You Don’t Need Just One Emergency Cash Account, You Need Two!
When you’ve come through being in debt you know you need to have a firm handle on your finances and emergency cash in the bank.
It’s not enough to just balance your books every month, you want peace of mind and money in the bank. You need to be able to deal with the bumps in the road that come along. They always happen when you least expect them.
I recently wrote about how to start your rainy day fund when you are broke. To manage your money you need to have a back up for when unexpected things happen. Unexpected things that cost money.
Everyone needs to have cash that you can draw upon in times of emergency. This stops you from going into debt just when life has become that extra bit difficult.
If you haven’t already got your first emergency cash fund set up please do so ASAP. Emergency cash stops you worrying and going into debt when you going through bad times.
Related post: How To Stop Worrying About Money
You absolutely need a rainy day/emergency cash account. But the one other thing I recommend you do is:
Have TWO Emergency Cash Accounts
But why would you want to have two emergency cash funds I hear you ask?
The way I see it is that there are different types of emergency and this is where having a 2nd separate savings account comes in.
Keeping your emergency cash separate will help you to differentiate between the different types of emergency.
Your first savings account will likely be dipped into a couple of times a year, maybe more. Your second account much less frequently.
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No.1 Emergency Fund
Your 1st emergency cash savings account is to cover the unexpected bills that pop up when life throws you a curve ball. A large car repair bill, replacing your boiler just as the first cold snap of winter kicks in.
These are one off costs but over the period of a year or two you will dip into this savings account more often than you might have planned.
If you thought you wouldn’t need to touch this fund more than once in a blue moon then I am sorry to say this is unlikely.
Curve balls get thrown at you more often than you want and do seem to follow the rule of 3. It’s bad enough when you have one curve ball thrown at you but 3? That’s why you need this rainy day fund.
No.2 Emergency Cash Fund
So why the 2nd account if you already have the 1st account up and running? Because there is always a bigger, more long term curve ball that life can throw at you which requires a bit more money over a longer period of time.
I’m talking about job loss or long term illness. If you are in a one income family and lose that income how long can you survive without going into debt or defaulting on your mortgage/rent?
Having a few months worth of your essential living expenses (mortgage, bills, food) tied up in this account only for this type of bigger emergency is essential for anyone who is reliant upon an employer for their income.
Being self employed still makes this emergency cash account essential, what happens if you fall ill or your best client goes bust owing you thousands?
How Much To Save
Work out what your basic, essential living expenses are for a month. Aim to get at least 3 months worth into your second savings account.
If you have the cash to spare it would be even better to have 6 months of living expenses saved. If you lose your job the recruitment process to get another job can take an age even when you are successful.
I know it may take a little time to save enough into both these savings accounts but believe me it is worth it. For peace of mind and for when life throws you that curve ball.
What do you think about keeping your emergency cash in 2 accounts?
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