Emergency funds are a widely discussed and important part of personal finance. They’re intended to help you keep from going into debt when something comes up and you simply have to pay for it (car accident, for instance). Larger ones are meant to support you if you lose a job.
If you have the chance, there’s another handy kind of fund…to hand the times when an emergency fund shouldn’t be used. You see, an emergency fund shouldn’t be used for things like unplanned trips (non-emergency ones) or gifts or dinners out. Yet sometimes these things come up and it’s not a bad idea to be prepared.
For example, my sister-in-law recently asked whether we could help pitch in to buy my mother-in-law something really nice for Mothers’ Day.
My first thoughts came at the same time: a) That sounds like a really good idea because my MIL is an awesome woman and has sacrificed a lot for her kids, her patients, and other people in general. She hasn’t had the money to get something useful like this for herself. and b) oh crap, where’s the money coming from?
So I decided to start looking through finances to see where the money would come from. I considered using part of our leftover stimulus, since we’d found a great deal on the computer. As it turned out, we got an unexpected payment from a writing project Micah and I did last year. We’d done it gratis as a way to get a publishing history. But they decided to send us a token sum anyway. Voila!
That got me thinking, though, wouldn’t it be handy if we kept something like $200 reserved for this sort of thing? It doesn’t come up much, but a small flex-fund would put my mind at ease.
What about you, do you have some kind of flex fund? Is there enough room in your budget? Or do situations like this get you worried too?
Other flex-fund posts:
- plonkee mentioned them last week when discussing general freedom and finances.
- Centsibility, the book I reviewed on 4/27 suggested that tweens and young teens have a similar fund instead of a full-blown emergency fund.
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My husband and I keep some extra in our checking account (though we do have a separate savings account, too). We try not to touch it and use it to make sure that we don’t end up overdrawing. Well, it came in handy this month when the automatic payments from our checking account got screwed up because our mortgage company sent a corrected bill the day after our bank paid the mortgage the first time — so basically our mortgage got paid twice. We’re not very happy about that and or trying to get the money back, but we’re glad that we had the money there (though we were already planning to use it). Any other month, we’d use it on those unexpected purchases, but I guess this counts.
Hee, I call mine my slush fund. I used it to buy furniture before my tax refund cleared my bank account. I’ll use it again if the open bar tab at our wedding overruns the budget (since it’s not possible to know in advance how much people will drink). It’s an adjunct to my emergency fund, since I could use it for living expenses in an emergency, but it’s a slice of that fund I let myself have fun with in the meantime.
I have a small (small) amount of money in another bank earmarked for ‘fun’. I keep it awaay from my accounts where bills come out of, just in case my calculations are off.
I would hate to bounce a check. It’s been handy and I’ve used it on occasion to treat some family and friends to a free lunch.
I have a fund called “Short Term Savings” and it includes: Insurance, Gifts, Travel (smaller trips), Personal (hair/make-up etc), Home, clothes, and “misc”. Right now it only has about $200, but it is sort of new and I just took out $500 for insurance. Those are line items in my budget with targets on how much I don’t want to exceed each month, and whatever I don’t spend in a month goes into savings. I explained it very poorly, but it works really well for me! Previous to this, my efund was always bouncing around
I wrote about something similar last week – we call it our “Sunny Day” fund (as opposed to a rainy day fund). As we identify things we would like to buy, or things we would like to do that cost money, we save in this targeted “Sunny Day” account. Of course, if something comes up that doesn’t really qualify as a downright emergency we can use some of those funds instead of tapping the larger emergency fund. It’s a fun way to save up for smaller, irregular purchases and provide a little extra cushion at the same time.
Hey there, yes, I have a “fun” fund. I’ve found it really helps to have a little flexiblity. Sunny days can be just as unexpected as rainy ones!
For us, both of our credit unions require us to have savings accounts along with our checking accounts. (We have a separate savings account with ING for our emergency fund). We keep $200-$300 in each one, which allows us some fun money. It is also nice for when we want to withdraw cash to buy each other a little something without the other one knowing.
Yep, I have one of these. I just set it up and did a post on it a few weeks ago.
http://www.singleguymoney.com/2008/04/setting-up-special-savings-account.html
This is our biggest problem. Those expenses that pop up from time to time. we try to leave extra in the checking account for them. It works out good most of the time. We each have a savings account for the little surprises for presents.
I think it depends how much you really get into budgeting. If you have $20,000 in an emergency fund, does it really matter much if you borrow 1% for a couple of weeks for a short term expense.
Exactly. LOVE Frugal Dad’s “sunny day fund” term for it.
I put about $170 a month (was $200 before charming biweekly pay started) in a savings account for gifts, for indulgences, and to cover smaller emergencies such as the stream of veterinary bills I’m enjoying right now.
The serious emergency fund is in Vanguard short-term corporate bond and money market funds. Since taking money out of the bond fund is a taxable event, that money gets left alone as much as possible.
This is a great idea. I always have something that I’ve forgotten to budget for, or that comes up unexpectedly. I love the tag ‘slush fund’.
This is why we always keep some “float” in our checking account – in case we go over budget, or unexpected expenses come up (that aren’t major emergencies). We have a formal emergency fund too, but that would only get tapped for true emergencies in excess of $1000.
Hi Mrs M – I keep small accounts in bank accounts I don’t use often for this sort of emergency and I only use the money if I really need to.
I used to collect pound coins too – I’d throw them into the bottom of my handbag and save them instead of spending. That was great for emergencies but not too good for my back as they could really mount up.
That is great that you got money for writing that you didn’t expect to get paid for by the way. It must have been good.
So glad it worked out well for you!
I keep a “misc” fund that I contribute $20/mo to…. but I do lots of random savings. I also have a travel fund and a separately growing emergency fund.
I use my “infrequent bills account” for this kind of thing. We use this account for everything from insurance to car maintenance.
At the end of last year, my husband and I figured out how much money we had spent on miscellaneous things – such as travel, entertainment, memberships, etc. and started saving that amount in one of our ING accounts. We hit that amount pretty quickly and now should anything pop up, we can pull from there if necessary. We also have an account for gifts, primarily Christmas ones, as well as an account for all car expenses (including insurance), and then just a generic emergency fund.
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