Which comes first....
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Which comes first....
| Wed, 01-05-2005 - 9:50am |
I could probably look this up but it's easier to ask. LOL Which should come first? Building the emergency fund or putting money into savings for just...well savings?
OK Now that I type it out I think I know....the emergency fund. What's the reccommendation? 3 months worth of expenses?

Personally, I don't make a distinction between the two.
LOL $80 is better than nothing!!!!
Thanks :)
It depends on who you ask, of course, but here is a common recommendation that I happen to agree with:
Start with an emergency fund. Even before you start paying down debt (of course meet your minimum requirements in the mean time). Once you have built up about $1000, you can start focusing on other goals while not completely abandoning the emergency fund building. If you have a lot of debt, leave your emergency fund at $1000 and start pounding down your debt with all excess income, stopping only to replenish your emergency fund as necessary.
Once your debt is paid down, you can start building your emergency fund up to the three- to six- months living expenses you should ultimately have. Yes, it will take a long time. But it will be a vital cushion should anything ever happen to your income even temporarily.
I actually have multiple savings accounts. Our emergency fund which, when dh's bonus comes through, will be fully funded to the $1000 mark (it was depleted recently and needs to be replenished). Then I keep funds for irregular but expected expenses--auto repairs, tax bills, clothing, haircuts (until I started doing these myself, realizing that my half-hour investment each time was netting me a tax-free hourly wage of roughly $20--the haircuts aren't perfect, but they get better each time, and they're presentable), gifts, Christmas, childrens' birthdays, and so on and so forth. These are contributed to on a monthly basis determined by the amount I spend on each category averaged over a year. That way, the "emergency" fund is just that--for true, unpredictable emergencies, and not the irregular but inevitable stuff.
Now that we are soundly on our feet financially, I also contribute to funds for fun things like vacations and wedding rings (dh is allergic to gold and my wedding ring is lost, so we no longer wear rings--we want to buy platinum rings for our tenth anniversary in June 2006).
So, that is the order I recommend. An emergency fund is an excellent idea, even if you have debt, because the nice thing about cash as opposed to available credit, is that it's YOURS, and they can't take it away or put conditions on its use too easily. So it's always there in an emergency, and it can be used to pay anyone, not just businesses that take credit cards.
Good luck,
Heather
Yep, this is what I woulda said too!
The longer we do this, the less we tend to regard as true emergencies. Most of what used to be considered an emergency (read: we totally forgot to plan for, lol)now has its own envelope/savings account.
I know that having the emergency fund has been great for us because we don't view it as 'extra' money, and try our hardest NOT to have to use it. And by keeping the amount at $1000, it motivates us to get moving on all the other bills so that we can work on our big emergency fund!
Lisa
Yep- we too have at least $1000 in our emergency savings that we try to never touch unless there is a true emergency.
Then we have several INGDirect (freedom) accounts for gifts, auto insurance, life insurance, auto repair, house repair, sewer/trash quarterly bill, vacation, clothing, and a few others I can't think of off the top of my head. Those have been in place over 9 months and are working well for us.
But getting an overall cushion of $1000 was important to me- once I reached the $1000 mark, I started the freedom accounts. Others may find it easier to build freedom and emergency accounts at the same time (1/2 to be divded in freedom accounts, 1/2 to true emergency, etc.)
You know what - I don't believe in savings for the sake of savings.
All my best,
Danni