Specialized emergency funds
I’ve been talking about the benefits of having an emergency fund for a while now. As a matter of fact, my 7th article here on Gather Little by Little introduced the concept as step 5 of my Getting Your Finances Under Control series.
When I first heard Dave Ramsey talk about the concept it was in the context of a $1,000 emergency fund as baby step #1 in getting out of debt. I’ve maintained at least a $1,000 emergency fund since I first started the process of getting control of my finances.
1,000 emergency fund not for everyone
As I’ve matured in my financial journey. I’ve come to realize that with 6-kids, $1,000 dollars isn’t enough. Instead, I keep on average $2,000.00. There is no magic formula to keeping $2000, it’s just an amount that makes me feel safe. When we had $1,000 dollars, there were a few occasions where we needed more. Not much more, but more. This occurred enough times to where we decided to bump up our emergency fund. The amount money in your emergency fund is a personal choice, and should be driven by your personal needs. Some people just seem to have more fallen trees in their personal lives than others. $1,000 dollars is a great starting point, but depending on your needs more or less may be perfectly adequate.
As with any journey, even your personal finance one, things continually change. When we moved to the NC mountains, we decided to rent out our home in Charlotte, NC since it wouldn’t sell. Our rent is a couple hundred more than our mortgage payment, so the monthly excess is transferred into a savings/specialized emergency fund to cover property taxes and as an emergency fund just in case any emergency repairs need to be made. Fortunately that has not occurred yet, but I’m sure it will.
Here’s where I was naive though: I didn’t anticipate our tenants not paying their rent on time. It would seem this past month, our tenants had a tough financial month. They paid the rent almost 4 weeks late. In order to avoid being late on my mortgage payment, I had to pull funds from our emergency fund to cover the mortgage. I realized I hadn’t planned for this. I made the false assumption that since our tenants had good jobs and were very nice people that they would never be late. Wrong.
Specialized emergency funds
I realized a long time ago that I am far from perfect. I don’t often kick myself too much for making mistakes. I didn’t kick myself too hard for this, but just felt stupid that I didn’t anticipate our tenants not paying their rent. The good news is, I won’t make that mistake again.
I did finally receive the rent payment and used it to replenish our emergency fund. At the same time, I immediately created another ING savings account. Hopefully by the end of June, this account will have enough to cover a full month’s mortgage payment in case something like this occurs again. This will keep me from getting into a situation where they are late again and a the same time something comes up requiring me to have to use my personal emergency fund.
I now have two emergency funds, one for my personal emergencies and another to cover the mortgage payment on our rental home. This has had me wondering if I should create additional specialized emergency funds for things like our cars, our home, medical, etc instead of just having one single emergency fund. Doing so wouldn’t really change the amount of money I have, it would allow me to see the funds at a more granular level. I’m holding off for now though, as it seems like it would only make my finances more complex with little gain.
How about you? Do you have specialized emergency funds? Do you see any advantage to having your overall emergency funds broken up into specialized accounts? If you do have multiple emergency fund accounts, what are they? Add a comment!
Photo by: Jeff Kubina