I want to start by saying that I know this question has been asked before but everywhere I looked, nobody is answering the question instead saying emergency fund should be separate from other savings ie down payment, car payment, etc. I already have separate “vaults” for all those things but my question is if an emergency fund is different from my regular saving or if they are the same thing?
For example, I’ve got 4 separate vaults; car maintenance, down payment for a house, gifts/vacation, and one for all bills such as CC payments, insurance, etc. And then separate from that I’ve got just a general savings account that I’ve had for several years because that’s what everyone says to do but I’m confused when people say “emergency fund” is that what that general savings is for or should I have another vault for emergencies? And if so, then what else am I saving that money for?
Should regular savings account be separate from emergency fund?
byu/Ok-Breakfast-363 inpersonalfinance
Posted by Ok-Breakfast-363
13 Comments
Emergency fund is for job loss or huge surprise, regular savings is for planned stuff
> is if an emergency fund is different from my regular saving or if they are the same thing?
They are not the same thing.
Your regular saving doesn’t have a goal, that’s why you haven’t given it a name like “down payment”, “car payment”, “gift/vacation”, etc. But your emergency fund has a very specific goal that should not be mixed.
If you are capable of keeping your emergency fund fully funded even when it’s commingled and aren’t tempted to use it for non-emergencies, then there is no need for a separate account.
Use whatever works for you.
I don’t have regular savings. I have a savings account where $X is earmarked for emergency fund, $Y is earmarked for new car fund, $Z is earmarked for property taxes and insurance due in January.
Otherwise I just let my checking account grow, with permission to spend on whatever fun thing. Or, a lump-dump into the brokerage.
Yes. They should be separate. And the poorer your impulse control, the more separate they need to be. You should have a rough idea of your own weaknesses to gauge this. If the emergency fund needs to be at a separate bank, with no internet banking, for you to succeed, then that is what you need to do.
The emergency fund is for big, life altering stuff. Car written off? Need a root canal? Housing situation becomes untenable? Stuff that is unexpected. When I just started out, I put $15 a week into a separate account. Our washing machine died. I had $300 there to replace the washing machine, which was essential because my partner and I both worked absolutely filthy minimum wage jobs at the time, and I had no car, and no license, to get my washing to the laundromat. It was an unexpected expense, but we had that second hand washing machine for another 8 or so years, until it died.
Your other savings account is for goals. House deposit? Holiday? Upgrading your car? Things that are planned, and are not an emergency. It is different to the emergency account because the emergency account is what keeps you away from the worst debt of all, credit cards and payday loans. Those high interest debts are aimed at the desperate, and an emergency fund makes you immune to them.
We have a regular savings account which is really just for “smaller” impromptu purchases. We have an emergency fund as well, but in a HY savings account. While there are some restrictions in accessing it, you can still get the money quickly and you earn quite a bit more than a traditional account.
Personally, put the money where it makes the most sense for you. Just because something works for me does not mean it will for you.
I find I save better with separate accounts. I have a HYSA that is a checking. Credit union checking with a nominal $25 savings there. And then some MM/SGOV in a brokerage. Mentally I’m less tempted to spend when some of it is out of sight, out of mind.
It’s a good idea to have some funds at a different bank, and it might as well be your emergency fund.
As an example, my son’s account was hacked and it took the bank a while to agree it was fraud that left his checking overdrawn by $6k. In the meantime, all his accounts were frozen, and he had no access to any money for bills or groceries until he could open an account at a new bank and change his paycheck direct deposit. Unfortunately he had also very recently lost his credit card, so he was really in a bind.
I’m not sure what you mean by vaults. But there are two concepts. 1. What is the money earmarked for and 2. Where is the money. If you are decent at spreadsheets, you can set up budget lines for as many different earmarks that you want. Where that money resides is a totally separate table of accounts (for me, a checking account and brokerage account). The total of both tables equal each other.
I have one HYSA and an excel spreadsheet with columns for each category. General/EF, real estate taxes and insurance, car insurance and repairs, vacation, etc. I have enough going on in life, I don’t need five more savings accounts to track.
I keep 3 savings accounts. The first is the “break the glass” emergency fund. The second is for moderate goals like vacations or a future car purchase. The third is used as needed for car maintenance, home repairs, and other needs. After I pay the bills, the leftover money goes to the third account. If I have a month with heavier spending than usual, I can pull from that account as needed.
An emergency fund is just money you have saved for things in the future. Whether somebody puts them into separate “buckets,” or not is up to the individual person.
I think Emergency Fund is a bit too generic of a term and that’s why you have questions. I have money set aside for Loss of Income. I also have money set aside for things like vehicle repair/maintenance, home repair/maintenance, medical out of pocket max, vehicle replacement, appliance replacement, etc. Now, I don’t have separate bank accounts for all of that, instead I have a zero-based budgets where I know how much is in each category, so the bank account doesn’t matter. The hope is that I never ever have to use the Loss of Income money (but I’ve been laid off 3 times in the past 20 years, so not counting on that), and then once I stop working that money becomes the cash I live off of for a while.