The 3 Emergency Fund Accounts17 Comments

  1. I like it the idea of three e-funds! I agreed on having the cash on hand for job loss (experiencing that now), medical etc. We have it in a standard saving account with no debit card access. If I need money from that account I need to go to the bank. You want the money available but not too accessible that you use it for non-emergencies.
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  2. Giving a hard number can be a little misleading. A better metric, I think, is months of living expenses. Aim for at least 6 if your household has two steady streams of income. Otherwise, 12 should be enough.

    • Agree with the idea that the 'Emergency Fund' number should be a multiple of some given number of months. For my household — since we have two incomes from jobs with a very low probability that they will be lost and an existing pension (I'm retired from the U.S. Army) — we have determined that three months of living expenses is sufficient. I'm a firm believer in keeping as little as possible in Emergency Fund account(s), as they generally deliver pretty low yields, and putting as much money as possible to work in various investments.
      My recent post My Journey to Fiscal Fitness

  3. Interesting idea to be sure. We have an emergency fund and a savings fund, plus various subaccounts for other goals. So we have access to money if we truly need it. Like you, I have an IRA, but that's of course the absolute last resort.

  4. I've only just come around to the idea of an emergency fund – I used to be too eager to put all my funds into investments, and told myself I could just sell some if I had an emergency. While that's true, it's not the best way to operate, so I finally bit the bullet and set one up. Not sure I'll go much further than 1 thought!
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    • Yes ideally everyone should be invested for life in great stocks and funds. Hold for long term and watch how it compounds. I only use 1 also, but could use the other two if the situation is worse than expected. Thanks for commenting.

  5. Interesting approach. I can understand the first two but quite honestly, I'm confused by the third. Why not just determine how much you need in the emergency fund and then ensure that amount is accounted for between the other two accounts … outside of the Roth IRA. As the name suggests, I think a better approach would be to contribute (consistently) to the Roth IRA solely for the purpose of drawing down in retirement. Again, an interesting approach that certainly provides some food for thought.
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  6. I'm not sure three emergency accounts are necessarily needed. I have one and it suits me just fine. I personally recommend a savings or a short term CD with an FDIC insured online bank to put that emergency money. They usually have "high" yields (about 1%), and while it doesn't quite keep pace with inflation, it does allow the money to grow faster than any checking account. And having the money where it's not THAT easily accessible ensures that the emergency money is used for emergencies ONLY, and not another fun money account.

    ARB–Angry Retail Banker
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    • Hey ARB,

      The 1st emergency account I mentioned is the primary account for emergencies. The other two are for investing purposes, but can be used to cover any emergency event that might go over the allocated amount I have saved in the 1st account. Hope that explains it better. Thanks for stopping by.
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  7. I'm curious on the different between Credit Union savings and Online Account. Wouldn't you be able to achieve the results of both of the accounts by just using an online savings account? You can set up a separate savings account for your additional investing opportunities and also have separate accounts for your savings goals. I've found that the more banks I use, the more complicated my financial picture is and I want to keep things as simplified as possible.
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    • Yes I agree having multiple accounts gets confusing and complicated. But the purpose is to separate the goals I have for each account, in addition to that, the online brokerage account is housed jointly with my employer's 401K plan so it is an account I already need to have. I've noticed if you combine the accounts under 1 financial house, money gets transferred back and forth easier and disrupts the system.
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