Do you have an emergency fund?
I have two of them. And I heart them both. Do you want to meet them?
Located in a humble savings account tied to our checking account, Fund #1 is our flexible emergency fund. Known as our Short Term Savings, it’s intended for those smaller emergencies that come up from time to time, like broken garage doors, trips to urgent care, and cracked radiators.
This account is also where we save up for those dry summer months when my college-teaching husband’s income becomes scarce.
And when our checking account dips a little too low because we don’t budget to the penny, this account serves as our overdraft protection.
We contribute a fixed amount to this fund bi-weekly. Sometimes it’s looking plump and healthy, other times it’s in need of TLC. Sometimes we put money in only to turn around and take it out the next week, but that’s okay, because that’s what it’s there for.
In essence, Fund #1 is a slush fund. Intended to be our first line of defense in the face of unexpected expenses. It also likes long walks on the beach and candlelit dinners, but who doesn’t, really?
Fund #2, on the other hand, is not so flexible. In fact, we keep it under lock and key in a tall tower guarded by our own personal fire-breathing kitten. It’s accessible, but not everyday accessible.
This fund, known affectionately as our Long Term Savings (we gotta work on these names), is reserved for TRUE emergencies, like job loss or major medical catastrophes.
We contributed to it while simultaneously paying off debt by using our patented 50/50 method. Once it reached the magic (read: arbitrary) number of $10,000, we left it alone.
It’s also been used for those OMG-we-need-a-lot-of-money-fast situations. Which, to date, has only been twice - once when we refinanced our underwater home to get out of our bad loan, and once when A-Rob’s laptop died.
I have dreams of beefing this fund up even more someday.
Why the Two Fund System Works for Us
This system of two emergency funds was developed originally as a way to deal with our variable income (mine is fixed, musician husband’s is variable). The slushability of Fund #1 helps us when our income dips from one month to the next. And the stability of Fund #2 gives us the warm fuzzies in knowing if all else failed, we could fall into its loving arms.
But the thing I heart the most about this system is its compatibility with our hands-off money management approach. Transfers are automatic. Overdrafts are covered. And when those big expenses come up, we know exactly where to turn.
If you’re in the process of building an emergency fund, I highly recommend the dual system.
Double Funds in Action
A few months ago, I had to replace a cracked radiator in my car to the tune of $870. Yeah, it hurt to spend that money. It left Fund #1 in a pitiful state when all was said and done.
But honestly, I wasn’t too devastated. Partially, because I bought pumpkin flavored fro-yo right afterwards to medicate the pain, but also because I knew another automatic transfer was only a few days away. The system would take over, and transfer after transfer would slowly fill it back up again.
I also knew Fund #2 was there as back up if another catastrophe happened right away.
So tell me my friends, how many savings accounts do you have? Do you have more than two? Are you in the process of building an emergency fund? If so, how’s it going?