Whither the Emergency Fund?

You don’t have to dig too deep in personal finance blogs to hear the eternal chorus about the importance of an emergency fund — the six month (some will say three, others up to a year) cash cushion that should be kept aside and untouchable unless direly needed.  In case of emergency, break glass.

There’s also differing schools of thought as to where to keep that cash and why.  For me, the emergency fund is part of the overall complete breakfast of my cash accounts.  I have four cash accounts, and a “firewall” system of sorts that I’ve developed.  More than anything, it’s a psychological trick to make me think I have less money, thereby driving me to save more.  Also, I’m rather eccentric — here goes:

  • Checking:  My checking account I treat as an operating account.  It holds little more than the amount of money I need to run the “business” of my household.  If there’s a fair amount leftover at the end of a pay cycle, I’ll move it to…
  • Savings:  My savings account has a pretty low balance as well.  It’s a holding tank to augment checking if a bigger expense comes up, and once it goes well over a certain threshold ($1,500ish), I sweep it into…
  • Money Market Mutual Fund:  For me, this means Vanguard Prime.  This is the true emergency fund, reserved for catastrophic need or, occasionally, big ticket unexpected expenses.  And if a big ticket item did come from here, I replenish as quickly as possible to the Emergency Fund threshold that resides within my brain. 
  • Savings, part II:  My Way2Save account is new, and I’m trying it out to see if I like it.  It sweeps a buck from checking into it for every debit card or bill pay transaction.  I can also toss $100/month into it from checking automatically, which I do.  It’s sort of a second story to my savings account, but I’m actually treating it as part of my emergency fund.  So far I like it, as it “tricks” me into saving another $50 via the $1 transfers.  It’s also currently getting a better interest rate than the MMF.
  • Man, I really like bulleted lists.  This blog is filled with ’em.  One day I’ll post a bulleted list about the reasons I’m such a fan of bulleted lists.

Any other thoughts/advice/strange habits in regards to stacking the cash accounts?


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