Saturday, February 8, 2014

Questions about Emergency Funds

Trying to get the EF fully funded.  That is going to take a long time.  I'm okay with that, I think.  I have a question about other items like car repairs.  Does that come out of your EF or do you have a separate fund for car repairs?  What about stuff like appliance repairs?  At this point we do not have funds set up for these things.  I know I know.  Like I've said before, we spent a long time with our heads in the sand.  But I digress.  Do we need to set up separate funds for these items or take the costs out of the EF?

Do you guys use the envelope system?  I've been watching some videos by debtisdum on Youtube.  They use the envelope system and swear by it but having cash around like that would be a huge temptation for me.  It really is easy to rob Peter to pay Paul.  If you use it, tell of your success. 

I guess I'm trying to figure out just how many "little funds" do we need?  We do have a Christmas Club account and a vacation account in addition the EF. 

Any advice would be appreciated.

7 comments:

  1. For savings accounts, we have three. Our EF, new car fund and planned expenses like annual insurance payments, taxes, car registration. We save monthly for our planned expenses.

    We don't do the envelope system because we prefer to charge everything for credit card rewards but I think its a good system.

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  2. I have separate savings funds all in 1 savings account. I have a hard tome taking money out of our emergency fund once it is in there. It would have to be a major emergency for me to touch it. I use an excel spreadsheet to keep track of the money in our savings account. We have an emergency fund, car fund, vacation fund, homebrepair fund. We don't use the cash system. We keep cash for spending money but all budgeted item and bills get paid with credit card.

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  3. We do not have an EF. We have lived way beneath our means for the duration of our marriage. Without revealing too much, dh 's salary (now retired) was automatically put in retirement /Iowa savings accounts. Then as we grew more$, higher interest accounts with risk (stocks) and real estate. An automatic deposit was sent to our DDA (still is) BUT....just because $2000/month gets deposited doesn't mean we have to spend it..even if it is Christmas. If the DDA grows too much, we make a deposit in one of our more profitable accounts. The formula doesn't reverse itself.

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  4. My emergency is just that, for EMERGENCIES only. The initial goal for it was 1 year of living expenses in case of a job loss. As we got older and our expenses went up AND Hubs job got higher the EF amount went up past 1 year of living expenses. Why? Because the older and higher in level when you lose a job, the LONGER it will generally take you to replace that income with an equal income. So we make sure we re-evaluate how much we need to have in the EF. This $ is put away separate from all other monies(earning a small amount of interest)but is easily convertible to cash if it's ever needed. It's more a LIFE Fund than an Emergency Fund.

    We don't consider an unexpected car repair, appliance replacement, medical bill as an emergency of that caliber. They are life's "OOPS" moments but not full on "possibly life changing" events like a job loss or death of a spouse is.
    So the Emergency Fund, as I have talked about on my blog before, is our pile of money from the previous year's Savings Challenge. I save part of our income every year and throw it in a Capital One(the old ING)account. The following year that pile of savings acts as our EF for those little events in life(repairs/replacements but also sometimes for "fun" things like vacation expenses)you don't count on. When the current year is over if any funds are left in that pile, they get transferred into the LIFE account or some other fund. And then the current year's savings challenge money becomes the new EF.
    I hope this is clear as mud. ;-)

    I think most Americans are woefully underfunded in all their savings type accounts and spend way too much of their income in the here and now.
    The only way to be armed with enough EF $ is to make saving money a priority over spending it and most people either don't want to change their habits or can't.

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  5. About the envelope system.
    Since we set up housekeeping in the olden days of the 1980's, we didn't have credit cards(and really didn't see the point of having one at that time), so we paid for everything with cash or a check.
    Our bank was our "envelope system" I guess. I wrote out our expenses each month on paper and our income. I didn't have to stash $ into a separate envie for each category of spending, I just went to the bank and got the money out if I had to use cash or wrote a check. Why make something MORE complicated than it has to be?
    When we did get a credit card down the road, we only put charges on it that we could pay off at the end of the billing cycle. If an OOPS moment happened and we couldn't pay the card off, we just tightened the spending elsewhere so we could throw more at that bill the following month(s)and paid it off as soon as we could.

    People today don't use credit cards properly on the whole I'd say. They use them for instant gratification and to misbehave with their money. A credit card is a TOOL, just like money, I should only be used thoughtfully and/or in emergency situations.

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  6. I've just set up separate accounts (online & linked with our checking) for car expenses, travel and other budget categories in an electronic envelope system kind of way. Our EF is intended to be only for emergencies, but we've used it before in a pinch - rather than adding debt. We've always been pretty frugal, but are working hard at being even more frugal, with the upcoming birth of our baby.

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  7. An item line of my household budget includes a separate amount for anticipated auto maintenance. If I anticipate (I review my budget every 6 months) that I will need to buy tires for example, in 6 months, I increase what I set aside. When the time comes, I have the $ to cover it. An EF is when sh** hits the fan and there is no other option-so go ahead and repair the furnace, stove etc. BUT, be proactive: keep an eye on what you have, anticipate needs/service/replacement. For instance: birthdays and Xmas happen every year, there is no reason to pay for it with a CC, IMO, unless you are earning free cash back as I do. Everyone knows these dates, so deprive yourself somehow, pinch back on eating out, shopping, what have you so that you can meet these anticipated expenses.
    Hope that didn't come off as harsh, it wasn't meant to be. : )

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