just a warning to keep your standby fund ready to go in case of things just like this.