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Keep Your Emergency Fund Seperate

April 13th, 2010 at 12:39 pm

I've written several times recently about emergency funds and how critical one is to a financial plan. So, if you have decided to get one started you might wonder where to put it, right?

My biggest tip in this area: keep the money seperate. Do not comingle it with your regular checking account or with the paycheck funds you just cashed. Why? Because you will spend it, especially, if this is a new thing for you.

Keeping the money seperate makes dipping into the money a conscious choice and decision. You have to think about withdrawing it, or writing a check on the account. So often in our society we spend without thinking. The time it takes to locate your emergency fund stash, the checkbook for it or even the account's ATM card will provide a little space to decide if this is a purchase for you.

If you don't even have $1 for your emergency fund, I highly suggest accumlating your first several hundred in cash. Then keep the cash in a locked box, under the mattress, frozen in ice, or give it to a trusted friend to hold. This may be a little risky to keep it in cash, but I feel it is riskier not to have an emergency fund.

Once you get a good sum (at least $500) together, consider opening a simple savings account at your local bank. There are also banks online which you can link to your local checking account. Don't worry about the interest rate in the beginning. Rates are really low right now. Once you get used to holding an emergency fund you can shop around for better rates.

Don't forget! Keep your emergency funds seperate.

6 Responses to “Keep Your Emergency Fund Seperate”

  1. Personal Finance Student Says:

    This is exactly what we are doing. We are growing our essentially first ever EF and I have it all in cash. It feels good and it's totally out of view when I look to see what we have in our checking account. It's totally off the radar and it helps a lot.

  2. whitestripe Says:

    We keep ours in our home loan. We aren't charged to withdraw money from it, it reduces our interest, and I track it separately in a spreadsheet.

  3. creditcardfree Says:

    Whitestripe, that is a great idea. I've heard of that type of product, but it is not common in the US.

  4. baselle Says:

    "or give it to a trusted friend to hold."

    I'm not thrilled with that idea. It puts the burden on the friend.

  5. creditcardfree Says:

    baselle, point well taken. This arrangement does require discussion between the two parties to determine how to handle a request for the money.

  6. crazyliblady Says:

    I have a portion of my pay direct deposited to a savings account at a bank different from my regular account. This lessens the opportunity for little "emergencies" that would make it easy for transferring funds to my other account. It is very difficult to do this and frustrates my dh, but it is for the best and has saved our butts many times.

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