WAIT- I Need How Many Saving Accounts?
My husband and I reached six months of expenses in our emergency fund a few months ago! I wanted to start a Podcast about how awesome we were. In my mind, we had conquered personal finance. This was a major accomplishment for us since we just started saving, and I’m awful with money. This wonderful fund should cover us for six months if we both lose our jobs at the same time, or for about a year if one of use loses a job. Talk about a major relief! It feels great to have a giant stack of “f you” money chilling in an online bank account. We feel like a million bucks, even though we aren’t even close.
We had hit our saving goals, were throwing $200/mo into our 401ks, and seriously felt like the next Suze Orman. Then, my husband’s freaking tire decided to blow itself up. And my phone broke. Ok, ok, I washed my phone in the washer in a lapse of judgment. At least I do household chores, right?
These wonderful surprise life events happened one right after another. We had just hit our saving goals, universe, why are you doing this to us?! It really got us thinking- how many saving accounts do we REALLY need? We decided our emergency fund was for job loss only. Job loss can strike at any time. You should always, always keep 3-6 months expenses in liquid form. Keep that at a bank, don’t touch it, and forget about it. Hopefully, it is an account you don’t have to touch. It was an account we felt guilty for dipping into for an iPhone emergency.
After doing some in-depth computer research, I discovered most personal finance bloggers are already ahead of the curve. They not only have a fully padded emergency fund, they have MULTIPLE saving accounts. WHAT?!
“Sinking funds” are the PF answers to the little emergencies that pop up that aren’t a job loss. Here were all the suggestions to open up multiple saving accounts, or create a savings within a savings within a savings, until your account is more complicated than the Inception plot.
Savings within savings within savings seemed so excessive to me. I just needed one emergency fund, not 10, thanks for nothing PF community. But after washing my cellular device, and my husband’s tire debacle, we succumbed to the PF experts… again.
On top of an emergency fund, I now agree there are additional savings to cultivate, aka SINKING FUNDS. These accounts will vary, based on your needs, your future, and current season of your life. Maybe you’re saving for a house, or for a baby. Maybe you’re saving for college for your kids, or for a major renovation. Your needs will be completely different. Our income plan currently is to contribute 20% of our monthly income across various, liquid accounts. Our emergency fund is for job loss emergencies, and sinking funds are for those tiny little emergencies that pop up, or the routine expenses. After watching the market tank in 2008, and watching my dad lose his job after decades of loyalty, I realized just how important it is to always be prepared for a job loss. And so, we decided we needed to be those people, and open up multiple accounts.
PUBLIC SERVICE ANNOUNCEMENT: YOUR CREDIT CARD IS NOT AN EMERGENCY FUND. Come on, you know this, but you’re probably lured into that false sense of security with it. I know I have been. When a major expense rears its ugly head, I stare longingly at my AMEX, but getting into more debt is never the answer. Trust me!
Here are our sinking funds to give you an idea on what to funnel your money towards, and they are currently tiny but mighty! Do you have kids? Then these will be totally different. Saving for a house? Again, your needs will be different. I really wish there was a one size fits all for emergency funds and sinking funds, but sadly, there isn’t!
4.) Fun fund.
I have a confession: my husband and I put our last vacation on a credit card. Then, I moved money from our emergency fund, like th job loss emergency fund, to cover it. Please put down your pitchforks and torches! It was a last minute trip to Asheville, NC for a weekend getaway.
We never started a travel fund because 1.) travel is expensive.
2.) we never usually do it.
But damn, the monotony of cubical life hit us hard a few weeks ago, and we booked a trip Friday morning, and arrived there Friday night. This fund we decided to start to use on surprise awesome concert tickets, travel, or if we see a deal on we’ve wanted forever.
3.) Car fund.
Whether you’re saving for a new car (and hopefully aim to pay cash, don’t be like me), or just having money socked away for the inevitable car repairs, tires, and taxes/fees, you need a little set aside for your vehicles. Nothing gives me a sinking feeling quite like a check engine light, stalling vehicle, or having to get new tires. Cars are crazy expensive, even when you don’t factor in the monthly payment. Make sure you’re prepared, and don’t have to touch your real emergency fund. These expenses can be anticipated!
2.) Medical fund.
Going to a doctor or dentist, even with insurance, sucks. Co-pays, medication, additional testing, add up so FAST. I used to avoid the doctor’s office, out of fear of the bill. This buffer will allow you to go to the doctor and dentist, without having a nervous breakdown over the cost.
1.) A house fund.
Houses are expensive, even after paying the down payment, closing fees, realtor, and all up front costs. They’re way more responsibility than we ever thought. If you buy an older house, this fund will no doubt need to be higher for roofs, pipes, foundation issues, etc you might come across. Luckily, our condo is still pretty new, and the HOA covers some of the bigger fees home owners typically have. If you’re renting but saving for a house, this fund will probably take priority over the other accounts! If you’re happy to rent, and have no plans to purchase a house, then this fund doesn’t even have to exist for you!
We get that a lot of people preach a lower emergency fund in favor of investing. It makes sense for the long run, it really does, but what about short term expenses that crop up? Murphys Law runs in my blood, if it can go wrong, it will. My dad would have the whole central heat/air die in him, then a week later the water heater. The dishwasher would need to be replaced, then the fridge would get jealous, and break. Seeing all these emergencies crop up so fast made me realize the important of having cash on hand.
One of the perks of saving so much liquid cash is you don’t have to stress big expenditures that’ll hit you at the worst time. You can live a simpler life without worrying about every little thing that goes wrong.
I have a very low stress tolerance, so when something goes wrong, I tend to do the mature thing and fly off the handle. After building up our savings, I’ve learned to not sweat the small stuff. It makes it easier for me to sacrifice buying my 10th pair of jeans, giving up that morning latte, or staying in one Friday when I know I’m purchasing peace of mind! These little buffers help keep my stress level super low, and that’s a priceless gift.
What other saving accounts do you recommend? Do you think having multiple saving accounts is over kill?