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Why Your Emergency Fund is NOT a Savings Account - And What Ours Looks Like

There’s a misconception floating around out there that I want to clear up: your emergency fund is NOT a savings account.

And you are not a failure if you tap into your emergency savings! 

The Purpose of an Emergency Fund

An emergency fund is fluid. It rises and falls like the tides.

I’ve seen too many people in the debt-free community beat themselves up for “having to start over” or being “back at square one” after they used their emergency funds for, well, an emergency.

I’ve seen others treat it like a savings account they don’t want to touch, so they end up pulling out the credit card instead so they don’t have to “start over.”

If you use an emergency fund for its purpose, you will be refilling it, over and over. Please get over feeling like a failure when that happens. It’s not starting over. It’s part of the process.

Remember: Your Emergency Fund is Not a No-touch Fund

Savings accounts, unlike retirement accounts, are not no-touch funds. Savings is for a specific purpose and is separate from an emergency fund. Lots of people don't have an emergency fund, so they have to pull from savings instead, and that messes with their goals. 

If you don't have a purpose for your savings, meaning cash is not earmarked for something specific like travel or a newer car or Christmas, then you'll be pulling from it for whatever reason, and it just feels chaotic and disorganized.

Download my FREE "I Saved my Starter Emergency Fund" game chart

Save with Your Goals in Mind

Our family saves with purpose. We have several different savings accounts for different savings goals. We have our emergency fund in one account, and our savings toward specific goals in others. That way, we don’t spend our emergency cash.

If you have your emergency fund set aside for emergencies, you can spend that cash when you have an emergency without feeling guilty. Actually, you should think of it as a success! Your emergency fund is working as it should.

Think of it as a debt to yourself. It’s so much better to pay yourself back than a credit card. Your emergency fund is there to help you break your credit card habit. Use it for that.

Related: Emergency Fun Tracker - FREE Printable
hy You Should Automate Your Savings and How to Start
How to Save Your Emergency Fund Faster!

And every time you use it, congratulate your past self for saving it so it would be there for you when you needed it. Then go straight into blessing your future self by refilling it again.

When you adopt this mindset shift, you’ll stop feeling like a failure and start feeling confident in your money decisions.

@bankandbeacon “I have only filled [my emergency fund] very recently and while I haven’t had to use it since, I definitely did think of it like this. Thank you for this mindset shift.”

How to Create Your Emergency Fund

So, practically, what does it look like to have a fluid emergency fund?

Our family started by setting our savings goal for our fund, then finding a place to stash the cash. At first, we saved up three months of bare-bones expenses. Bare-bones expenses just means the amount we spend per month on necessities alone.

Over time, our family eventually saved up a full year of expenses in our emergency fund. It was right for our family. But I encourage you to do what you can with the resources you’ve got.

Pick Your Target Amount

Pick a target amount for your emergency fund, say $1,000. When you reach that amount, shift to your next savings goal, leaving the emergency fund to catch emergencies. When it does catch an emergency, stop saving toward your next goal until the emergency fund is filled back up to your target amount.

Download my FREE "I Saved my Starter Emergency Fund" tracker

Slowly but surely, you’ll save up a hearty emergency fund. And, most importantly, you’ll have the cash on hand to cover emergencies when they arise!

Determine Where to Keep It

Where should you keep your emergency fund? 

If you're disciplined enough not to spend it, you can keep your emergency fund in your checking account as a buffer. If you don’t trust yourself with that, I recommend moving it to a savings account that won’t be pulled from automatically in the event that you overdraw your account

We have our emergency fund in a Capital One 360 account where it earns a little interest (under 2%), but that’s more to keep it out of instant access than for the interest. It’s better to keep your emergency fund in a savings account than to try to gain interest on it. After all, an emergency fund isn’t an investment. It’s insurance. (For that reason, I do not recommend keeping emergency funds in a CD.)

Save with purpose. Set your emergency fund goal, determine where to keep it, and start saving. You’ve got this!

And when an emergency comes up, don’t panic! Just remember: your emergency fund is fluid. It rises and falls like the tides. And that’s its whole point.

I'd love to know your thoughts on emergency funds - drop a comment below to start a conversation.

To browse ALL of my Emergency Fund products and posts (including the Big Emergency Fund Game), click here. 


Related: Emergency Fun Tracker - FREE Printable
hy You Should Automate Your Savings and How to Start
How to Save Your Emergency Fund Faster!




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