Emergency funds and freedom accounts

[Kris10Leigh]

Do any of you have both an EF and a FA? Do you suppose an EF can be wrapped up in a FA? Maybe a subcategory? I have misc. accounted for in mine and was thinking perhaps that might count.

[creditcardfree]

We have both. The EF is a money market account, where we earn more interest than our checking account where the FA is. The money market has restrictions on how many withdrawals can occur. Our FA is in a second checking account where I also keep other money. I simply track the amount in the FA seperately. I think it is fine to combine them as long as you track which money is which.

[Fizgig]

I had to look up "freedom account" to make sure I knew what you were talking about - this is what I found:

"Debt-Proof Living (formerly The Cheapskate Monthly), urges that each household create and manage what she refers to as a "Freedom Account." Many people, she writes, get themselves into credit trouble not by splurging on spur-of-the-moment fun purchases, but by finding themselves unable to pay for those big-ticket, necessary expenditures which Life drops on them from time to time.

Included in this category might be items such as car repairs (usually expensive; almost always unexpected), vacations (very expensive, but also very plannable), medical bills (always expensive; almost always unexpected), six- or twelve-month insurance premiums, insurance deductibles, work clothes, Christmas gifts, and other items like these. You know all these expenses are going to show up sooner or later; with many of them, you just don't know when. But just because an expense isn't in front of you right now doesn't mean it's optional."


I do think an account like this should be separate because I believe in keeping the emergency fund sacrosanct. If you get in the habit of dipping in there for vacations, clothes, and insurance premiums you're just asking for trouble.

Myself personally, I have three savings accounts. 1) EF, 2) House account for yearly taxes, insurance, and estimated repairs, and 3) Splurge fund for vacations and fun stuff.

[Kris10Leigh]

Yes, emergency funds and freedom accounts are really a mixing of Hunt and Ramsey. I hadn't thought about that.

I just did the math for how much money we should have in our emergency fund for 3-6 month and I'm in shock. Baby steps, right?! LOL!

[skydivingchic]

I don't call it a freedom account per se as I haven't read or followed Mary Hunt, but I do have separate envelopes for things that would be accounted for in a freedom account and another envelope for my emergency fund. I use Mvelopes, so the money is physically sitting in only 2 accounts at the same bank - a checking account paying 4% and a savings account paying 2.5%. The checking account only pays 4% up to $25,000, so I transfer between the accounts to maintain close to that without going over.

My "freedom account" envelopes include car maintenance, car registration, life insurance, gifts, medical (for copays, prescriptions, etc), and cat care (i.e. food and vet expenses). The freedom account envelopes have money that is sitting in the savings account and they get funded monthly with 1/12 my estimated annual expense.

I recently completed funding of a 2 tier EF - one tier with enough to cover 6 months expenses and a second, smaller tier which would cover most emergencies. The smaller amount would reasonably cover any major car repair, most any vet emergency, or the max annual out of pocket medical expenses. The larger amount is meant to cover extended job loss or some kind of major, catastrophic emergency. This money is split between my checking and savings accounts, but in its own envelope so I know not to touch it unless it is an emergency. Now that I have it maxed out, I really don't want to touch the EF, so every effort will be made to cash flow emergencies if possible. This is also why I chose to establish a 2 tier EF. Most emergencies should be able to be handled by the smaller amount, so I won't have to touch the 6 month fund. Yes, I realize it is all just psychological and I am a bit OCD.

[mommyof4]

I have both a EF and a FA (hybrid Ramsey, Hunt). The FA includes all of my monthly/yearly expenses that are budgeted out of each pay check (ie. $35/month for birthday gifts, $70/mo household insurance, etc.). I also have a subcategory in there called "Just In Case," and I typically keep it around $500. This money is a mini EF for the other subcategories. For example, if I only have $300 in the auto expense account, but the new tires cost $400, then I first use the money in the auto account, then take $100 from the JIC account. As soon as possible, I replentish the JIC account to keep it at $500. On top of that, I have a mini EF in a regular savings account, and this is for anything that is too big for the sub account budget, JIC, and we would need addional money. So far, we haven't had any thing that couldn't be handled between the JIC and the appropriate sub account. I am also building my EF up as soon as possible.