Last week, J. Money wrote about feeling guilty for using your emergency fund. And I realized that this is me! I never touch my emergency fund. This month, I had some very unexpected vehicle expenses after my car broke down while traveling for a funeral. I had some money in my “Car Expenses” YNAB budget category, but not enough to cover. So what did I do? I went over budget in that area and then pulled money from other budget categories to cover. It still didn’t cover enough, so for the month of October, I’m over budget.
(Quick YNAB overview – you live on last month’s income. Overspend, and it just means that you have less to spend the following month – but it’s money you have. You’re just spending this month’s income as well.)
I do have an emergency fund set aside that is a few months worth of expenses. But I didn’t touch that. I think in my mind, because my emergency fund is set up as a number of months worth of expenses, that it’s to be used only if something happens and I suddenly don’t have an income. But that’s just one possible use for my emergency fund. While it’s good to not touch the emergency fund, it’s silly to be struggling to make ends meet in my current budget because I have this mental barrier against using the fund.
My emergency fund earns a good amount of interest every month at ING Direct. I could designate the interest that’s earned every month as a secondary emergency fund, one that I am allowed to use for situations where I still have my income but unexpected events led to higher spending. I’m not sure how that helps, but mentally, it makes me feel less guilty.
Of course, perhaps half the problem is that my Emergency Fund is currently called “Don’t Touch” in ING Direct. I set myself up to feel guilty for spending that money!
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
I always feel guilty when I dip into mine. I have been keeping a padding in our checking account, but I’m afraid I’ll have to spend some of that on my recent surgery. It sucks! I hate spending money.
I plan on doing the same thing! I’m going to create a smaller fund to use when I go over budget, so I can save my emergency fund for and emergency that equals no income.
I had the same problem when I needed to use my Emergency Fund so I set aside a smaller savings account. I call it my Flexible Savings Account.
You are so cute!
I do the same thing as well, but less to an extent as you do about feeling the guilt…
I don’t feel guilty using it. I treat it like an FSA, like SingleGuyMoney.
I get around this by using a ‘multiple e fund’ model.
“OMG, I lost my job” – laddered CDs (about 4 months wages, 6 months expenses – fully funded and letting them roll and increase in value)
“Insurance Deductible” – in a savings account linked to my checking, one click access – exactly what it sounds like – fully funded and I siphon off the interest every quarter into other expense categories
“Dead Car Fund” – in ING – for unscheduled repairs (not maintence) or replacement – about halfway to a new to me car, purchase scheduled in late 2010 when my current car will be 10 years old. If it’s still running, I’ll get a nicer car once it’s dead – funding this one monthly as an auto deduct ‘car payment’
“House Fund” – in ING – for appliance replacement, house repairs and upgrades – since my mortgage is paid (YEAH!!!!), I’ve been paying an amount aprox equal to 1% of my house’ values into this fund each year (but it comes out of my budget monthly). I want to increase this as this fund is close to zero right now – but I have a new washing machine being delivered next week!)
By escrowing a seperate car and house fund, I don’t have the guilt of touching the E fund for those expenses. We all know that those kinds of expenses are coming, so they are not REALLY emergencies, after all. We need to put money aside for them.
I think that for me it’s a combination of knowing how hard I worked to save that small nest egg combined with a good dose of guilt for having an emergency anyway. If it weren’t for the guilt, I might have dipped into it more often. It’s the only time that I can think where guilt is actually a good thing.