The merits for establishing an emergency fund are solid. If your furnace quits working in the middle of winter or you lose your job, you’ll eventually need quick money to cover life’s potholes. The recommended amounts often vary from $1,000 to a full year of expenses. Personally, we have an emergency fund that would keep us afloat for 3-4 months if both my wife and I lost our jobs at the same time.
But what if you’ve already established your primary emergency fund?
There are plenty of places to send your money. Retirement, college, vacations, home down payments and an infinite number of competing goals are fighting for each dollar. However, before allocating all of your extra cash to your Tahiti vacation fund, I suggest saving monthly for life’s “guaranteed surprises,” outside of your primary emergency fund. To me, an emergency fund is for the unforeseen worst case scenario, not for life’s guaranteed expenses (even if you don’t know exactly when they will occur.)
What are Guaranteed Surprises
If you drive you car long enough, repairs are guaranteed. It’s still a surprise since you won’t know exactly when your car will sputter or how much it will cost you. The same goes for home repairs. Some experts recommend saving at least 1% of the homes value each year for this guaranteed surprise. We use separate sinking accounts for what we currently think fits this category:
- Car Repair Fund ($50 per month)
- Car Replacement Fund ($350 per month)
- Home Repair Fund – for repairs only, not upgrades ($100 per month) – will start funding next month
Of course there are other guaranteed surprise expenses, but these three are the only things that currently come to mind. I’m aware that my unexpected surprises may vary greatly from yours. For example, if you have health problems, are an active runner/athlete prone to injury, or work around children all day, then you might consider your medical expenses to be a guaranteed surprise worth saving for outside of your normal emergency fund. If your earn your living on your computer and it’s only a matter of time before it completely dies, then it might be one of your life’s guaranteed surprises worth saving for.
On a Side Note – Sinking Funds With Guaranteed Due Dates and Amounts
Notice the “Guaranteed Surprise” sinking accounts are different than these with specific due dates and amounts. I know exactly how much money I need to save in each account at the beginning of each month to cover the amount due when the due date arrives:
- auto insurance bills due every 6 months
- life insurance bill due once every 12 months
- gift fund for Christmas
Obviously we love our sinking accounts. They are a great way to save for both the known intermittent expenses as well as life’s guaranteed surprises.
Do you have similar “guaranteed surprise” funds? If so, what are they? If not, would you consider creating them outside of your normal emergency fund? Why or why not?
