How Do You Save For Your Emergency Fund?

[Staceyy]

I have systems in place to fund my change box, food and other stockpiles and for my 401 k. For instance, I throw all of my change at the end of the day into my change box and I usually have about $500 in there. I buy a little extra at the grocery store each time I shop and am building up a one year stockpile of food, toiletries, paper products etc. I stock up on loss leaders. My 401k is payroll deducted and has been for years. I work well with systems but haven't been able to develope an adequate one I'm comfortable with for my emergency fund of 3-6 months expenses. I know I need one because I had to dip into our 401k twice for medical reasons which i know is a big no-no. I do have a medical reimbursement account but it was not enough even after funding it with the max allowable. So my question to you is, what system do you have in place that works well for you to fund your emergency fund?

[Broken Arrow]

I have a high interest savings account online. It's tied to the checking. So, when my paycheck gets direct deposited, I just click a few mouse buttons and transfer my money to that account.

[skydivingchic]

I have a high yield savings account for my EF. My direct depost is split between several accounts. Each paycheck I have a set amount that goes into savings and right now that entire amount is going into the EF. At the end of the year the EF will be at the minimum level I want so I'll change my direct deposit so that some still goes into the EF and the rest goes into another savings account that I use for other savings goals like a new (to me) car and travel. This works well because I never see the money, so I can't spend it as easily as the stuff that goes into my checking account.

When I first started a savings account I only put a small amount away ($100/mo if I recall correctly). Over the years I've jacked that number up as I received raises and cut expenses.

If your employer won't split your direct deposit, you can set up an automatic recurring transfer with whoever has your savings account. You could set it up so that a certain amount gets pulled from your checking the same day as your paycheck.

[PrincessPerky]

My EF is being built automatically each month with a set up withdrawal...Right now it takes slightly less than 10% each month and moves it over to a savings account.

Automatic is best for me, cause then I don't notice it...the 'bill' is easy to stop, but I would have to think to stop it, since I don't do much thinking these days it has remained

[mariogreymist]

I have a spreadsheet in which I keep my finances. It is programmed to tell me how much to put into savings to keep my checking account balance at $500. Every payday is accounted, and it shows how much to put into savings. On payday I simply transfer the calculated amount from checking (where dd goes) into savings.

[InDebtInDC]

I have a spreadsheet in which I keep my finances. It is programmed to tell me how much to put into savings to keep my checking account balance at $500. Every payday is accounted, and it shows how much to put into savings. On payday I simply transfer the calculated amount from checking (where dd goes) into savings.

Is $500 enough of a margin?

[sweeps]

Definitely splitting your direct deposit (skydivingchic's method) is preferable if available. The money never hits your checking account so you don't feel the pain of withdrawal.

The next most preferable would probably be PrincessPerky's method of having an auto-debit from your account. It's still automatic, but you're still "seeing" the money come out of your checking.

If those aren't options, then manually transfer the money to savings as soon as possible as the others have suggested.

[jIM_Ohio]

I budget $625 for my Roth IRA. for 2007, $4000 is max. Simple math (4000/625=6.4 months). Starting in the 7th month, the extra money goes into savings and I turn off the Roth deposits.

For 2008, 5000 is the Roth max, so 5000/625=8, the last 4 months of the year goes into savings.

[PauletteGoddard]

At the first of the month I move the surplus from our checking account to the savings account. That's how I save for the emergency fund. Next month I will try moving a set amount weekly as the emergency fund is a moving target. I accepted the idea that 10% of our assets should be somewhere safe and liquid, but my emergency fund is not yet at 10%.

[jIM_Ohio]

At the first of the month I move the surplus from our checking account to the savings account. That's how I save for the emergency fund. Next month I will try moving a set amount weekly as the emergency fund is a moving target. I accepted the idea that 10% of our assets should be somewhere safe and liquid, but my emergency fund is not yet at 10%.

My opinion is an EF is a fixed amount based on expenses, not a variable amount based on net worth.

10% of networth in an EF/ cash account is expensive. Consider someone which owns 20% of their 200k house, They own 40k of their house and 4k of this should be in cash?

That 4k could probably earn a better return
a) being invested for retirement
b) paying down the mortgage further
c) going on a vacation

Assuming 3 months expenses already exist in cash (fixed amount), I see little need to suggest having more cash based on one's net worth. If one's risk tolerance is lower than average, that is a reason for more cash as a preference.

[mariogreymist]

Is $500 enough of a margin?

I don't write checks, so it works out fine. If I need to pay my deductible on my car insurance and my renter's insurance on the same day, I'll be tapped and have to transfer money right away. Short of that kind of disaster, I am fine. I should clarify a bit I suppose -

I pay bills twice a month - first and second paychecks. I get paid, pay my variable bills using my bank's web-service, and set up fixed bills for the next billing cycle. I then transfer money to savings. This generally leaves me with more than $500, because my food, gas and household expenses are budgeted bi-weekly but spent as needed, not on payday. If I spend my exact budget on those items, I have exactly $500 when my next paycheck is deposited. I update the spreadsheet every time I use my debit card, ensuring a correct running balance. Now, if only I could rig my keyboard to emit an electric shock every time I went over budget on food, gas or household expenses, we'd really have something.

[mariogreymist]

My opinion is an EF is a fixed amount based on expenses, not a variable amount based on net worth.

10% of networth in an EF/ cash account is expensive. Consider someone which owns 20% of their 200k house, They own 40k of their house and 4k of this should be in cash?

That 4k could probably earn a better return
a) being invested for retirement
b) paying down the mortgage further
c) going on a vacation

Assuming 3 months expenses already exist in cash (fixed amount), I see little need to suggest having more cash based on one's net worth. If one's risk tolerance is lower than average, that is a reason for more cash as a preference.

You're understating it actually - she actually said 10% of assets not 10% of net worth. Assets-Liabilites=Net worth. Therefore, 10% of assets on a 200K house is not dependent on the equity(which applies to net worth) but only the value of the asset (the home).

I certainly hope she meant net worth.

And I agree, EF is best calculated in terms of expenses not worth. Why not make every dollar as profitable as we responsibly can?

[PauletteGoddard]

I certainly hope she meant net worth

I didn't mean net worth. I meant assets. I didn't define assets, but I did mean "assets" to be the sum total of our accounts, excluding the house and its mortgage. I erred in not including that in my original comment.

My definition of "assets" may be flimsy and subjective, but I'm not comfortable with the inflated, illusory equity of our house (I'm sitting at the back of the last car just about to go over the steepest hill of the housing rollercoaster). The house equity shot up without my help and it'll crash without my help.

Right now 10% of my definition of my assets = four months of living expenses = 14 months of mortgage payments. Correct value, wrong and improperly defined variable name.

[disneysteve]

I have systems in place to fund my change box

I usually have about $500 in there.

What happens to the money that accumulates in the change box? Why not periodically deposit that money into your emergency fund account?

What I do is designate 18% of my gross pay for savings. $300/month goes to 2 mutual funds. $400/month goes to my daughter's college 529 plan. The remainder, early in the year, goes to our Roths. Once they are fully funded, usually around June or July, the remainder goes toward extra principal payments on our home equity loan unless our EF has gotten depleted for some reason in which case I use that money to replenish the EF.

[mariogreymist]

I didn't mean net worth. I meant assets. I didn't define assets, but I did mean "assets" to be the sum total of our accounts, excluding the house and its mortgage. I erred in not including that in my original comment.

My definition of "assets" may be flimsy and subjective, but I'm not comfortable with the inflated, illusory equity of our house (I'm sitting at the back of the last car just about to go over the steepest hill of the housing rollercoaster). The house equity shot up without my help and it'll crash without my help.

Right now 10% of my definition of my assets = four months of living expenses = 14 months of mortgage payments. Correct value, wrong and improperly defined variable name.

You're talking about liquid assets there. Not only the equity, but the entire value of your home counts towards "assets" in a general sense. Some even include equity in liquid assets. The technical definition of an asset is something of value that you own. If you have it, and you could sell it, it's an asset.