Emergency Funds For Different Kinds Of Emergencies

One of the key components of my family’s financial turnaround was the addition of an emergency fund.  An emergency fund may be best described as a pot of money used to handle life’s emergencies while helping you avoid reaching for a credit card. In the past it was these small to medium emergencies, and the subsequent credit card charges, that seemed to keep us on the hamster wheel of debt.

Another thing that helped in our recovery was the mental, and even physical, separation of small piles of money. We accomplished this by opening an online savings account at ING Direct that allowed us to open several additional “sub-accounts.”  We identified a number of unique savings goals and created an account for each one – Christmas savings, a vacation fund, orthodontic services for our kids, etc. We also recently divided our emergency fund into logical (to us) separate piles of money.

Specialized Emergency Funds

The inspiration came from a post I read over at Gather Little By Little about creating specialized emergency funds. I liked the idea of dedicating a portion of money to a specific emergency situation, and the idea folded in nicely with an earlier tweak to our financial plan to create a local emergency fund.

In this economy, it also seemed like a good idea to tag some money available to pay for things like the mortgage, COBRA insurance, etc. in the event of a job loss. Sure, the sum of these expenses could be calculated and serve as your goal emergency fund amount, but knowing I have 6 mortgage payments or 6 months of COBRA in an account helps me sleep at night!

Our Specialized Emergency Funds

  • Local emergency fund. This fund represents to the first $1,000 of our larger emergency fund.  Instead of keeping it all in online savings accounts, we like the idea of $1,000 or so saved at a local bank.  We can write local checks for repair services, make cash withdraws, or do business inside the bank branch.
  • Mortgage fund. My goal is to have exactly six months of mortgage payments saved in a dedicated account at our online bank. After watching my mom struggle to stay afloat financially after a stroke and six months of unemployment before disability kicked in, it has strengthened my desire to have this fund in place.
  • Family health insurance fund. In the event of a job loss it could be difficult getting rehired in this economy. So having 3-6 months of COBRA insurance premiums sitting around would make me much more comfortable. In fact, if I ever venture out on my own, this fund could provide insurance for a few months (COBRA or a family health insurance plan I shopped for somewhere like eHealthInsurance.com).
  • Automotive repair/replacement fund. We combined auto repairs and replacement funds (where I will continue sending our car payment after it is paid off this month). When we have enough saved to buy a car for cash, we’ll upgrade my wife’s current car and I’ll drive hers a while longer.  In the mean time, the funds will be used to repair my old van, which has been limping along here lately.
  • Household repairs fund. The remainder of our emergency fund is in a generic account we’ve labeled “household repairs.”  This could cover things like a new hot water heater or a refrigerator repair.

I feel compelled to add this small warning – be careful not to add too many specialized emergency funds, and try not to confuse them with other targeted savings goals you may have.  For instance, my car replacement fund really could have stayed separate from my repair fund, much like a “new house down payment” savings fund would likely be separated from household repairs.

Basically, do what works best for you, but don’t too carried away creating dozens of accounts or you will create more headache accounting for the money in the long run.


  1. You pretty much described our breakdown in emergency savings. Our “Local emergency fund” is kept in a savings account that we do not have checks or a debit card for. We found, for us, that we needed limited access to this money. It makes it just enough of an inconvenience to get to the money, however, in an emergency we can go to the bank and withdrawl what we need.
    About 4 years ago, we lived the “emergency” situation and were so grateful that we had all our debt paid off at the time and had built up a little emergency money. People honestly don’t realize just how important it is to do this. You really do not get any forwarning to an emergency.

  2. I do think this is a good idea, but I’m confused by how much money each of these funds would get each payday in order to bring it up to a decent level. Is there a certain percentage you would recommend?

  3. Sounds great in theory but tough to implement. It’s hard for people to build an emergency fund in the first place, much less put money for specific emergencies that could occur. Also, as we all know, other emergencies outside of that realm could happen too.

  4. @Kim: I would probably prioritize these specialized emergency funds based on the risk in your own life (work in an unstable job, drive a very old car, etc.). Get that $1,000 local emergency fund in place first, as it will handle many of the miscellaneous emergencies mentioned by Craig and Olivia.

    From there, you might decide to allocate 50% of your savings contribution to the next highest priority (which for me is a mortgage fund because it is the thing that keeps me up at night). The remaining 50% could be broken up over the remaining funds, with higher prioritized funds getting higher allocation amounts.

  5. We’re doing the Dave Ramsey Baby Steps and are actively paying down our debt, but long before we got into debt we had created an emergency fund. We never had an actual emergency, and so used those funds for other purposes, but having one isn’t new to us.

    We keep $1000 in a not-easily-accessible money market account for REAL emergencies. We haven’t had to touch it since we started the baby steps. But that’s because we have other savings accounts for those purposes. We’re military living overseas, and are renting out our home stateside. Although we have insurance, we also know that something might come up that needs to be fixed there, and so have created a growing emergency account for that. We also have a cash emergency fund for auto repairs and taxes/insurance, as well as a “general” emergency fund that helps us to cover unexpected expenses that crop up and haven’t specifically been budgeted for.

    It’s really helpful for us to be know that if several things were to hit us at once, we wouldn’t just be taking a hit on our one emergency fund, but that rather we’ve prepared for those possibilities ahead of time.

  6. I think having an emergency fund is a great idea. I have $1,000 in a cd I could cash it at my bank any day of the week (they are open 7 days a week.) I would olnly lose the interest I made off of it if I cashed in early.
    Then I have 6 months living expenses in a savings account (I want to put that into a cd as well.)
    Also I have about $1000 put away for car repairs in case I need them. But car repairs are not really emergencies, they will be needed at some point. The same goes for home repairs, they will be needed as well. I do not have a home repairs fund as I rent. I do have an account I put money into to buy a house.
    Thanks for reminding us that we need to be prepared.
    By the way I m a single mom with 2 boys. I make about $25,000 a year including all sources of income & child support, so savings can be done on any budget. We have no debt and could live about a year if I did not work or recieve child support at all. This is all by the grace of God. He has blessed us so much!