Should You Have Multiple Emergency Funds?

emergency fundMy wife and I were pretty disciplined this last year to save up an emergency fund that could cover a good five months of our expenses.  We had just about reached our goal when……BAM….we had to dip into the fund to pay for an expense.  We’ve since repaid the emergency fund, but I really don’t like the idea of dipping into it again.

That’s when I thought…would it be smart to have more than one emergency fund?

The primary emergency fund would be for the unexpected or devastating events – losing a job, large medical bill, major car repair, etc.  The secondary fund would be to cover the not so large or urgent events that seem to come out of nowhere.

Here’s why I’d consider a secondary emergency fund:

  • Keeps the primary fund intact.
  • Promotes focused saving.
  • Helps keep us within our budget.

If there were one problem with the idea of a secondary emergency fund it would be this: what COULD you use it for?

I suppose it’d be more of a general fund that simply keeps us from having to use the larger emergency fund.  We could really use it for anything we’d regularly use the emergency fund for, but it would make us feel better – kind of like our first line of defense against unexpected expenses.

What do you think?  Is it a waste of time to keep a large emergency fund (6 months of expenses) and a smaller fund (1-2 months of expenses)?

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  • Keith

    I think an emergency fund like Dave R. says of $1,000. This would be the small fund. Then obviously since you are over step 3 the six months of expenses is the Primary emergency fund.

    So basically never getting rid of the $1,000 emergency fund, no matter what stage you are at. (maybe $2,000)

    Then replacing the small fund can be done with small chunks of pay over time.

    • Tim

      I like your tip. It seems easier to save to replenish the smaller e-fund.

      Thanks for leaving your thoughts! I think we’ll definitely try to keep 2 e-funds going.

      • Bart Eskind

        Sorry I meant Keith!

    • Bart Eskind

      I think Dave’s Baby E-fund would be a great back up for smaller type emergencies.

      This summer we are literally having a baby! So we are saving a fully funded 3 month emergency fund and on the side were saving a “Baby” fund.

      If we don’t use all of that money we’ll put it into a general fund like Kevin is suggesting.

      Great Post

      • Tim

        Wow that’s great news Bart! Congrats on the anticipated addition!

        I really do like Keith’s suggestion of having a general fund, but also having specific funds for a baby, home expenses, or a car.

        Hopefully you can put your savings on autopilot and fund each of the accounts without any hangups!!

  • Lauren Hunter

    Hi Tim, Thanks for this post and all the other great posts you’ve been writing! I’ve really enjoyed reading your blog.

    I feel similarly as you do – I really don’t like tapping the emergency fund when say, you have an unexpected bill, or you are $50 over your monthly budget and need to transfer. I keep the savings account that is linked to our main checking account with about $500 just to be a “slush fund” to cover unexpected bills or needs that our budget didn’t cover. I always repay this fund, but it is not our main emergency fund. I have another savings account with about $2,000, and we are saving $700 per month to get this main emergency fund up to $10,000, our goal. Once we get it there, I want to put it in a Money Market account (even though the rates are dismal) just to get it “out of sight, out of mind.”

    What’s challenging for me is that we also need to save for a new car for my husband (want to purchase it outright) and eventually a downpayment on a home (we live in California – will probably take $60k to get 20%, like Ramsey suggests). I’d love to hear how you’ve prioritized in your savings . . . and any other advice!!



  • Tim

    Thanks Lauren! I’m glad you’ve enjoyed the site!

    Sounds like your goals are to:

    1. Build up 10k in main e-fund (keeping it out of sight is a great idea)

    2. Build up car fund and

    3. Build a home fund.

    I’d prioritize by most pressing goal first. I say pressing because you might not need a car for a little while, so it isn’t as pressing as getting into a home.

    The first thing I’d do is make sure I have the primary emergency fund in place – or at least projected to be set in the next 6 months.

    If you’re able to get the e-fund to 10k and also build additional savings, I’d put 1,000 or so in a car fund (in case of repairs), drive around what you might already have, and then put the rest towards the down payment fund. Saving for a house is more of a priority in my opinion because it’s a much better asset to hold than a depreciating car.

    Hope that helps. Thanks for the question! It helps me to better understand potential issues to write about too!


  • Lauren Hunter

    Thanks for your reply, Tim! Your advice is great – only thing is that my husband’s 14 year old Ford Explorer is nearing its last days. So our concern is that if we bought a home (been there, done that – long story) and needed a new car right away, we’d have to take out a loan for it along with being responsible for home repairs to boot.

    Another question pertaining to home purchasing: FHA 3.5% down vs. conventional . . . Ramsey says “15 years fixed with 20% down” – well, where we live in CA, that might not ever be a possibility. By the time we save $60k, the home prices might actually be going up and the interest rates might push us out of the market. If only I could corner Dave Ramsey and ask him!!

    Having owned a home in the past, we know that many priorities (like giving to God and tithing) take a back seat to fixing the air conditioner and upgrading the house. I don’t want to be in this position again as tithing has blessed us in so many ways.

    I could go on and on . . . but don’t want to write too much here on your blog. I’d love to see you post about the “idol” of home ownership and how it can (and has) caused people to not be regular in their giving because of this great debt (that is supposed to be a blessing).

  • Funny about Money

    I’ve always had three sources of financial back-up:

    A $1,000 cushion in regular checking, there to prevent accidental overdrafts and to absorb small, immediate emergencies.

    A $2,000 savings account in the credit union, used for mid-range unexpected expenditures and to buy a few “wants” that are not so much “needs.”

    One or two years’ worth of survival money invested in conservative mutual funds.

    IMHO five months’ worth of living expenses is modest. In the current recession-that-is-not-a-depression, people I know have been out of work or grossly underemployed for over a year, with little hope of finding jobs in the near future and probably no hope of ever earning what they did before the crash.