The Infinitely Refreshing Emergency Fund

Longtime readers of this blog will know that I’ve wrestled with the idea classic emergency fund pretty much since the beginning of my financial journey a few years back. First I wondered if I needed one at all, then I decided to save $5000 over the course of a year, and I did and bored myself to tears with the boring-ness of it all, then I put most of that into the stock market and started over again on the cash savings, then finally this year I decided to do the 52-week challenge and have been genuinely enjoying that. But I think I may finally have come up with a real solution to my psychological e-fund woes.

The theme here is that I don’t like the static nature of most e-fund advice. The idea of getting it up to a certain amount through steady contributions and then just letting it sit there — it just doesn’t do anything for me. And then there’s the other problem, which is that I hate the idea of actually using it. I’d rather pay for a car repair or plane ticket out of cash flow or sinking funds, because once I get the e-fund to the predetermined amount, I don’t want to touch it.

However, it occurred to me last month that since the 52-week challenge has been working so well for me, I could just…keep doing it. Infinitely. Here’s my thinking:

  1. Instead of planning to put lots of $$ into an e-fund as fast as possible and then letting it sit there, I could instead plan to put in small amounts ($15-200/month) for basically forever.
  2. Then, when a car repair hits, I could pay for it out of the e-fund, and instead of trying to replenish the money immediately, I could just keep on paying in my scheduled small amount every month.

The idea is that I am never directing *too much* towards a dedicated efund, but I’m always dedicating *something,* so that when I use it, I know that the bucket will fill back up eventually without my having to find “extra” money to replenish it. With this method, I suspect that the e-fund will wax and wane, but will probably never get all that high — not high enough to be worth worrying that I should be doing something else with it.

Having come up with this idea I can already feel a shift in my attitude towards the e-fund account. It sounds silly, but it used to make me feel kind of nervous. How could I tell when enough was enough? How could I tell when something was an emergency that warranted use? How would I refill it if I had to use it for a major expense? Etc. But now it just feels like a source of money to be used when needed. Even though I’m transferring the money in there myself, it feels in my head more like a little spring that’s feeding a rock pool. I like the idea that it can be in recirculating motion, a source of comfort and support even though it’s not huge, but also something to be *used* rather than to just sit there.

12 thoughts on “The Infinitely Refreshing Emergency Fund

  1. I am so with you on the confusion about when it’s enough of an emergency to use this fund. Why do we call it an emergency fund, anyway, instead of just calling it “savings” or “some extra money I have in another account”? Maybe that’ where the confusion is coming from.

    Other than unlikely catastrophic medical possibilities, I can think of only two types of plausible “emergencies” in my life: 1) my computer dies, and 2) I have to move (most landlords in Boston require first month, last month, and a one-month security deposit at the lease signing). So part of me thinks I should just make a Computer Fund and Moving Fund and ditch the whole e-fund idea…

    Anyway, I can relate. And I think your solution makes sense.

    1. thesingledollar says:

      I think a lot of people intend to have it cover job loss — I can see how it would feel very pressing if you had a mortgage to pay and kids to feed, to be sure you had three to six months’ expenses. That was my initial argument against having one for myself, once I learned what they were: if I were in that type of emergency situation, I would very quickly stop paying for housing, because I’d ditch my rental and move in with friends/family until I could acquire a new job. And I don’t have dependents so nobody is counting on my being able to fund a life.

      However, I did ultimately decide I wanted this kind of fund, to cover car issues, medical deductible, and the kinds of moving expenses you mention. I had my goal set at $5000 for a while. But I think I like the idea of just constantly putting a small amount in, instead.

  2. Mariana says:

    Ugh. Same here. We have emergency fund sitting at $7,500 and I couldnt magine EVER touching it. But it’s been there for a few years now, not earning interest. I am thinking more and more about putting it into my Roth IRA in January and keep the emergency fund at $2,500 and then do what you do – add $100 each month and don’t worry about a specific amount to reach.

    1. thesingledollar says:

      I think that’s one of my problems with the e-fund — the way most people recommend you do it, it seems very static, like you’d never want to touch it. But I think just adding money every month is the key act of saving for me, overall — not just for the EF. So I like the idea of a method where I’m always actively putting something in, just not much.

  3. I’m bad with e-funds and sink funds. I have a fund to cover car expenses, but every time major car expenses come up, I’m going to do everything I can not to touch the car fund cash.

    I do like the idea of a percolating e-fund. Should I have to use mine, I have this urgency that I would have to get it back up to the top ASAP. Why? Why not set it to refill with whatever amount works and let it build back up? I just tried to rationalize in my head “but what if another emergency is coming??” Well, then I’ll need all the cash flow I can get my hands on.

    Having an e-fund is great for peace of mind. Between cash flow, a credit card billing statement delay, my e-fund and hopefully the paychecks along the way, I should be able to weather a good size storm. Best not to be too rigid about it.

    1. thesingledollar says:

      Percolating! That’s the word I was reaching for and not finding! Yeah. I want it to have a sense of constant refilling rather than wiping half of it out and then feeling like I need to find $700 to put back into it asap.

  4. I’m still building up my E-fund. I’m putting in $50/mo. I also like the idea of continuing to automatically send a bit of money to it. In fact, that’s what I do with my all three of my savings accounts. I send a preset number of dollars to them each month. It will take a long time before I have ‘too much’ in my E-fund, so this is working for me.

    1. thesingledollar says:

      Yeah, I totally think I could rethink this strategy at some far off future point when I have “too much” but right now, there doesn’t seem to be any prospect of that!

  5. I love this approach! We have evolved to doing this with our “life happens” fund (unfortunately our true e-fund really does just sit there, earning close to nothing, losing spending power to inflation…). We always owe taxes in April (it doesn’t seem to matter how much extra we ask our employers to withhold — we still owe anyway), and our life happens fund takes a big hit each year. In past years, I would freak out and scramble to refill it, but this year we got more relaxed about it and decided to refill it slowly — and it’s still not fully back to where it was pre-April, but it’s fine.

    1. thesingledollar says:

      You guys are like the calmest people I know, money wise, so I’m glad to see that we’re sort of at the same place 🙂

  6. I understand your angst over the “what qualifies as an emergency” question. Since we are a one-income family with two kids, ours is reserved essentially for job loss. It could cover our expenses for 6 months, which seems like enough time to get back on our feet income-wise. That means we have a separate car savings fund, and somewhat of a buffer for car or home repairs, travel, etc. We use an annual budget so even though every month doesn’t have the same expenses, the inevitable costs of repairs, weddings, and vacation are all accounted for. That works for us, but I do really like your idea of the weekly savings for your situation.

    1. thesingledollar says:

      Yeah, I feel like I would totally have a different answer if I had kids (especially with one income.) The consequences of a financial emergency just aren’t as steep for me!

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