Emergency Funds vs. Savings Accounts: Navigating the Grey Area

Ginger — Fri, 11 Apr 2008 04:33:26 +0000

Chances are, if you’re reading this blog, you know about emergency funds and savings accounts. But do you know the differences between the two and when to use them?

Let’s start out by defining specific uses:

Emergency Fund: Usually consists of unplanned expenses, the ones that pop up with no warning such as unexpected bills, deaths, job loss, illness, unexpected life circumstances and appliance repairs/replacements. I hate to mention it again but since the recession is upon us it is imperative that you have at least 3-6 months saved as any combination of the above is likely to create the perfect storm in your financial life. You’ll be able to sleep easier at night knowing that should any or a combination of the above happen, you’ll be covered in the majority of cases.

Savings Account: This is typically where you save for a specific goal such as downpayment on a car or home, childcare expenses, appliances, furniture, educational expenses, investments and hobbies. Obviously, these are planned expenses and not haphazard emergencies. We typically save to meet a certain goal that has been planned for some time. This prevents us from spending money we don’t have through the use of credit cards and increases discipline once the stated goal has been achieved.

The Grey Area This is an area I found myself going back and forth on with my husband because many of these are debatable. We listed the following as being in the grey area: traffic tickets, car getting towed, unexpected tax bill, prolonged medical expenses, legal fees and debt reduction. I’m sure there are more so feel free to list yours in the comments. All of these are debatable which is why they are in the grey area. Still, it makes sense to address these issues before they happen and decide which account should be used to cover these expenses. None of these are planned, but they aren’t dire emergencies either.

Questions to ask your self:

Which account would you use to pay the junk yard to get your car back?
What about that unexpected tax bill with April 15th around the corner?
Legal fees to defend that reckless driving charge?

What about debt reduction? Some believe you should use savings to knock down debt, others believe you can use your emergency fund while some believe in working to pay down debt. I struggle with using my emergency fund to pay down debt because when you know what hits the fan, my bills need to be paid and I would rather pay the minimum in a pinch than give up security. That said I think it wise to create a “when sh*t hits the fan fund” so you’ll be covered and not have to dip into your savings or emergency fund.

What are your grey areas?

The Talk: “So When Are We Having Kids?”

Ginger — Mon, 10 Mar 2008 10:00:47 +0000

photo credit: Point-Shoot-Edit

I don’t know about you but having kids wasn’t the first thing on my mind when we got married. It’s a goal but not one I thought about achieving until we were both pretty settled in our careers. And, while my husband is on a solid career trajectory, I’ve yet to make a solid commitment even after two Masters degrees. So the prospect of having children before I feel that Ive settled on a commitment on what to with my life is a bit daunting.

Still, we’re able to talk about what we’ll be planning when that day does come. We can spin around in circles till we’re blue in the face but we need to be prepared once it does happen. Here’s what we talked about:

Baby Fund

We’ve started putting money away into a “baby fund” which will cover the intial expenses such as diapers, clothes, formula, doctor visits/co-pays and all the happy little expenses that come along with having a child. Our target is between $8-10k and this is so that we’ll have a nice cushion once baby is finally here. We will then transfer the balance after 1 year into a savings account for baby, 529 plan or other plan for private school if we go that route.

Educational Plan

We haven’t really discussed much around this as Im still researching how this works, the benefits etc etc. I’ve been rather lazy in this regard but we have time, so I hope.

Stay at Home or Daycare

We are pretty settled on this topic I plan to stay at home until they are school-aged as I am not comfortable with someone else essentially raising our children for 10 hours a day. I am at my best when I feel in control of a situation and having our children in daycare at the whims and influence of someone else all day while missing out on their major milestones isn’t the best option for me. When I do become a mommy this is will be my only job, I don’t want to obsess over a job, school or a career, I truly want to be dedicated to their lives and fully being a part of it. Still, I plan to be engaged in several other ventures by that time, Girls Just Wanna Have Funds, being one of them, so don’t count me out.

I had a friend who was paying upwards of $1200 per month just for daycare! I can’t imagine! Well, I can but that money would be better served in a high interest savings account. I struggled with this for quite some time because there was a time that I knew I wouldnt be caught dead at home longer than 8 weeks post baby. But, that’s changed and I really feel that I want to spend this time with our children as they grow up.

Move into a larger home or Stay Put?

Right now we have a 4BR, 3000 sq ft townhome and we’d be able to spit out 2-3 kids before really feeling the urge to move. Do I want to move? Sure! I think we could have made better decisions regarding the county we live in but for the most part Im happy with where we’re at right now. Ideally, we’d want a single family home with a large back yard and other amenities.

Where might that be? Cameron Station, Alexandria VA or Crystal City in Arlington, VA. I’ve already started calculating the total house payment with taxes and in 2-3 year’s we’ll be there if not before then. Hubby is also pressed to move back to NY and while I’ve agreed to the move, this won’t be for another 3-5 years. So we’re here in DC metro for the time being.

Private School or Home Schooling?

Public school isn’t an option. Without giving too much away about where we live, let’s just say I would quit a 200k a year job before sending our kids to a local public school. I don’t think I have ever been so disappointed in a school system and we don’t even have kids there! For the life of me I can’t see leaving our children’s education up to the absolute incompetence and mediocrity that is our local public school system. I am currently researching MONTESSORI HOMESCHOOLING as I believe given our values and goals this would be the best option for us.

I believe in children having the freedom to be self directed and being able to set their own educational milestones. My husband wants our kids to experience public school for themselves because as he put it “I turned out just fine..”…but I contend we grew up in different times and things aren’t the same. So this is an ongoing debate in our home. No final word but I always get my way

Are We Paying for College? Should They Pay Their Own Way?

If you’ve been with Girls Just Wanna Have Funds since its inception then you know how I feel on this topic: You Can Get a Loan for College But You Can’t Get a Loan for Retirement! This is also another topic we have yet to finalize. He doesn’t want them to have to struggle with student loans but with Yale, Harvard and other Ivies giving out free tuition we may have to look into that. Neither of us wants our children to leave college with mortgage size student loans but with scholarships, and free rides available to smart children who apply themselves to the “process”, I believe they will be fine.

I’m probably missing a few things but that’s all we’ve covered for now. It’s actually exhausting thinking and talking about it but Im glad we’re able to hash out a few things before our little bundle gets here. I know some of you are thinking but this should be a wonderful time blah blah blah… well it should be and it will be but I just need to graduate first!

How did you know you were ready to have children? Did you plan or did it just happen?

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Emergency Funds vs. Savings Accounts: Navigating the Grey Area

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The Talk: “So When Are We Having Kids?”

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