The Purpose-Driven Bank Account
There are approximately 378,922 (give or take a random number) reasons to have an emergency fund.
Or are there?
Having an emergency fund is a great idea. Having money available when you need it is a good feeling. (Especially when compared to feeling panicky and depressed when you need money in an emergency but don’t have it.)
But if you use your emergency fund for everything under the sun, it’s not really an emergency fund. It’s a buy-random-stuff fund or a doh-I-forgot-that-Christmas-was-coming fund or a my-car-needs-new-tires fund. That can be just fine — if you keep a very large emergency fund and you constantly replenish it so that it can also be used in case of things like an extended job loss.
But I firmly believe that your emergency fund (and any other savings that you have) should have a clearly defined purpose. If you’ve got an emergency fund, what constitutes an emergency? I have two things on the list for mine: involuntary job loss and life or death events. That’s it. If it’s not on that list (and I sure hope it isn’t), the money stays in the account.
But that’s why we have funds for other things too:
- Appliances (which is inappropriately named but still clearly defined — that’s for appliance repair, household repairs, occasional household upgrades, and vet bills)
- Escrow (taxes & insurance)
Those three funds + our emergency funds make up our permanent “savings” funds. My husband also has a car repair fund. (I choose not to have one of those, since in a car repair “emergency” I’ll just walk until I get the money.) If we want to do other things with our money, we lay out what we want to accomplish and then save for that.
Of course we have checking accounts as well — and we know what kinds of things get paid from those too. These funds don’t actually have to be a series of bank accounts. It’s not so much about where the money is as it is about what the money is for. A list of the various “funds” (along with their purposes and amounts) may work great.
Money needs to have a purpose. Saving for the sake of saving isn’t usually as effective as saving for a specific thing or event. (Such as emergencies, an entertainment center, travel, or retirement.)
Bank accounts need a purpose — even if that purpose is to “buy random stuff with x amount of money and no guilt”.