I will be re-evaluating the best place for the money every time a CD comes due.

I keep mine in two accounts, but only because I was trying to evaluate CapitalOne and ING. Need to combine them at some point.

MITBeta, curious why you have CDs? The rates on the high interest savings are about on par with CDs at this point and the money is more liquid with no penalties.

1. One fund is simply a balance in the Money Market account connected to my checking account. I always have a couple of thousand dollars here for emergencies.

2. A second fund is an accumulation of one time annual expenses like life insurance, disability insurance, car insurance, homeowners, car registration, gift giving, certain taxes, etc. This fund currently resides in a 2nd Money Market account that is not an overdraft account for my checking (in other words I have to transfer money when I need it…) but will soon reside at ING.

3. A CD ladder of approximately 3 months worth of expenses (which I plan to add to over time). I have 5 CDs, one set to mature each year. I can cash these CDs out at any time and pay a penalty of up to $25. They have all already earned more than that, so interest is 100% bonus at this point.

My first emergency fund has a dual purpose. Each payday, money is transferred to it for annual bills like car insurance, eyeglasses, car registration, yearly check up for the dog (the most expensive medical expense at my house each year) and stuff like that. Life has also taught me that when something major breaks in my house or on one of my cars, it’s usually about $1000 bucks to get going again. So, I have $2000 sitting there for those things. I also use this account to save up for things I want to do in my house, like new carpet.

My second fund is for true “rainy day, I’ve lost my job, I don’t know what’s going to happen next” emergencies. I have many months of expenses saved up there and, thankfully, I’ve never had to touch it. My goal is to have one year of expenses in this fund and then I’ll leave it alone.

The peace of mind in having these types of savings is worth more to me than a new suit or flatscreen TV (although I’d really love one of those).

Great blog, by the way.

Ron

To add to your suggestion, beyond getting a second opinion you can often use the second estimate to negotiate the price. It is surprising the number of people willing to negotiate.

Thanks for visiting Rob and for commenting!

You mention brakes above which remind me of a recent experience I had. I don’t normally take my car to the dealer for servicing but I recently had a small issue that required me to go direct to the dealer. As expected (and smart business too), they check out my entire car (Ford Explorer) and found other things wrong. The total estimate on brake related work was over $1,000 and they issued a stern warning about the risk of not fixing it immediately. I courteously declined.

I did however take the warning seriously and took my car to a discount brake shop the next day and got their opinion. I spent $400 instead of $1,000. Although the parts weren’t from the dealer, I want to point out that I went with an upgraded option (not the cheapest they offered) that was equal to the dealer’s specs.

In addition to better prices on what I had done, I also saved money by what I didn’t have done. The second brake shop told me a few of the things the dealer wanted to do were not needed right now. They had 2 guys crawl under just to make sure. Also, they said that yes I should have the brake job done now but it wasn’t nearly as urgent as the dealer lead me to believe (I probably could have used it as is safely for 6 more months).

My point to all this is to get second opinions for major expenses. The easy choice would have been to say “just do it”. It is often hard to decline… I personally don’t like telling someone no. But in this case I was able to recognize a well greased (pun intended) marketing machine working on me. From that perspective it made saying no easy because it was no longer personal. I knew they were acting in their best interest and I have a responsibility to myself to act in my best interest. Beside, they would always take me back later if the second quote was too high.

In regards to your post – Here is an excerpt I wrote about using your emergency fund to put more money in your pocket (sorry, I don’t feel like retyping it)

You start putting $100 a month into a high-yield savings account. This will not generate much income, but it will do a whole lot better than spending the money.

After a five months, barring no emergencies, you will have $500 in your high-yield savings account earning a nice interest rate. Now you can call your car insurance company and ask them to raise your deductible from from $100 to $250. Since you have $500 set aside for an emergency, you will now be able to afford the $250 deductible.

The good news is that when you raise your deductible, your insurance bill goes down. Now that you are saving $120 a year on your insurance bill, you can add that to your emergency savings. Instead of saving $100 a month, you can now save $110 a month ($120/12 months=$10) with no extra money out of your pocket.

Now that you are adding $110 a month to your emergency fund each month, it will grow even faster. In a few more months, you will reach $1000 balance. You can call the insurance company again and ask them to raise your deductible to $500. Again, this will lower your insurance bill even more. Add the difference to your emergency savings and keep this cycle going.

As you can see doing this over and over again will save you money, while expanding your safety net. Your bank account will be growing at a faster pace and you will have more peace of mind.