Comments on: Do Emergency Funds and Targeted Saving Really Matter?

By: Nut

Nut — Fri, 01 Aug 2008 02:25:55 +0000

I agree with all of this. Up to a point I was kind of playing devil’s advocate really. It’s a psychological thing, and that’s why I had trouble making a solid case to M. To her it makes no bit of difference numbers wise, and I guess the psych aspect of it doesn’t mean much to her.

By: feminist finance

feminist finance — Thu, 31 Jul 2008 15:20:30 +0000

The benefit of dedicated savings sub-accounts for me is that they encourage a balanced approach to my money. Right now I have subaccounts for (1) emergency fund (2) wedding expenses (3) travel savings and (4) IRA contributions (since I have a high salary and I frequently don’t know if I can contribute to a Roth or not until the end of the year when I get my W-2s that include bonuses). I have savings targets for each of my sub-accounts. I am, of course, free to reallocate the finite amount of money I have in savings at any time, but putting more money in the wedding pot means taking money out of the emergency pot; putting more money in the emergency fund means delaying my next trip because I have to take money out of the travel pot. It forces me into the position where my choices about what to spend on are very deliberate. It keeps me from saying, “I want X, X costs $2,000, I have $20,000 in savings so obviously I can afford X, and I will have a whopping $18,000 left over!” when truly I cannot afford X without coming out short on the wedding budget or the travel budget, etc. It is another way of ensuring transparancy with myself.

Another way it encourages balance is that once I do reach my target for a frivolous savings goal, like a vacation or a piece of furniture, I can use that money relatively guilt-free for that purpose without stressing out about the fact that I still need $10,000 in savings to consider my emergency fund fully stocked. I can make progress toward all my financial goals simulataneously in a measurable way and reward myself incrementally without jeopardizing the progress I’ve made elsewhere.

It’s a psychology trick to make me feel more abundant, though, not a math trick that actually gets me more money, and in that respect M is quite right.

By: josh

josh — Thu, 31 Jul 2008 14:23:19 +0000

The emergency fund is for when you do not have income and you have 3-6 months saved up. The emergency fund is not for unexpected costs. That should just be added on to your budget for that month. If you take money out of the emergency fund and do not have enough savings and you can not work for some reason, than you may not have enough savings to live off of for the time when you need it. Than again im sure your parents or in-laws would help, so there is no real need for an emergency fund.

By: Jerod

Jerod — Thu, 31 Jul 2008 13:49:34 +0000

Your exactly right. It doesn’t make one single bit of physical difference where the money comes from. That’s not the point of targeted savings or emergency funds. It’s the mental aspect of the idea that makes it work. Take losing weight for example; it’s the simplest thing in the world to do, exercise and eat right, but why are so many people overweight? In my opinion it’s no willpower or goals. By setting a goal of “I’m going to lose 30 pounds before vacation” or “I’m going to save $1500 before vacation,” we have the mindset to succeed. If the money is thrown into a lump sum then its all to easy to forget you already have so much saved out for this or that. I think targeting savings and emergency funds are the best options for those that have trouble saving on a regular basis.