Unraveling Money – My Exploration of Personal Finance and Productivity

May 27, 2009

What I learned today: The importance of an emergency fund

Filed under: Keeping Track of Expenses — unravelingmoney @ 10:33 pm

Today I learned a valuable lesson – having a fund for emergencies/unexpected expenses is extremely important.

Long story short, I got a flat tire in a parking garage about 60 miles away from home – in the early evening when hardly anyone was around and tire-repair shops were closing. You might say – change the tire yourself – but of course I was without 1) skills, 2) tools and 3) any idea whatsoever where, if anywhere, my spare tire is in my car. Underneath? No idea. Perhaps this sounds like I need to get some car repair skills, and that may very well be the case – but regardless, I was stuck in a bad situation.

Luckily I had ample friends and family willing to help, just far away. And also luckily, I have free roadside assistance from my car insurance provider, Farmers. After waiting for way too long and barely making it to the tire repair shop in time, I was stuck with a $95 bill for a new tire and service (old tire was completely ripped to shreds).

This time, I had more than enough funds in my checking account to cover this totally unexpected expense. However, I’d like to get more proactive about saving for unexpected expenses. I really like Ramit Sethi’s use of sub-savings accounts for these types of expenses: http://www.iwillteachyoutoberich.com/blog/tip-using-sub-savings-accounts-for-unexpected-expenses/

He suggests saving a certain amount per month specifically earmarked for unexpected costs, and then sweeping the unused amount into general savings at year’s end. I’m not sure about the second part – I would probably always want to keep somewhat of a hedge against these types of situations. Just like the general emergency fund that everyone should save – 3-6 months worth of living expenses – once you have saved this amount, it’s probably good to move on and start investing your funds elsewhere, such as your retirement or paying off debt.

I recently opened and ING savings account to start saving the way I want to save – specifically with sub-savings accounts for different goals. I’ll write a review of the account usability as soon as I’m able to use it for awhile.

In the meantime – thinking about how much I can devote to unexpected expenses!

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