Our 'cure' for emergency expenses

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Jags4186
Posts: 2459
Joined: Wed Jun 18, 2014 7:12 pm

Re: Our 'cure' for emergency expenses

Post by Jags4186 » Mon Jan 15, 2018 4:06 pm

sailaway wrote:
Mon Jan 15, 2018 2:55 pm
celia wrote:
Mon Jan 15, 2018 2:53 pm
Our "freedom fund" has always been part of our checking account. Why make it complicated?
I have two take aways from this thread:

-Most people take awhile to get budgeting dialed in.
-A lot of people make their finances complicated.
Agree with you both. What the OP describes isn't an emergency fund, it's a sinking fund. And those are really only useful if you find yourself spending every penny of your paycheck. If you bring home $5k a month and spend $5k a month, when you have a $600 car insurance bill come in you all of a sudden are $600 in the hole. When our car insurance comes due every 6 months we just pay it out of cash flow and save a little less that month. Same for life insurance, registration fees, anticipated auto maintenance, etc. My emergency fund is there primarily in case one of us lose our job since I don't really anticipate having a huge lump sum expense. If I were a home owner I'd probably up my emergency fund by the amount of my home owners insurance deductible.

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Mon Jan 15, 2018 4:51 pm

celia wrote:
Mon Jan 15, 2018 2:53 pm
Our "freedom fund" has always been part of our checking account. Why make it complicated?
We normally keep our checking account pretty lean, preferring to put as much of our money to work as possible, even if it's only earning 1% in an online savings account.

Tracking our irregular expenses has enabled us to much improve our budgeting and financial planning. It has also enabled our savings to be much more regular and smooth. Keeping the 'freedom fund' separate helps us to (1) mentally separate money used for regular and irregular expenses, which we find useful, and (2) we earn 1.25% interest currently on our 'freedom fund', which is a nice little boost. For us, it's not complicated in the slightest. But to each their own.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Mon Jan 15, 2018 4:55 pm

Jags4186 wrote:
Mon Jan 15, 2018 4:06 pm
Agree with you both. What the OP describes isn't an emergency fund, it's a sinking fund. And those are really only useful if you find yourself spending every penny of your paycheck. If you bring home $5k a month and spend $5k a month, when you have a $600 car insurance bill come in you all of a sudden are $600 in the hole. When our car insurance comes due every 6 months we just pay it out of cash flow and save a little less that month. Same for life insurance, registration fees, anticipated auto maintenance, etc. My emergency fund is there primarily in case one of us lose our job since I don't really anticipate having a huge lump sum expense. If I were a home owner I'd probably up my emergency fund by the amount of my home owners insurance deductible.
That can work fine until you have a large irregular expense like a $2k car repair and a $1k insurance deductible due in the same month that you cannot easily pay for with cash flow. Credit cards can give you a little float period, but I'd personally rather have that money set aside, ready to go when, not if, it's needed. Also, by tracking all of our irregular expenses, we have a much better grasp than we did before on how much we actually spend, something that surprising many people out there don't really know.

And yes, our 'freedom fund' isn't an EF, and I've never said that it was. But I have noticed that the financial emergencies that used to come up have since disappeared. Job loss is about the only emergency for which we would need our EF.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

vested1
Posts: 1569
Joined: Wed Jan 04, 2012 4:20 pm

Re: Our 'cure' for emergency expenses

Post by vested1 » Mon Jan 15, 2018 6:42 pm

We keep about 5k extra in checking for those what ifs now that we're retired. When working we kept around 20k extra in checking, which worked well for not having to touch savings. Like Travelforfun we pay for emergencies now with a credit card then pay it off immediately. The exception was in December when we returned from Hawaii and found our dryer needed to be replaced. Unlike the OP, I don't know ahead of time when something is going to break. We carried the cost of the dryer for a month, the first time in over a decade that we didn't pay off the card every month. We did this to maintain the cushion in checking and to avoid taking extra in December, which would have affected taxable income.

We have about 66k in non-invested pre-tax savings that can be drawn upon quickly, so we treat that as our true emergency fund with an eye to taxes, and to help us avoid selling anything in stocks or bonds. We haven't sold anything in (my) 2 years of retirement, 3.5 years for my wife. We start Roth conversions this year, and will be building taxable accounts in the near future too, so that should assist in managing taxable withdrawals made for emergency repairs or other nasty surprises.

This is only one of the unexpected adjustments we made when we retired. During working years if we needed something extra I would simply do a burn-out on overtime, which was unlimited. Now our overtime is spent napping or on trips.

zinders
Posts: 14
Joined: Thu Aug 03, 2017 9:31 am

Re: Our 'cure' for emergency expenses

Post by zinders » Mon Jan 15, 2018 6:55 pm

We have our spending/savings in various buckets.

*The "main account" is a checking account where we pay our bills and regular expenses.
*We have an emergency fund of $30,000 with Barclay's high-interest savings. This is never touched.
*We have an overdraft account of $5,000, just in case some surprise bills come up.
*We have $15,000 set aside for our property taxes in a savings account
*We put money every year in to our home improvements fund. This is so we pay cash for renovations/home projects. Right now, it has $20,000 in it, which we're going to use for a master bath remodel.
*We have another $10,000 in a home maintenance account. This is for the surprise repairs that some mention.
*We have another savings account where we are putting money away for a car.
*And finally, we have another account that I'm building up with our annual vacation money.

Basically, as soon as we spend from one of these accounts, we replenish it from the main account. Ex: Our property taxes are paid twice a year. Once we take out money for one bill, we can start putting money back in for the next year.

H-Town
Posts: 1253
Joined: Sun Feb 26, 2017 2:08 pm

Re: Our 'cure' for emergency expenses

Post by H-Town » Mon Jan 15, 2018 7:05 pm

zinders wrote:
Mon Jan 15, 2018 6:55 pm
We have our spending/savings in various buckets.

*The "main account" is a checking account where we pay our bills and regular expenses.
*We have an emergency fund of $30,000 with Barclay's high-interest savings. This is never touched.
*We have an overdraft account of $5,000, just in case some surprise bills come up.
*We have $15,000 set aside for our property taxes in a savings account
*We put money every year in to our home improvements fund. This is so we pay cash for renovations/home projects. Right now, it has $20,000 in it, which we're going to use for a master bath remodel.
*We have another $10,000 in a home maintenance account. This is for the surprise repairs that some mention.
*We have another savings account where we are putting money away for a car.
*And finally, we have another account that I'm building up with our annual vacation money.

Basically, as soon as we spend from one of these accounts, we replenish it from the main account. Ex: Our property taxes are paid twice a year. Once we take out money for one bill, we can start putting money back in for the next year.
Yeah... Or you can have $100,000 in one fund and just draw down from there.

Palatineman
Posts: 136
Joined: Mon Jun 20, 2016 10:40 pm

Re: Our 'cure' for emergency expenses

Post by Palatineman » Mon Jan 15, 2018 7:46 pm

thangngo wrote:
Mon Jan 15, 2018 7:05 pm
zinders wrote:
Mon Jan 15, 2018 6:55 pm
We have our spending/savings in various buckets.

*The "main account" is a checking account where we pay our bills and regular expenses.
*We have an emergency fund of $30,000 with Barclay's high-interest savings. This is never touched.
*We have an overdraft account of $5,000, just in case some surprise bills come up.
*We have $15,000 set aside for our property taxes in a savings account
*We put money every year in to our home improvements fund. This is so we pay cash for renovations/home projects. Right now, it has $20,000 in it, which we're going to use for a master bath remodel.
*We have another $10,000 in a home maintenance account. This is for the surprise repairs that some mention.
*We have another savings account where we are putting money away for a car.
*And finally, we have another account that I'm building up with our annual vacation money.

Basically, as soon as we spend from one of these accounts, we replenish it from the main account. Ex: Our property taxes are paid twice a year. Once we take out money for one bill, we can start putting money back in for the next year.
Yeah... Or you can have $100,000 in one fund and just draw down from there.
LMAO

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Mon Jan 15, 2018 8:38 pm

vested1 wrote:
Mon Jan 15, 2018 6:42 pm
Unlike the OP, I don't know ahead of time when something is going to break.
When did I ever say that I could predict the future?

That being said, expecting and preparing for appliances to eventually break is hardly prognostication. Our dishwasher gave up the ghost a few months back after fewer than three years of service. But we just paid for it from our 'freedom fund' without skipping a beat.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

nolesrule
Posts: 737
Joined: Thu Feb 26, 2015 10:59 am

Re: Our 'cure' for emergency expenses

Post by nolesrule » Mon Jan 15, 2018 9:44 pm

Our budget is what keeps us organized with respect to cash. It contains all the money for our everyday/monthly expenses, our income replacement funds (6 months expenses), plus everything else we are accumulating cash for that has a spending timeline within the next 5 years, so I guess that's the freedom fund? Any new income that's not needed for the budget gets sent off to our Vanguard account monthly.

We're now approaching the point where the brokerage account is nearing the same size as our income replacement funds. Our total held in cash is relatively flat with a general slightly upward trend, though it has dipped a bit in the last couple months as we replaced a refrigerator and dishwasher, made a DAF contribution and about half our 2018 IRA contributions.

JohnFiscal
Posts: 607
Joined: Mon Jan 06, 2014 4:28 pm
Location: Florida

Re: Our 'cure' for emergency expenses

Post by JohnFiscal » Tue Jan 16, 2018 11:25 am

willthrill81 wrote:
Mon Jan 15, 2018 8:38 pm
Unlike the OP, I don't know ahead of time when something is going to break.
When did I ever say that I could predict the future?

That being said, expecting and preparing for appliances to eventually break is hardly prognostication. Our dishwasher gave up the ghost a few months back after fewer than three years of service. But we just paid for it from our 'freedom fund' without skipping a beat.
OP, I have been using this same method for 25+ years. It has gotten larger over the years, to encompass "more, more, more" expenses and categories over the years. Some categories are expected to be depleted for the year, whereas other categories are for longer term (anticipated home repairs, new appliances, etc). As you say, one may not know exactly "when" something is going to go, but it's a certainty that "it" will go (car tires, appliances, etc). It's nice to have the dedicated fund for this stuff (kept track of via Excel spreadsheets).

vested1
Posts: 1569
Joined: Wed Jan 04, 2012 4:20 pm

Re: Our 'cure' for emergency expenses

Post by vested1 » Tue Jan 16, 2018 11:33 am

willthrill81 wrote:
Mon Jan 15, 2018 8:38 pm
vested1 wrote:
Mon Jan 15, 2018 6:42 pm
Unlike the OP, I don't know ahead of time when something is going to break.
When did I ever say that I could predict the future?

That being said, expecting and preparing for appliances to eventually break is hardly prognostication. Our dishwasher gave up the ghost a few months back after fewer than three years of service. But we just paid for it from our 'freedom fund' without skipping a beat.
Sorry if I offended.
willthrill81 wrote:Replacing something like HVAC equipment is not usually an unexpected expense;
This caught my eye, so I added a bit of ill advised humor. I read it as "occurrence" rather than "expense", which was incorrect.

Jeep512
Posts: 39
Joined: Fri Oct 13, 2017 4:34 am

Re: Our 'cure' for emergency expenses

Post by Jeep512 » Tue Jan 16, 2018 11:33 am

sailaway wrote:
Mon Jan 15, 2018 2:55 pm
celia wrote:
Mon Jan 15, 2018 2:53 pm
Our "freedom fund" has always been part of our checking account. Why make it complicated?
I have two take aways from this thread:

-Most people take awhile to get budgeting dialed in.
-A lot of people make their finances complicated.
That's rather cynical.

My takeaway from this thread:

Different techniques work for different people.

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Tue Jan 16, 2018 11:40 am

vested1 wrote:
Tue Jan 16, 2018 11:33 am
willthrill81 wrote:
Mon Jan 15, 2018 8:38 pm
vested1 wrote:
Mon Jan 15, 2018 6:42 pm
Unlike the OP, I don't know ahead of time when something is going to break.
When did I ever say that I could predict the future?

That being said, expecting and preparing for appliances to eventually break is hardly prognostication. Our dishwasher gave up the ghost a few months back after fewer than three years of service. But we just paid for it from our 'freedom fund' without skipping a beat.
Sorry if I offended.
willthrill81 wrote:Replacing something like HVAC equipment is not usually an unexpected expense;
This caught my eye, so I added a bit of ill advised humor. I read it as "occurrence" rather than "expense", which was incorrect.
No prob. :beer

I think that the rule of thumb that one should expect to spend, on average, 1% of a home's value annually in repairs/replacements is probably about accurate, though likely significantly higher in very old homes. Upgrades will certainly cost more.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

lazydavid
Posts: 1808
Joined: Wed Apr 06, 2016 1:37 pm

Re: Our 'cure' for emergency expenses

Post by lazydavid » Tue Jan 16, 2018 12:32 pm

ThreeBears wrote:
Sat Jan 13, 2018 9:11 pm
We just pray that we don't have emergencies . . . so far it's worked. It's kinda a bogglehead approach, as it's been very low-cost . . . so far.
As my previous boss was fond of saying, "Hope is not a strategy".

ThreeBears
Posts: 95
Joined: Mon Nov 28, 2016 11:13 am

Re: Our 'cure' for emergency expenses

Post by ThreeBears » Mon Jan 22, 2018 11:11 pm

willthrill81 wrote:
Sun Jan 14, 2018 5:08 pm
ThreeBears wrote:
Sat Jan 13, 2018 9:11 pm
We just pray that we don't have emergencies . . . so far it's worked. It's kinda a bogglehead approach, as it's been very low-cost . . . so far.
I hope you're not serious.

No. i'm not serious. But, I start to wonder if you can gauge where we are in the stock market cycle by how antsy people are to have their emergency fund in the stock market. If the market were more volatile, would people feel they were missing out by having money in a checking account?

Also - my comments didn't really help you.

Also also - wow, i budget a lot less than you. I have a rough budget of my primary costs and primary income streams. But, I have no idea how much my next vacation will cost (for example). I mean maybe $5,000 to $15,000. But, I'm not really budgeting. And I don't budget any maintenance until I know about it, and I'm still surprised how much the 60,000 mileage maintenance costs. I have a savings goal. Anything above that is gravy.

SimplicityNow
Posts: 473
Joined: Fri Aug 05, 2016 10:31 am

Re: Our 'cure' for emergency expenses

Post by SimplicityNow » Tue Jan 23, 2018 9:30 am

Jeep512 wrote:
Tue Jan 16, 2018 11:33 am
sailaway wrote:
Mon Jan 15, 2018 2:55 pm
celia wrote:
Mon Jan 15, 2018 2:53 pm
Our "freedom fund" has always been part of our checking account. Why make it complicated?
I have two take aways from this thread:

-Most people take awhile to get budgeting dialed in.
-A lot of people make their finances complicated.
That's rather cynical.

My takeaway from this thread:

Different techniques work for different people.
I agree different strokes for different folks. At the end of the day it also depends on how you define emergency. If this gives the OP the confidence to keep his non interest baring accounts leaner so he is able to get some additional return from his money that is great.

Some costs are hard to budget for and the costs of some emergencies can result in what you thought was a good plan, failing.

Lacrocious
Posts: 313
Joined: Thu Mar 22, 2007 9:45 pm
Location: Wisconsin

Re: Our 'cure' for emergency expenses

Post by Lacrocious » Mon Feb 12, 2018 11:47 pm

I agree with Jeep512 - different strokes for different folks.

We do something similar with our "Periodic Expenses", not emergencies. Many years ago after reading "Uncommon Cents" - the suggestion was to have a chart of periodic expenses and the months they hit. We found that most of our periodic expenses were spread across various months. This allowed us to total them up for the year and divide by 12 to generate a monthly amount to save. We save that amount each month and are guaranteed to have the $$ required each month to pay the periodic expenses for that month. We had to pre-load a few hundred $$ into it to make it never go negative - as we have a bunch of car, house, umbrella insurance to pay in Jan & Feb each year. The good thing is that it works for us. Your mileage may vary.

- L

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Tue Feb 13, 2018 1:41 am

Lacrocious wrote:
Mon Feb 12, 2018 11:47 pm
I agree with Jeep512 - different strokes for different folks.

We do something similar with our "Periodic Expenses", not emergencies. Many years ago after reading "Uncommon Cents" - the suggestion was to have a chart of periodic expenses and the months they hit. We found that most of our periodic expenses were spread across various months. This allowed us to total them up for the year and divide by 12 to generate a monthly amount to save. We save that amount each month and are guaranteed to have the $$ required each month to pay the periodic expenses for that month. We had to pre-load a few hundred $$ into it to make it never go negative - as we have a bunch of car, house, umbrella insurance to pay in Jan & Feb each year. The good thing is that it works for us. Your mileage may vary.

- L
That's pretty much exactly what we do. I just track everything in Excel, which only takes a few minutes per month, and make one transfer either into or out of our savings account that holds the money. Nearly five years in, and we've not yet had an irregular expense that we couldn't cover with readily available funds.

Those who choose to just cash flow irregular expenses still must have either a 'reserve' that they keep in either a checking or savings account to cover those expenses that could be significant, unless Visa is their EF, which is certainly the case for the millions who can't lay their hands on $1k without going into debt.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

IowaFarmWife
Posts: 89
Joined: Thu Nov 02, 2017 9:42 pm

Re: Our 'cure' for emergency expenses

Post by IowaFarmWife » Tue Feb 13, 2018 7:50 am

Lacrocious wrote:
Mon Feb 12, 2018 11:47 pm
I agree with Jeep512 - different strokes for different folks.

We do something similar with our "Periodic Expenses", not emergencies. Many years ago after reading "Uncommon Cents" - the suggestion was to have a chart of periodic expenses and the months they hit. We found that most of our periodic expenses were spread across various months. This allowed us to total them up for the year and divide by 12 to generate a monthly amount to save. We save that amount each month and are guaranteed to have the $$ required each month to pay the periodic expenses for that month. We had to pre-load a few hundred $$ into it to make it never go negative - as we have a bunch of car, house, umbrella insurance to pay in Jan & Feb each year. The good thing is that it works for us. Your mileage may vary.

- L
Yep, this is what we started to do several years ago, too. Except in my case, I am paid twice a month, so all expenses get divided by 24 and go into one account. I keep track of the inflows and outflows on Quicken. It is nice knowing that I have the money already set aside when those quarterly, biannual, or annual expenses come up.

scrabbler1
Posts: 2216
Joined: Fri Nov 20, 2009 2:39 pm

Re: Our 'cure' for emergency expenses

Post by scrabbler1 » Tue Feb 13, 2018 8:29 am

At the start of the year, I create on a spreadsheet a proposed checkbook register ("budget") with all the known cash inflows and outflows for the year. This includes all the known regular expenses and monthly cash inflows (monthly bond fund dividends, I am an early retiree) as well as the lumpier expenses and lumpier cash inflows (i.e. quarterly stock fund dividends). The cash inflows exceed the outflows, so after I review the list to maintain a $500 cushion above the minimum balance needed to avoid account fees, I see when I can reinvest any surplus elsewhere. In this one-year plan, I often have to carry forward surpluses from month to month to cover the lumpier expenses when they don't line up with the lumpier income sources.

The $500 cushion is my first-tier emergency fund which covers smaller, unexpected expenses which can arise from month to month. These are beyond the lumpier but more predictable expenses I already list in my one-year budget. To rebuild the $500 cushion, I can simply reduce or eliminate future outflows of surpluses I planned to reinvest elsewhere.

If I happen to get squeezed where the $500 current month's surplus disappears or isn't enough to cover any larger, unforeseen expenses, I can go to my second-tier emergency fund, a $40k chunk of money in a intermediate-term muni bond fund. It has checkwriting privileges in case I need to use money from it right away. And it is earning 2-2.5% mostly tax-free interest so it isn't jut sitting around earning zilch, as I despise having that much money sitting around doing nothing. I am willing to risk losing a little bit of principal if I have to write the occasional check, on average less than once a year going back 20+ years, in return for the small amount of mostly tax-free interest I earn every month.

BuckyBadger
Posts: 849
Joined: Tue Nov 01, 2011 11:28 am

Re: Our 'cure' for emergency expenses

Post by BuckyBadger » Tue Feb 13, 2018 8:32 am

We just keep a healthy buffer in the checking account for this sort of stuff. I think the concept is a familiar one but I usually hear it called a slush fund or a sinking fund.

No need to make it complicated and I'm amazed it takes an entire book to explain the concept!

And the title seems not totally accurate. None of these expenses are emergencies.

IowaFarmWife
Posts: 89
Joined: Thu Nov 02, 2017 9:42 pm

Re: Our 'cure' for emergency expenses

Post by IowaFarmWife » Tue Feb 13, 2018 8:40 am

scrabbler1 wrote:
Tue Feb 13, 2018 8:29 am


The $500 cushion is my first-tier emergency fund which covers smaller, unexpected expenses which can arise from month to month. These are beyond the lumpier but more predictable expenses I already list in my one-year budget. To rebuild the $500 cushion, I can simply reduce or eliminate future outflows of surpluses I planned to reinvest elsewhere.

If I happen to get squeezed where the $500 current month's surplus disappears or isn't enough to cover any larger, unforeseen expenses, I can go to my second-tier emergency fund, a $40k chunk of money in a intermediate-term muni bond fund. It has checkwriting privileges in case I need to use money from it right away. And it is earning 2-2.5% mostly tax-free interest so it isn't jut sitting around earning zilch, as I despise having that much money sitting around doing nothing. I am willing to risk losing a little bit of principal if I have to write the occasional check, on average less than once a year going back 20+ years, in return for the small amount of mostly tax-free interest I earn every month.
I try to keep 1K extra in our checking account for the unforeseen expenses, too. Since we are a family of 6, with 4 daughters who drive older cars and that are seemingly breaking down on a monthly basis, this 1K has been helpful. Last month, my DD#4's CRVs drive shaft broke, so that was $1200 that we hadn't planned for. As the kids become more self sufficient, I can see the 1K going down to around $500 as you have budgeted. I also keep another layer of funds in my brick and mortar savings account, earning peanuts for interest, but it is easily accessible. Other layers include I bonds and taxable accounts.

Hug401k
Posts: 276
Joined: Fri Mar 28, 2014 7:49 pm

Re: Our 'cure' for emergency expenses

Post by Hug401k » Tue Feb 13, 2018 9:16 am

The best budgeting process is the one that works for you. Great job on finding something. We do something similar where we allocate money from every pay check automatically into what we call the "house fund." It retains that name just because it was where we originally saved for a house, but now it covers larger irregular expenses. This includes travel, infrequent home repair (painting etc), car repairs, etc. It works well for us, if we know that money is there, things like car repairs are not particularly stressful. And if it builds up, we go on vacation. We've now saved enough outside this fund that it has become a bit irrelevant but it was key in our success starting out.

One of my issues with budgeting is that many things in life are irregular or unexpected, so plan for that. It also makes budgeting a lot less stressful, in my opinion.

radiowave
Posts: 1785
Joined: Thu Apr 30, 2015 5:01 pm

Re: Our 'cure' for emergency expenses

Post by radiowave » Tue Feb 13, 2018 10:11 am

Prov227 wrote:
Sun Jan 14, 2018 10:26 pm
Bank account #1 - Everyday checking for monthly expenses and giving.

Bank account #2 - Savings for very predictable, but irregular expenses (annual property tax, annual Christmas spending, annual life insurance, annual home insurance, semi-annual auto insurance, semi-annual DW's gym, etc). Easy transfer to Acct #1 when payments are made.

Bank account #3 - Savings for vacations, home improvements/appliances/furniture, and vehicle maintenance & replacement. Excel spreadsheet to track the individual balances of each of these sub-account categories. Easy transfer to Acct #1 whenever these events arise.

Bank account #4 - Emergency Fund, a stash of cash not earmarked for anything. Comes in handy once in a while to quickly fix the kinds of problems that money can sometimes fix. And helps us sleep well at night (especially DW). Easy to transfer to Acct #1 in the very rare event of needing to touch these funds.
We had a similar approach but recently went down to 2 accounts, 1 B&M, the other high yield online savings/checking/CD. Things were getting unweildy and simplification accomplishes everything we need to do.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

User avatar
Cycle
Posts: 680
Joined: Sun May 28, 2017 7:57 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by Cycle » Tue Feb 13, 2018 12:54 pm

I get 2% in my credit union for up to 25k total balance, if I make a handful of transactions (I can't just let it sit there). Many banks offer this.

I just budget the recurring expenses and try to minimize those. I don't bother with little stuff or vacation budgets.

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Tue Feb 13, 2018 1:28 pm

BuckyBadger wrote:
Tue Feb 13, 2018 8:32 am
We just keep a healthy buffer in the checking account for this sort of stuff. I think the concept is a familiar one but I usually hear it called a slush fund or a sinking fund.
Technically, a slush fund is used for very discretionary (sometimes illegal) expenses, and a sinking fund is a fund where money is usually stored to pay off a liability of some sort. Rather than pay down the debt directly, the most common underlying idea of the sinking fund for consumers is that you maintain liquidity of the money until the debt can be completely eliminated at one time.
BuckyBadger wrote:
Tue Feb 13, 2018 8:32 am
And the title seems not totally accurate. None of these expenses are emergencies.
My point was that once irregular expenses have been properly budgeted for, expenses that used to be "emergencies" suddenly are not so any longer. For instance, I hear people talk about using their emergency fund to get their car fixed. IMHO, a car repair should not be an emergency; repairs of this nature will certainly occur, and they should be budgeted for accordingly. Yes, someone might encounter a bigger expense than they currently have funds to cover, but the point is that most expenses can and should be budgeted for. Potential exceptions to this would include a job loss, but even then many work in areas where they pretty well know that at some point they will lose their job due to no fault of their own, and preparing for that eventuality is wise too.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Finridge
Posts: 496
Joined: Mon May 16, 2011 7:27 pm

Re: Our 'cure' for emergency expenses

Post by Finridge » Tue Feb 13, 2018 2:01 pm

TravelforFun wrote:
Fri Jan 12, 2018 5:48 pm
NYC_Guy wrote:
Fri Jan 12, 2018 5:39 pm
TravelforFun wrote:
Fri Jan 12, 2018 5:28 pm
I do my budget monthly and my actual expenses track pretty closely. I don't keep an emergency fund.

TravelforFun
Just curious, how do you fund actual big surprises? Such as replacing HVAC equipment (>$5000) or removing a large dead tree (>$3000). I can see how renters can avoid saving for major cap ex, but if you own a home, things break and those things can be expensive. I'm also curious what you would do if you experienced a substantial loss of income...liquidate (longer term) investments?
I put large unanticipated expenses on my credit card and pay off the balance when due by selling a little bit of my bond funds.

TravelforFun
I think this is a better strategy than keeping a large sum of money in cash. Sure there will be potential tax consequences in selling bonds, but bonds typically do not appreciate greatly. But more importantly, over the long run, the money you make by keeping your "emergency fund" invested will likely be exponentially greater than what is lost in having to pay taxes on selling the bonds.

User avatar
Leif
Posts: 2479
Joined: Wed Sep 19, 2007 4:15 pm

Re: Our 'cure' for emergency expenses

Post by Leif » Tue Feb 13, 2018 2:15 pm

It seems your budgeting is very detailed. That is fine, certainly better then no budgeting and finding yourself short.

I've always kept a large cash buffer. For me that is 4% of my portfolio. I do 'budget" (plan is probably a better word) my expenses at a gross level. Only larger expenses, and then a miscellaneous category for everything else. Most important, in my mind, is knowing your cash flow. It sounds like that is what you do at a detailed level. I definitely do not want to become a slave to inputting all my expenses. I tried that for awhile, but soon found that it was too tedious for me.

When pensions and SS kick in I believe my cash buffer will shrink. Although I still want to cover odd expenses, like a $2,100 roof repair I just had done.

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Tue Feb 13, 2018 2:51 pm

Finridge wrote:
Tue Feb 13, 2018 2:01 pm
TravelforFun wrote:
Fri Jan 12, 2018 5:48 pm
NYC_Guy wrote:
Fri Jan 12, 2018 5:39 pm
TravelforFun wrote:
Fri Jan 12, 2018 5:28 pm
I do my budget monthly and my actual expenses track pretty closely. I don't keep an emergency fund.

TravelforFun
Just curious, how do you fund actual big surprises? Such as replacing HVAC equipment (>$5000) or removing a large dead tree (>$3000). I can see how renters can avoid saving for major cap ex, but if you own a home, things break and those things can be expensive. I'm also curious what you would do if you experienced a substantial loss of income...liquidate (longer term) investments?
I put large unanticipated expenses on my credit card and pay off the balance when due by selling a little bit of my bond funds.

TravelforFun
I think this is a better strategy than keeping a large sum of money in cash. Sure there will be potential tax consequences in selling bonds, but bonds typically do not appreciate greatly. But more importantly, over the long run, the money you make by keeping your "emergency fund" invested will likely be exponentially greater than what is lost in having to pay taxes on selling the bonds.
There isn't much arbitrage opportunity between something like intermediate term Treasuries and a high yield savings account, especially on small balances. For instance, our irregular expense fund rarely reaches $5k, and even at that point, the difference in yield between the two above asset classes has only been about 1.5% or less. That equates to a persona maximum of $75 a year, hardly worth much effort in chasing IMHO, especially considering that the bond fund does have some volatility.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
White Coat Investor
Posts: 13436
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Our 'cure' for emergency expenses

Post by White Coat Investor » Tue Feb 13, 2018 3:00 pm

willthrill81 wrote:
Fri Jan 12, 2018 5:06 pm
About six years ago, my wife and I read Mary Hunt's book "Debt-Proof Your Marriage," which was a good read. What was the most valuable piece of information we got from her was the idea of a 'freedom fund', an account used to save and pay for irregular expenses. Why we hadn't thought of this before, I don't know, but it made sense to us both. The basic idea is that you take your anticipated irregular expenses and then save for them on a regular basis so that you have the funds available to pay for them when they arise. A simple example would be vehicle tags. These are usually paid annually, so you just take the annual expense (e.g. $180), divide it by your savings periods (e.g. 12 months), and then save that amount ($15 per month). You then do this for all of your irregular expense categories, refining your estimated expenses as go.

This has worked fantastically for us. We now keep our 'freedom fund' as a savings account with Ally, and I track all of the categories for expenses in an Excel spreadsheet. I make note of our monthly credits and debits each category as well as our remaining balance in each category. Most months, we have a net 'in-flow' to the account, but sometimes we have a net 'out-flow'. After having done this for years, we now have very good estimates for what we need in each category, but we are constantly tweaking it as needed.

Some of our irregular expense categories are vehicle maintenance/taxes, home maintenance, HOA dues, clothing, gifts, 'allowances' for myself and my wife, and travel. On occasion, we have found that we need to spend more than what we have saved in a particular category. This has not been a problem as one category may be in the red, but there is enough 'black' in the others to cover the temporary short-fall. When this has happened, we usually find that we just need to increase our savings for the short category going forward and are back in black across the board in short order. If it's a discretionary expense, such as clothing, we nearly always refuse to spend what we don't have already saved in that category.

Since we've done this, I can honestly say that we have not had one month where we encountered an emergency expense that we didn't have the funds to immediately cover. We've had unexpected expenses come up, like when I made a stupid mistake and blew out both tires on one side of our car last year, but we've always had enough to cover them. Those things that used to be 'emergencies expenses' have just vanished. Plus, we have adequate insurance in all of the key areas and enough to cover deductibles. A job loss would be unfortunate since we are a single-income family, but I always work under multi-year contracts and would be know about that well before it actually occurred; we've been very blessed in that regard.

Maybe our experiences will help someone else. YMMV.
A lot of people call these "sinking funds" and they can be done for both expected (like once a year insurance or tax payments) and unexpected expenses. We budget money each month both for vacation and for "large expenses" that goes into savings but which we expect to spend within a year or two. Since that fund eventually gets big enough to buy a car, it can certainly cover stuff like home repairs, new appliances and car repairs. Our budget only really has a few categories:

Taxes: Varies with income
Charity: Varies with income
Investments: Varies with income
Property tax: Fixed
Insurance: Fixed
Utilities: Fixed
Monthly expenses: Variable
Vacation: Fixed
Large expenses: Fixed

If it is too big to come out of the variable monthly expenses (or if we overrun it), it comes out of the large expense budget.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

BuckyBadger
Posts: 849
Joined: Tue Nov 01, 2011 11:28 am

Re: Our 'cure' for emergency expenses

Post by BuckyBadger » Tue Feb 13, 2018 3:06 pm

willthrill81 wrote:
Tue Feb 13, 2018 1:28 pm
BuckyBadger wrote:
Tue Feb 13, 2018 8:32 am
We just keep a healthy buffer in the checking account for this sort of stuff. I think the concept is a familiar one but I usually hear it called a slush fund or a sinking fund.
Technically, a slush fund is used for very discretionary (sometimes illegal) expenses, and a sinking fund is a fund where money is usually stored to pay off a liability of some sort. Rather than pay down the debt directly, the most common underlying idea of the sinking fund for consumers is that you maintain liquidity of the money until the debt can be completely eliminated at one time.
BuckyBadger wrote:
Tue Feb 13, 2018 8:32 am
And the title seems not totally accurate. None of these expenses are emergencies.
My point was that once irregular expenses have been properly budgeted for, expenses that used to be "emergencies" suddenly are not so any longer. For instance, I hear people talk about using their emergency fund to get their car fixed. IMHO, a car repair should not be an emergency; repairs of this nature will certainly occur, and they should be budgeted for accordingly. Yes, someone might encounter a bigger expense than they currently have funds to cover, but the point is that most expenses can and should be budgeted for. Potential exceptions to this would include a job loss, but even then many work in areas where they pretty well know that at some point they will lose their job due to no fault of their own, and preparing for that eventuality is wise too.
Not sure what those words "officially" mean. I'm just commenting on what they seem to be referred to in these boards someone's. I doubt many people are keeping a fund for illegal expenses!!

Maybe others consider car repair an emergency, but to me it's what the buffer is for. Maybe totaling your car and having to come up with 100% replacement cost is an emergency, but normal wear and tear shouldn't be. Maintaining my AC unit? Normal. Tree falls on it and it's destroyed? Emergency.

Anyway, we're disagreeing over semantics. Whatever people call it, having enough cash in hand to pay your expenses is the important part!

Texanbybirth
Posts: 952
Joined: Tue Apr 14, 2015 12:07 pm

Re: Our 'cure' for emergency expenses

Post by Texanbybirth » Tue Feb 13, 2018 3:18 pm

willthrill81 wrote:
Mon Jan 15, 2018 4:55 pm
And yes, our 'freedom fund' isn't an EF, and I've never said that it was. But I have noticed that the financial emergencies that used to come up have since disappeared. Job loss is about the only emergency for which we would need our EF.
To me, this is the main point of the topic, and I couldn't agree more. We're caught off guard A LOT less than we used to be, whether you call that "better budgeting", "luck", or "financial security". As a side effect, this approach for us has made us realize the lumpiness of some large parts of our spending: car insurance (2x per year), life insurance (1x per year), auto/home maintenance (???x per year). Being a single-income household, we'll take all the data points and help we can get!

:beer

alfaspider
Posts: 1532
Joined: Wed Sep 09, 2015 4:44 pm

Re: Our 'cure' for emergency expenses

Post by alfaspider » Tue Feb 13, 2018 4:04 pm

Rather than worrying about monthly budgeting or contributions (which are too much work to track), we just keep a year's expenses in cash (mostly high yield savings, with just operating expenses in checking). It's a drag on returns, but compared to the target of saving 30x expense, it's not all that material. Having that large amount helps provide peace of mind regardless of what the rest of the portfolio might be doing. I might reconsider if inflation and/or bond yields change significantly in the future.

Annual budgeting tends to smooth out a lot of the one-time expenses that tend to be a big headache when tracking monthly.

User avatar
djpeteski
Posts: 634
Joined: Fri Mar 31, 2017 9:07 am

Re: Our 'cure' for emergency expenses

Post by djpeteski » Tue Feb 13, 2018 4:12 pm

One line item that can be included in this is life insurance. It saves 10-15% if you pay annually instead of monthly. We also do this for property tax since we have always done our own escrow.

Essentially it is an escrow account for your life.

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Tue Feb 13, 2018 4:13 pm

alfaspider wrote:
Tue Feb 13, 2018 4:04 pm
Rather than worrying about monthly budgeting or contributions (which are too much work to track), we just keep a year's expenses in cash (mostly high yield savings, with just operating expenses in checking). It's a drag on returns, but compared to the target of saving 30x expense, it's not all that material. Having that large amount helps provide peace of mind regardless of what the rest of the portfolio might be doing. I might reconsider if inflation and/or bond yields change significantly in the future.

Annual budgeting tends to smooth out a lot of the one-time expenses that tend to be a big headache when tracking monthly.
That's a fine approach as well, but you still have to be aware of your annual expenses. We only take that one step farther and divide our annual expenses in key categories by 12 and save that amount monthly. It's not a worry or a real complication.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

JBTX
Posts: 4034
Joined: Wed Jul 26, 2017 12:46 pm

Re: Our 'cure' for emergency expenses

Post by JBTX » Tue Feb 13, 2018 4:19 pm

Most of these expenses don't seem irregular, their just non-monthly. We have always kept ample cash in bank accounts that covering those is not a problem.

I'm more curious how people handle major home maintenance, including remodels, as well as auto purchases. If you keep a home long term, it almost seems like most of your home equity paid off on your mortgage will probably need to be plowed back into the home for major maintenance, and periodic remodeling.

I would imagine major home maintenance could run on average 2-2.5% of home value per year, but year to year will vary dramatically. Kind of hard to budget for.

BuckyBadger
Posts: 849
Joined: Tue Nov 01, 2011 11:28 am

Re: Our 'cure' for emergency expenses

Post by BuckyBadger » Tue Feb 13, 2018 4:40 pm

JBTX wrote:
Tue Feb 13, 2018 4:19 pm
Most of these expenses don't seem irregular, their just non-monthly. We have always kept ample cash in bank accounts that covering those is not a problem.

I'm more curious how people handle major home maintenance, including remodels, as well as auto purchases. If you keep a home long term, it almost seems like most of your home equity paid off on your mortgage will probably need to be plowed back into the home for major maintenance, and periodic remodeling.

I would imagine major home maintenance could run on average 2-2.5% of home value per year, but year to year will vary dramatically. Kind of hard to budget for.
Any major home thing (just one kitchen remodel on a previous house so far) has usually been paid for using the HELOC. Car purchases are either paid cash for if under about $10k, financed or paid for out of the HELOC if more - depending on what rate is the best. 36 month loans for cars, and since we don't buy terribly expensive cars, the monthly payment can be worked into the budget quite easily. ($700 per month for our used Subaru sort of comes out in the wash.) No major home maintenance aside from a $1000 AC unit repair last year. (Fairly new house.)

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Tue Feb 13, 2018 4:47 pm

JBTX wrote:
Tue Feb 13, 2018 4:19 pm
Most of these expenses don't seem irregular, their just non-monthly.
That's true for some types of expenses, but the end result is the same: they must be budgeted for in some way. But many are truly irregular, such as auto and home maintenance.
JBTX wrote:
Tue Feb 13, 2018 4:19 pm
I'm more curious how people handle major home maintenance, including remodels, as well as auto purchases. If you keep a home long term, it almost seems like most of your home equity paid off on your mortgage will probably need to be plowed back into the home for major maintenance, and periodic remodeling.

I would imagine major home maintenance could run on average 2-2.5% of home value per year, but year to year will vary dramatically. Kind of hard to budget for.
The rule-of-thumb I've heard is that annual home maintenance expenses average to about 1% of a home's value. In my view, that's probably high for newer homes and low for older homes. This is a key situation where budgeting can shine; rather than have to come up with $10k for a new roof in a short period of time, for instance, it might be easier to just save an appropriate amount monthly knowing that that expense will eventually become necessary.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

JBTX
Posts: 4034
Joined: Wed Jul 26, 2017 12:46 pm

Re: Our 'cure' for emergency expenses

Post by JBTX » Tue Feb 13, 2018 5:18 pm

willthrill81 wrote:
Tue Feb 13, 2018 4:47 pm
JBTX wrote:
Tue Feb 13, 2018 4:19 pm
Most of these expenses don't seem irregular, their just non-monthly.
That's true for some types of expenses, but the end result is the same: they must be budgeted for in some way. But many are truly irregular, such as auto and home maintenance.
JBTX wrote:
Tue Feb 13, 2018 4:19 pm
I'm more curious how people handle major home maintenance, including remodels, as well as auto purchases. If you keep a home long term, it almost seems like most of your home equity paid off on your mortgage will probably need to be plowed back into the home for major maintenance, and periodic remodeling.

I would imagine major home maintenance could run on average 2-2.5% of home value per year, but year to year will vary dramatically. Kind of hard to budget for.
The rule-of-thumb I've heard is that annual home maintenance expenses average to about 1% of a home's value. In my view, that's probably high for newer homes and low for older homes. This is a key situation where budgeting can shine; rather than have to come up with $10k for a new roof in a short period of time, for instance, it might be easier to just save an appropriate amount monthly knowing that that expense will eventually become necessary.
1 % seems awfully low. I know we have spent well more than that over 20 years. Perhaps for a home less than 10 years old. Maybe percent is higher for us because home values in outer burbs in TX are lower than most major metro areas. I’d say 2.0% or more has been closer to our experience if you include remodel. Some of remodel may be considered “discretionary” but in our case a decent chunk was kind of required because of wear and tear.

nolesrule
Posts: 737
Joined: Thu Feb 26, 2015 10:59 am

Re: Our 'cure' for emergency expenses

Post by nolesrule » Tue Feb 13, 2018 9:32 pm

JBTX wrote:
Tue Feb 13, 2018 5:18 pm
willthrill81 wrote:
Tue Feb 13, 2018 4:47 pm
JBTX wrote:
Tue Feb 13, 2018 4:19 pm
Most of these expenses don't seem irregular, their just non-monthly.
That's true for some types of expenses, but the end result is the same: they must be budgeted for in some way. But many are truly irregular, such as auto and home maintenance.
JBTX wrote:
Tue Feb 13, 2018 4:19 pm
I'm more curious how people handle major home maintenance, including remodels, as well as auto purchases. If you keep a home long term, it almost seems like most of your home equity paid off on your mortgage will probably need to be plowed back into the home for major maintenance, and periodic remodeling.

I would imagine major home maintenance could run on average 2-2.5% of home value per year, but year to year will vary dramatically. Kind of hard to budget for.
The rule-of-thumb I've heard is that annual home maintenance expenses average to about 1% of a home's value. In my view, that's probably high for newer homes and low for older homes. This is a key situation where budgeting can shine; rather than have to come up with $10k for a new roof in a short period of time, for instance, it might be easier to just save an appropriate amount monthly knowing that that expense will eventually become necessary.
1 % seems awfully low. I know we have spent well more than that over 20 years. Perhaps for a home less than 10 years old. Maybe percent is higher for us because home values in outer burbs in TX are lower than most major metro areas. I’d say 2.0% or more has been closer to our experience if you include remodel. Some of remodel may be considered “discretionary” but in our case a decent chunk was kind of required because of wear and tear.
Now we're getting into "eye of the beholder" territory. We save 1/10 of 1% of the insurance replacement value of our home monthly specifically for maintenance and repairs, so about 1.2%. We save separately for things we consider optional home improvements and upgrades. There is a not so fine line that divides the two.

We got a new refrigerator in November and that came out of home improvement funds, because we didn't need a new refrigerator. On the other hand, we had to replace the dishwasher a month later, and that came out of home maintenance/repair funds. Both were new appliances, but were funded from separate pots based on need vs. want.

But then our budget is fairly granular, which helps us set our spending and saving priorities and keep us on task when it comes to spending.

JBTX
Posts: 4034
Joined: Wed Jul 26, 2017 12:46 pm

Re: Our 'cure' for emergency expenses

Post by JBTX » Tue Feb 13, 2018 9:40 pm

nolesrule wrote:
Tue Feb 13, 2018 9:32 pm
JBTX wrote:
Tue Feb 13, 2018 5:18 pm
willthrill81 wrote:
Tue Feb 13, 2018 4:47 pm
JBTX wrote:
Tue Feb 13, 2018 4:19 pm
Most of these expenses don't seem irregular, their just non-monthly.
That's true for some types of expenses, but the end result is the same: they must be budgeted for in some way. But many are truly irregular, such as auto and home maintenance.
JBTX wrote:
Tue Feb 13, 2018 4:19 pm
I'm more curious how people handle major home maintenance, including remodels, as well as auto purchases. If you keep a home long term, it almost seems like most of your home equity paid off on your mortgage will probably need to be plowed back into the home for major maintenance, and periodic remodeling.

I would imagine major home maintenance could run on average 2-2.5% of home value per year, but year to year will vary dramatically. Kind of hard to budget for.
The rule-of-thumb I've heard is that annual home maintenance expenses average to about 1% of a home's value. In my view, that's probably high for newer homes and low for older homes. This is a key situation where budgeting can shine; rather than have to come up with $10k for a new roof in a short period of time, for instance, it might be easier to just save an appropriate amount monthly knowing that that expense will eventually become necessary.
1 % seems awfully low. I know we have spent well more than that over 20 years. Perhaps for a home less than 10 years old. Maybe percent is higher for us because home values in outer burbs in TX are lower than most major metro areas. I’d say 2.0% or more has been closer to our experience if you include remodel. Some of remodel may be considered “discretionary” but in our case a decent chunk was kind of required because of wear and tear.
Now we're getting into "eye of the beholder" territory. We save 1/10 of 1% of the insurance replacement value of our home monthly specifically for maintenance and repairs, so about 1.2%. We save separately for things we consider optional home improvements and upgrades. There is a not so fine line that divides the two.

We got a new refrigerator in November and that came out of home improvement funds, because we didn't need a new refrigerator. On the other hand, we had to replace the dishwasher a month later, and that came out of home maintenance/repair funds. Both were new appliances, but were funded from separate pots based on need vs. want.

But then our budget is fairly granular, which helps us set our spending and saving priorities and keep us on task when it comes to spending.
I am sure we were within one percent up to last year-19 years in. But we put off and neglected a lot of things to the point they really all needed to be replaced.

Oh and go gators! :mrgreen:

bayview
Posts: 1550
Joined: Thu Aug 02, 2012 7:05 pm
Location: WNC

Re: Our 'cure' for emergency expenses

Post by bayview » Tue Feb 13, 2018 9:55 pm

We have four categories of non-discretionary expenses and track accordingly:

--monthly
--annual "lumpies" (not billed monthly, but we know they're coming)
--periodic "lumpies" (occur less frequently than annually, but we know they're coming: replace car, furnace, roof, etc)
--"outta nowhere", or as another poster's husband calls it, the Oh $h!t fund :D <-- this in fact is the actual emergency fund.

Not to put words in OP's mouth, although I think he did clarify this, but accounting for irregular expenses which you know are going to occur keeps true "emergencies" (the outta nowhere/ Oh $h!t bills) for the actual emergency fund.

This certainly doesn't need to be done by everyone, but you'd be surprised how many young adults (and other adults just starting to deal with money, such as those who have gone through divorce or have been widowed) need guidance like this to help them block out their personal finances. It seems very obvious to many of us, but it can be a jolt to others.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

retire57
Posts: 376
Joined: Fri Oct 28, 2016 3:03 pm

Re: Our 'cure' for emergency expenses

Post by retire57 » Tue Feb 13, 2018 10:56 pm

We've earmarked cash like that for years; the balance is kept at 8K. We call it our Curveball Fund.

Olemiss540
Posts: 566
Joined: Fri Aug 18, 2017 8:46 pm

Re: Our 'cure' for emergency expenses

Post by Olemiss540 » Wed Feb 14, 2018 7:44 am

Since I would need a 40%+ savings rate to fill ALL tax advantaged accounts, I don't tend to have free taxable cash flow for budgeting for 5+year expenses (not that there is a problem with that).

I do what I can to keep savings rate around 30% and keep an ongoing buffer of 1500 or so in my checking account. Also have low 5 figures in bond funds in Roth IRA contributions in case it hits the fan (and so I can sleep better at night). I do budget the certain yearly expenses (pretty well atleast) like life insurance, but tend to keep those amounts in cash with the rest of my envelopes. Once (if) Roths are filled with a good bonus we will direct any money leftover this year towards renting an airbnb in Hawaii this fall. Wish us luck that our appliances stay intact!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Bwlonge
Posts: 141
Joined: Wed Nov 22, 2017 6:36 am

Re: Our 'cure' for emergency expenses

Post by Bwlonge » Wed Feb 14, 2018 7:49 am

My cure is to park it in 5% yielding accounts. Between Netspend,Insight and a local credit union, its possible to have at least 10k in savings accounts, which amounts to about 6 months expenses for me (thank-you LCOL).

User avatar
willthrill81
Posts: 5734
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Our 'cure' for emergency expenses

Post by willthrill81 » Wed Feb 14, 2018 10:48 am

Bwlonge wrote:
Wed Feb 14, 2018 7:49 am
My cure is to park it in 5% yielding accounts. Between Netspend,Insight and a local credit union, its possible to have at least 10k in savings accounts, which amounts to about 6 months expenses for me (thank-you LCOL).
Where do you get 5% yield these days? Your local credit union offers that?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Bwlonge
Posts: 141
Joined: Wed Nov 22, 2017 6:36 am

Re: Our 'cure' for emergency expenses

Post by Bwlonge » Wed Feb 14, 2018 12:02 pm

willthrill81 wrote:
Wed Feb 14, 2018 10:48 am
Bwlonge wrote:
Wed Feb 14, 2018 7:49 am
My cure is to park it in 5% yielding accounts. Between Netspend,Insight and a local credit union, its possible to have at least 10k in savings accounts, which amounts to about 6 months expenses for me (thank-you LCOL).
Where do you get 5% yield these days? Your local credit union offers that?
Local CU is 5% up to 1k
4 Netspend cards, each 5% up to 1k
1 Insight card, 5% on 5k; some people are able to get 2 cards

A little more hoops than most people would jump through for a relatively small amount of money for a lot here, but working for me

Post Reply