Emergency Fund… Or Not

by Kelly · 2 comments

in Living Frugally

Emergency funds are inevitably mentioned in every personal finance book or blog you’ll read, at one time or another. It’s a great idea- having a stockpile of cash for emergencies keeps you from digging yourself further into that credit card hole of debt from which you will never escape. But how to get there in the first place?

I read a comment recently on another PF blog that basically said that the commenter would like to build an emergency fund, but can’t because her money is already going to paying bills. And I know how she feels, because that’s where my money goes too! In the past six months however, I’ve managed to put aside €765 for our upcoming vacation. Obviously I’ve got some ‘extra’ money.

I’ve decided to stop trying to prepay on my revolving credit account here in France although I’ll continue to pay a bit extra every month on my student loans. Instead, starting in February, I’m going to snowflake my way into an emergency fund. For now I’m still trying to meet my original goals: finishing January in the black and sticking to my budget categories. Any extra money I get this month is going towards those two goals.

I’d feel comfortable with having €1000. (Who wouldn’t?) So for the foreseeable future, any ‘extra’ money that we have will go into our savings account. And, I promise, eventually I’ll get around to opening an account with a higher interest rate!


1 Sophie January 24, 2008

I’m in!
I started it in late December and it has €85 in it right now. Not much, but better than nothing, huh!
We need to share our progress!

2 Jacob January 27, 2008

As long as you are disciplined with your cost cutting and have access to a credit line, it does not make much sense to have an emergency fund that earns 4% interest while losing 15% interest on the debt. If the numbers are different it might make more sense but do the math. Emergency funds are only useful in special cases. For most people it is probably more a question of psychology.

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