Create a Life Happens to Complement Your Emergency Fund
You probably already know how important it is to save savings for emergencies such as losing your job or unexpected hospital bill. To avoid using your emergency fund, consider setting up an additional savings account for less dire spending.
Nobody seems to agree on how to set up the “right” emergency fund because your needs and your situation are different. But we must prepare for the unexpected with at least some kind of emergency fund.
Washington Post columnist Michelle Singletari also recommends Life Happens:
The money from your reserve fund remains intact in the deposit account. And yes, it won’t bring a lot of interest. But that’s okay, because remember, you are not trying to multiply that money.
The second savings account is Life Happens. I created this pot so that I don’t have to use emergency money. You will be withdrawing money from this fund to pay for unexpected or large expenses that do not quite fit the definition of an emergency. Car repairs will come out of this account. Start by trying to save $ 500, ideally up to a few thousand.
Money will go in and out of this account. You will save money. Expenses come in and you take out some money. Change the funds as soon as possible.
Why not just use your emergency fund as your only bucket? Psychologically, I think it’s best to never dig into your emergency fund. But there are also some costs that we tend to view as emergencies where we really should expect or be able to predict them: things like a broken water heater or the need for new brakes on your car (everything breaks down over time) or your child. need suspenders. These are only emergencies if you do not have the money saved up to cover them, whereas losing a job or the need for an urgent operation are more unpredictable and potentially catastrophic costs.
In other words, once you reach your contingency target (3, 6, or 12 months, or whatever dollar amount you are aiming for), keep saving.
Not sure how much money to save and what to invest in? Here is the answer. | Washington Post