This is really immature, but Irina Slutsky is the new official holder of the Best Name in the Whole World title, narrowly edging out Ben Huh of Itchmo.com.
Stash Your Cash: Developing a Replacement Plan for Emergency Savings
Photo: Irina Slutsky
We all hear and respond to the popular advice of stashing away an emergency savings account for those unexpected bumps life throws our way. We tuck away tax returns, bonuses, rebates and any extra bit of cash we can carve out each month. Finally, we reach our magical goal of having a few months’ or years’ worth of cash. Then, many of us kick back, start spending, and think we’re fine. Or are we?
When the unexpected happens and we need to dip into our hard-earned savings account, how will that money be put back? Without a replacement plan, our emergency savings account can represent a false sense of security. How can we make sure these funds have a safety net?
In our house, we consider a certain amount of our monthly income to be a budget line item scheduled for savings. Even after our goal is reached, we still consider that amount of money to be ultimately ear-marked for savings. Sometimes, we continue to add to our basic emergency fund. Sometimes, we set it aside to start accumulating for a larger item such as a car, trip, home appliance, etc. Some months, we just have fun with it or use it to handle a smaller emergency, which prevents actually having to dip into our contingency fund at all.
When the time comes where we do have to access emergency savings, we know exactly where the money is going to come from to replace it. Anything else we might have been using that line item amount for comes to a screeching halt until our emergency account is topped off again.
Can this take a while? When the price of a particular emergency is large, yes. But replacing the emergency money is necessary if we don’t every single crisis to have the capacity to send us back to square one. Some tips to speed up the process? Scour the budget for any areas extra money can come from such as groceries, long distance calls, gas, clothing, gifts, etc. Set aside the original line item amount without question. Then, save as much extra as possible each month to increase the total. In this manner, even a larger “bump in the road” can be dealt with in a reasonable amount of time.
What’s your replacement plan for emergency savings? I’d love to hear it.
Best of Wise Bread
Chuckle . . . snort . . . I shouldn't find that amusing. And yet, sadly, I do. You know, I kind of had that same thought, but I figured I was being immature and I should just put up the darn credit. Besides, it was the first image I found that fit the title. How do you stay on top of these things, girl?
When you grow up with a last name like Dickson, you learn to laugh at... uh, WITH others.
I wish I had a great emergency savings plan. Right now, whenever I have extra cash, I just divert it into my savings account. A couple big medical bills have set me back, but I'm being pretty good about getting more money set aside. I do better if I do it in large chunks, rather than small increments.
We put away larger amounts when we have them too. It helps to know you've got a larger dent in things. Then, the smaller monthly amounts feel like they are adding up quicker and helping things along nicely, rather than feeling like you have absolutely no light at the end of the tunnel.
I use my emergency fund(Efund) as an escrow account for taxes on the house. It is a money market account. So every month there is a set amount going to the Efund(Money Market). When we need to replenish we just raise this amount up with savings we find in other categories.
I know this is silly, but I found that I'm so glad I have an emergency fund (20K)that I can't stand to touch it -- even in an emergency. So, unless it's a matter of life and death, that just sits in ING and lets me sleep at night.
So, I needed an emergency fund that I would actually consider using ... I opened another ING account and do automatic deposits. I keep a minumum 5K in there for medium emergencies; when we build up a couple thousand above the 5K, we use for vacations, appliance and medium emergencies (becuase wouldn't you know it, but I'm not thrilled about actually tapping the 5K either)
So, I needed another emergency fund and put 1K away in a regular savings account with almost no interest. For some reason, I WILL use this in an emergency (car repair .. unexpected wedding gift ... contribution to inlaws' anniversary party), probably because since it earns no interest, I don't feel bad about using it. When I do tap it, I first try to replenish with the little build-in slack in the checking or if not enough there, will use anything above 5K in the medium fund and put it into the little fund.
Wacky I know, but I have tons of peace of mind!
I don't think that's wacky at all. We feel the same way. Once you have a safety net, and that safety net's producing income for you that you don't have to work for, it's worth giving up all the extras in my book to keep that peace of mind.
I've done similar and have 20K + 5K + an account that takes in $100 each month for things you know are going to break, like car repairs plus I do $2 a day towards medical, because people break unexpectedly too.
I have a hard time seeing the 20K+5K go down as well so purposely put in the car and medical account so I didn't have anxiety about those (um safe travel and functional body are kinda important). Online banking and auto transfers help considerably.
I call the auto one "my own extended service contract" that just keeps on paying every car expense, so far the past 120K miles it's always paid every expense.
With the medical I have less anxiety going to the dentist, knowing a dental repair might be needed. I had enough added over time to confidently decide it was time to have my wisdom teeth out and covered the extra costs to have in-office anesthesia with 4 wisdoms removed. Never having to remember the experience was worth $2 a day I had paid in advance.
I found the joy of spending today never makes up for the gut wrenching anxiety of coming up short on funds tomorrow. Start telling friends or work you can't drive, teeth ache, or you can't cook because your fridge broke and suddenly the mall fashions you are wearing mean almost nothing.
The peace of mind gained is very hard to explain. Really puts you at ease. It helps too at work because I do my job, instead of being a nervous wreck about what would happen if I got fired tomorrow (can I take a break, what if I 10 minutes late). You don't need a high paying job, just build up the emergency funds over time and don't touch them. I have 20k+5k but still buy clothes from a thrift shop first, buy mostly generics, and less car than I could afford.
I'll agree with the other commenter, it's seems wacky but wouldn't have it any other way.
One of the other personal finance tips I've read is regarding defining what is an emergency.
Your car breaking down, for example, is NOT an emergency. It's something that will happen eventually.
Getting into a car accident is not an emergency. You should (ideally) have both deductibles saved so that you can cover your share of the medical and repair bills.
A lot of people fail to budget for things like this and end up with no emergency fund because "everything" is an emergency. I know we used to be awful about this... I didn't feel like cooking, so "just this once" let's go out to eat. Oh, we don't have it? We'll take it out of savings or charge it. No problem!
Thanks for the blog... I enjoy reading you!
~Ch7Mom
A mom on the Gulf Coast of Florida in the process of Ch7 bankruptcy and blogging about it.
