Let’s jump right into this one and begin to discuss the purpose behind the 3 emergency fund accounts. An emergency can happen at any given moment, but will you be prepared to fight through the financial snow storm? In my situation I have about 3 accounts that I can tap if an emergency arises. It helps me sleep better at night because it’s a safety net waiting to catch me if I fall on hard times. Now what is considered hard times is up for debate, as some people feel a trip to the beach for a week is considered hard times.
What is it that makes people want to risk financial stability by liquidating an Emergency account for a vacation?
For me an emergency is loss of income, medical emergencies, avoiding additional financial burden, losing shelter, a major car repair, having no food to eat. I hope you can agree with me that the reasons above are valid enough for anyone to tap emergency fund accounts.
What are the 3 emergency fund accounts you ask?
The 3 Emergency Fund Accounts:
1. Credit Union Account – This emergency account should have no debit card or check writing features, and I use mine for big time savings goals and just in case cash.
2. Online Brokerage with a Checking Account Feature – This is used as a secondary cash flow emergency account and to buy any stock opportunities. If I am short on checking funds, I use these funds for random misc. expenses that I can’t cover with my main checking account.
3. Roth IRA – This is considered a long term retirement account but after 5 years all contributions can be taken out in a financial emergency penalty and tax free. I use this to buy Vanguard Mutual funds and ETF’s.
Well there you go I use all three accounts for different purposes today, but if a big hairy financial event should happen to occur, I can liquidate these bad boys with minimal issues. For this system to work in your favor you need to fund these accounts consistently by direct deposit or some other form of money transfer.
I know that you can see the value behind having a financial safety net like the 3 emergency fund accounts. If you feel this is going overboard then at a minimum have at least 1 emergency fund account (Online or at a Credit Union) and funnel money every pay check into it until you reach at least 10K – 20K.
It will help you avoid adding new debt and help you avoid unnecessary financially related stress. Before you say nah I’ll pass on this experiment, think back and remember the last time you had a financial emergency. How did you handle the emergency? Do you feel the stress could’ve possibly been avoided with your own 3 emergency fund accounts?
Comment on how you feel about the 3 Emergency Fund Accounts?
Rich Uncle EL
PS: An emergency to you might not be an emergency to someone else, but lets use common sense in distinguishing what is really considered a financial emergency.
Thanks for reading and have a great fourth of July.