By: Revanche

Living expenses and emergency funds

February 25, 2009

On Twitter, @debthater asked: For all u personal finance peeps, is your 3-6 months of living expenses savings SEPARATE from your “emergency” fund? Curious

My answer was that my living expenses account (“cash cushion”) and my emergency fund are totally separate.

Most others (@singlema, @wellheeledblog) keep their money all in one pot to keep it simple.

Is everyone else is more organized than I am?

My expense account was initially deliberately separated out so that it would be easier to track during the effort to break out from the paycheck to paycheck cycle. It’s really sad to get misled into thinking there’s more than there really is because of the bigger numbers of the emergency fund!

Now that the cash cushion is healthy, am I just complicating matters by maintaining two sets of accounts?

It’s partly psychological, partly record-keeping. E-fund money is untouchable: it’s for real emergencies ONLY. The expenses money is intended to be used for monthly costs and unexpected non-emergencies. If I keep it all in one pot, it seems like the whole pot is accessible, not just a portion of it. Also, there are enough miscellaneous transactions (deposits, usually) that it seems easier to keeo them separated.

What think ye? Should I just simplify matters and combine all the accounts? (By “all,” I have to admit that my emergency fund is spread across 3 banks because I was worried about accessibility, low rates and the bank failures. I wanted to have access one way or another to some of the money I needed in case of problems.)

How do you handle your accounts? Do you simplify/complicate things?

8 Responses to “Living expenses and emergency funds”

  1. For a while I had all my savings in a single account. Then when I realized I had specific things to be saving for, I started to split it up.

    My emergency fund & living expenses cushion are still combined though. I consider it all to be emergency money.

  2. I do the exact same thing as you.

    $36k in EF

    $10-$15k in savings (that’s my goal)

    And then I save for funds on the side like Travel to NY, etc…

    I like feeling more organized that way so that I don’t touch my EF unless I have to (which I may have to until May)

  3. L.A. Daze says:

    All in one account. I like to keep it simple and not worry about short changing one account or the other.

  4. mOOm says:

    We don’t have an emergency fund and have little cash apart from a US account Snork Maiden has which has been designated largely for her parents visit to Australia. I did pile up a lot of cash before our move to Australia. Basically we rely on borrowing for emergencies.

  5. Revanche says:

    Interesting … I’m still debating if I want to revamp my system. Other than reducing the number of accounts, though, maybe not.
    mOOm, you have a far stronger constitution than I do!

  6. Sense says:

    I have a feeling you are MORE organized than most everyone else…

    I consider my 6 month living expenses AS my EF.

    and all my savings are in one pot, the bank that gets the highest interest.

    I don’t have a separate account for monthly and non-emergency expenses, unless you count my checking account with my $1K cushion.

    yes, i could be getting interest on that $1K, but i’m so afraid that one day i’m going to suddenly forget that my rent was due yesterday and i need to pay it immediately, that I can’t bear to do remove that cushion.

  7. Single Ma says:

    My 3-6 living expense IS my emergency fund. I don’t distinguish between the two so I don’t separate them.

    However, now that my e-fund is fully funded, I continue to save out of habit and make deposits into the same account. But the excess isn’t earmarked for anything in particular, it’s just savings.

    I rarely have expenses that can’t be covered with monthly cash flow, but if I ever need to use my savings, as long as the balance doesn’t dip below $25k (my e-fund limit), I’m good.

  8. Revanche says:

    Sense: You’re too kind. I think you mean I’m more neurotic than most. That’s probably true. 🙂

    The only reason I don’t keep the same cushion as you do is because my checking and savings accounts are directly linked so it’s a matter of seconds to transfer money. But if they weren’t, I’d have to keep a much larger cushion, like yours.

    SingleMa: Your efund limit is actually a good idea I should implement. Maybe when I have a “secure” (more secure, anyway) job. It would keep me from being all Nervous Nelly, and free me up to invest like I want to. Right now, everything’s going into savings just because the job outlook is bleak.

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