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{ 12 comments… read them below or add one }

1 Jenny @ Frugal Guru Guide

I have a budget for expected expenses as well as a true emergency fund–you’re right, they are different!

I don’t set up separate accounts, though. Too much hassle, and I can trust myself not to blow through money earmarked for something else.

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2 A Blinkin

I have to disagree with one thing, otherwise, everything looks good. Be careful when using the words “always” or “never.” You state that “emergency funds should never be a general use bank account.” I have never set up a separate account for emergencies and it has worked out well for me. I can understand the benefit of separating the accounts at lower income levels and tighter budgets, but I would not say “never.”

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3 My Multiple Incomes

Great post! It’s really necessary to work out a budget instead of using money set aside for emergency. Good points on how to put up a budget for future, expected expenses.

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4 Joe @ Stacking Benjamins

Great breakdown of the emergency fund. I totally get what you’re saying: if you commingle funds you’re far more likely to spend money that should have been saved for emergencies or opportunities. We’re off to Six Flags on Saturday and are using vacation fund money to ride roller coasters!

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5 Edward Antrobus

Great post. Although replacing all four tires can be an emergency if you drove over tacks or something on the road (okay, that’s extremely unlikely, but I have had to replace two at once due to damage).
How would you classify something that was sudden but expected? Something you were preparing for but happens before you were ready? A couple months ago, I found myself in the dentist chair in extreme pain from a tooth that I had been saving up to get fixed.

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6 Kevin@OutOfYourRut

Hi Edward – I’d say that’s a contingency expense that became an emergency! Timing does play a role with emergencies. A major car expense that you’ve been budgeting for can become an emergency if suddenly it needs to be fixed today.

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7 Casey Lewis

We call this account the cash pool savings. It’s like Scrooge McDuck with all of his gold coins in a pool. If you’re saving for new tires that will cost $800 and you need to buy them in 20 months then you’ll save $40/month into this account and have enough to buy tires when the time comes. At the same time you’re saving for your auto insurance renewal that is paid every 6 months. So you save that amount each month in this same account. Basically everything gets pooled together each month and then you have the cash to buy the items when the time comes. Great Post!

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8 Kevin@OutOfYourRut

Hi Casey – That makes perfect sense. You’re budgeting for known expenses, but keeping it simple.

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9 Casey Lewis

yeah it’s really simplified everything. We have our monthly cash flow plan and under our savings category we just have 1 line item called “cash pool savings.” On a separate form we have listed out everything from Christmas to vacation to vehicle replacement and how much we’re saving each month for each of those. Total up that column and put that total in the space on our monthly cash flow plan. Maybe takes a few extra minutes (literally) to make sure that we take care of anything that may come up without needing to tap our emergency account. No surprises here!

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10 Matt Becker

Great distinction here between true emergencies and expected but irregular expenses. It’s so important to understand the difference and have cash set aside for each. We have multiple savings accounts earmarked for different purposes such as travel, car maintenance, etc. All the kinds of things you mentioned above. It makes the management of spending for these things so much easier and protects the rest of our budget from getting out of whack. Really an invaluable tool.

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11 Kevin@OutOfYourRut

Hi Matt – Only problem is that it can lead to too many accounts. It might be better to have one budget account to cover known expenses and one emergency fund that you don’t touch otherwise.

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12 Matt Becker

I certainly think you can go either way. All of ours are with one bank (Ally) and it’s basically the same as managing one account. We just like having them separate so we can understand a little better how we’re budgeting for each. I can certainly see why some people would prefer having just one though, and I do think there’s a risk with making things too complicated. Hasn’t been an issue for us though.

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