An Emergency Fund for Every Emergency

by Kevin Mulligan

Last week I told my readers that my wife and I prepare for unexpected expenses by creating mini-emergency funds targeted at those potential expenses.

Unplanned expenses are a fact of life. As with anything you can choose to close your eyes and cross your fingers in hopes that they won’t happen to you, or you can prepare for them. We choose to prepare for the things we identify as potential upcoming expenses. I’m talking about things like car maintenance (flat tires, parts fail) and home maintenance (air conditioner or heater goes out, water heater quits, dishwasher dies).

These things are inevitable over time. So why not prepare today?

Do You Have One General Emergency Fund?

Open an ING Direct sub-account for your emergency fundI’m sure if you’ve been reading Cash Money Life for long, you have followed Ryan’s advice and have a general emergency fund. Maybe you’ve earned a gold star and have funded that account with 6 months of living expenses.
But have you defined what the emergency fund is for?

In my eyes when you say your emergency fund has 6 months worth of living expenses in it then that isn’t just an emergency fund. That’s an unemployment fund.  You’ve tied the total in the account to a purpose — living off of it without any income. That sure sounds like unemployment to me.

Now just take that idea and apply it to other areas of your life.

Many Funds for Many Purposes

Two weeks ago my wife ran over a screw in the road and was rewarded with a flat tire. Thankfully we had set aside money specifically for car problems. You might say we had a car maintenance emergency fund.

If our clothes washer died today we have a small pile of money sitting aside just for home maintenance. We tap that money for any home related emergencies we have.

Just take this idea and expand it to fit your individual situation. You may need an unemployment fund, car and home maintenance funds, and a “the kids are bound to get sick” fund.

Use Sub Accounts to Track Your Savings

How can you track all of your emergency funds targeting specific types of emergencies?

  1. track everything within one large savings account and break out the individual funds on paper or on a spreadsheet
  2. have separate bank accounts for each fund

Option 1 can get pretty complicated and you have to be really good at keeping things separate. At the end of the day if all the money is in one big account you have to mentally say “Okay, of that money only this much is for this emergency.” It can be real easy to dip too far and too often into the account.

Option 2 is clearly superior. By keeping the money in separate accounts you drastically reduce your chances that you will dip into one of the other accounts to pay for this account’s emergency. For example if you have $500 in the car maintenance fund and $500 in the home maintenance fund and you have a $300 car emergency, that money needs to come from the car money. Because the next thing you know you’ll have a $500 home repair!

Some banks have a feature which allows you to create sub-accounts within your main account, so you can earmark funds for a specific purpose, while keeping all the money part of one larger account. Capital One 360 makes this incredibly simple to do. You can open up a bunch of accounts within your one main login. All you do is click “Open an Account” and give it a name like “Car Maintenance,” “Home Repair,” or something similar. Here is a detailed tutorial with screenshots. Ally Bank is another bank that has similar features.

These sub-accounts can also be really handy in saving for goals, too. Again you are trying to keep the goal money away from your other costs and away from your ability to easily spend it.

Published or updated May 21, 2013.
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{ 12 comments… read them below or add one }

1 Craig

I understand the concept but don’t think I really like it. I think one emergency fund is fine and let it build. You can’t predict all emergencies, and even if one was to arise, you may have to borrow from another EF anyways. I think it’s way too specific and more of a hassle.


2 No Debt Plan

I agree to disagree. Dave Ramsey likes to argue about the psychology of money. I have disagreed with Ramsey in the past, but if someone has a spending problem then physically or electronically creating barriers to accessing the money may help prevent them spending that extra cash.

It’s similar to setting goals. You are much more likely to reach a goal if you set it and track it than if you don’t. So setting a goal of $1000 for home maintenance gives you something to track rather than mixing it all in together.

Are general emergency funds okay? Sure. But going the extra step in certain areas really doesn’t take that much more time.

It all depends on how people define emergency funds. Most people base it off of living expenses (3 months of expenses, etc.). To me that isn’t for all emergencies necessarily — that’s for unemployment specifically.


3 Jason Unger

I have one big emergency fund with ING, and a number of other subaccounts for specific goals. Right now, I have my once-in-a-while fund (car insurance, yearly dues, etc), pay off debt fund, and tax fund.

Since I can’t really predict the emergencies (the real emergencies) I’ll have, one big account works for me.


4 Craig

Goals is one thing. But that is different than emergency funds.


5 fern

This just sounds silly to me. If you have $500 in a car repair fund and $500 in a house repair fund and then your clutch goes and you need to replace it for $1,000 (or whatever), obviously, you’re not going to say, gee, guess i can’t fix the clutch becus i only have $500 in the my car repair fund. You’re going to use whatever savings you have, regardless of categories, to take care of the car.


6 No Debt Plan

Don’t bash it ’till you try it.

Yes if you had $1,000 total to your name and had an expense of $1,000 you are going to use all that money to fix the expense.

But what if you had a $400 expense? Would you be disciplined enough to dip into the same account twice?

Again. Mental or electronic barriers keep you from spending your money. Maybe it isn’t a problem you have. But for a lot of people it is.


7 KellyB

I divvied up my emergency fund about 3 years ago, and it was one of the best things I ever did. I have 3 months living expenses (and although I’ve been unemployed for 5 months already, I haven’t touched it yet). Plus I also have sub accounts for car, home, medical, insurances, vacation, Christmas, and various other annual and quarterly expenses. These things used to “surprise” me somehow, even though I should have expected them. Now that I’ve got funds put aside for these specific purposes, it gives me much greater peace of mind when something “unexpcted” comes up.


8 Miranda

I think it depends on personal preference. Like Craig, I’m happy with one big emergency fund. But I can see where sub-accounts would be attractive. I have a “cushion” in my checking account (not a huge one, but a couple hundred dollars — I’m not entirely comfortable with a true zero-based budget) to cover what I think of as “small emergencies” like the tire going flat or some such.


9 Jill

I like the separate accounts idea, and was really diligent about this in college (now granted there wasn’t a lot of money to deal with!). Every year, I would pay for my books using my credit card. A month or so later, I would receive a refund check from scholarships and grants after I had paid my tuition. I put that money in a specific account and used it to pay for my book bill, as well as other ‘invariable’ expenses I knew I would incur. This separate account was harder for me to access on a whim, making it difficult for me to just spend that money at the mall! For me it is really hard to feel like I’m making progress towards a goal if I just lump everything together; I like having things separate so I can see the progress, thus keeping me motivated 🙂


10 DDFD at DivorcedDadFrugalDad

Targeted emergency and savings funds make good sense– you know when it is fully funded and you can move on to your next goal. There is a lot to be said about the sense of personal pride and satistfaction of meeting even small goals– a real motivator.


11 cathleen

Well, as a small business owner this is what I do everyday running my operation.
I plan to the smallest detail that I can anticipate because there will always be those things you can’t anticipate, the Black Swans if you will 🙂

So it makes perfect sense for me to approach our personal money in the same way.
People are different, whatever works.

I’m going to open my new ING checking and savings accounts this quarter and I’m really excited about it. Dork 🙂


12 Matt

Does anyone know of any mutual fund companies that do something similar?

I’d like to assign “subcategories” for different saving objectives easily. For example, I might have:

Son’s College – that uses one fund
Daughter’s College – that uses the same mutual fund


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