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SALTLIFE254638 · May 2015

Good Day everyone. I am a newbie here, well thats quite obvious.. I just wanted a few ideas on plannig for the unexpected you know like car repairs, new hvac, house repairs etc.. when these items come , do you all use a credit card to pay for them or do you have a savings account or emergency fund that you withdraw the funds from, or do you cash flow it. I'm new at this and im not sure what exactly it means to cash flow things. Do you just add it in your monthly budget? also what is the major difference between a savings account and efund? is it necesssary to have both? All of youradvice will be greatly appreciated..

hoffse · May 2015

Welcome!

I think the term "cash flow" probably means different things to different people.

When I say it, I mean that I can divert money that I would normally earmark for other things toward that purchase. So maybe I'm saving for a vacation, but my water heater breaks and I need to buy a new one stat. If I was going to put $1,000 toward my vacation that month, I could feasibly send that $1,000 to the water heater instead and cash flow it, without touching my other savings.

As for the difference between a savings account and e-fund... again, this can mean different things to different people. Conventional wisdom says that an e-fund is money you hold liquid (or mostly liquid) in an account that you do not touch, short of an emergency. Good examples of an emergency include: job loss, a medical situation that requires you to meet your insurance deductibles or out of pocket max, a major home repair (like roof replacement or AC) that may not be covered by insurance, etc. E-funds are not for big screen TVs or vacations - they are for things that really need to be taken care of on short notice that can't be cash-flowed. If you want to take a vacation, you save for that separately, probably in a savings account of some kind. Note that in the event of an emergency, it's always smart to raid your cushy savings first - fixing a broken AC is more important than taking a vacation, even if it's not as fun. The idea is you try to keep your efund intact as much as possible.

For things that you know are going to come up but aren't necessarily routine items, many of us keep a dedicated savings fund just for that. I personally send $200/month to this fund, and that covers us for annual subscriptions, membership dues, taxes on our cars, new tires once in awhile, oil changes, life insurance premiums, annual termite bond renewal, etc. Basically I include everything I know I will have to pay for at least once a year, and then I throw in a few hundred extra for car maintenance. That way our budget isn't derailed whenever these kind of things pop up.

For the credit card question... this depends on your relationship with credit cards. Not one person on this forum would recommend charging a purchase that you will ultimately pay interest on with a credit card. But those of us who chase points (like me), would absolutely charge a major purchase on our cards first to get the points, and then immediately pay it off. A few folks have successfully used credit cards as a form of interest-free financing by taking advantage of intro rates (like 12 months interest free). That's fine, as long as you are absolutely, positively, without a doubt able to pay it off in the allotted time. Otherwise the interest can be outrageous, and many cards actually back-charge you interest from the date of purchase. So if you go this route, just do it with your eyes open.

simplyelise · May 2015

Planning for the Unexpected:

We are currently in debt payoff mode, so our emergency fund isn't our ideal size yet (we'd prefer 6 months expenses) but we still keep $3000 in there as well as $500 now in our car emergency fund. Since we don't own a house or have children and since our health insurance is extremely comprehensive, we could cover most property replacements or emergencies with just these funds. I've never been much of a credit card user (had 1 for 7 years and only ever put gas on it) and philosophically I'm against credit most of the time.

Cash flowing it:

This month, if DH's car broke down and the cost of repair was more than half of replacement (his car is worth about $2100), we'd use the $500 from our car fund, maybe a little from our efund, and then cash flow the rest. That means we'd readjust our budget for the month and instead of putting our money towards our current goal (debt payoff), we'd put it towards the current car need. This month, with 3 paydays for me and 2 for DH, we are planning on $3600 to debt. We've already paid $1000 of that so far, but we'd divert some of the remaining towards buying a car in cash if we needed.

Savings Account/Efund?:

The main need of the emergency fund is that it is easily accessible for emergencies. That means it can't be in something that takes you time to liquidate. Right now, our efund is just in a simple savings account at our bank. When we are able to kick the efund up to 6 months, we might put some in a money market account.

Many of us have a regular efund that is strictly for emergencies and other savings for short-term goals like cars/down payments/home updates/etc. For us, we never want to make our efund into a personal slush account, so we absolutely don't touch it unless there is an emergency.

AprilZ81 · May 2015

Welcome! Those are great questions, and with everything related to finances there is no "right" answer, just what is right for you and your family.

Unexpected Expenses: We try to budget for "unexpected" expenses in our monthly budget. We have a car repair/car savings fund that we contribute to monthly. If we don't use it we roll it over to the next month. For home repairs or other large purchases we use money from our savings account. If there are items we know are paid every year (car registration, Amazon Prime, insurance, etc) we divide the total amount by 12 so when the bill comes in we have the money to pay for it. Don't forget to account for bills that are due earlier in the year you will need to adjust your budget the first time you do it so you have the money in 6 months instead of 12.

Savings vs Efund: This is personal preference but we do both. Our efund is only 3 months worth of expenses and they are tied up in mutual funds and non-retirement stock. We could get to them fairly quickly in an emergency. DH is in a high demand field so we don't feel the need to have more money in this fund. We also have a savings account where we save up for goals (new master bathroom remodel) or keep a cushion for minor repairs and upkeep (plumbing issues, fireplace cleaning, etc.) or other purchases that we didn't budget for but both agree to.

Cash Flow: When you cash flow an expense you pay for it out of a slush fund, a "cushion" you keep in your checking account or by adjusting your current monthly budget so you don't pull money from savings or take away from a goal. Others might have a slightly different way of describing it.

We do not have credit card debt but we do use our cards heavily to help with cash flow and collect rewards points. If we have an unexpected expense we will use our cards as long as we have the cash to pay for it when the bill comes in AND as long as it doesn't cost us more to use the card. Only you know yourself well enough to know if this is a good method for you.

Xstatic3333 · May 2015

Welcome!

For us, "cash flow" means using money from our paychecks vs. using money from a savings account. In general, we cash flow car repairs and small home repairs. Many people have lots of little savings acccounts, i.e. one for home repairs, one for car repairs, one for true emergencies, etc. We just have three-travel, a self-escrow fund for our homeowners insurance because our credit union doesn't escrow this for whatever reason, and the emergency fund. If you do want lots of little accounts, Capital One 360 makes it very easy to do online.

I'd love to do a rotating fund for all of our annual fee items (professional associations, AAA, my liability insurance, car tax, etc.) but for whatever reason H is dead set against it and prefers to cash flow these expenses. C'est la vie. We purposefully bought a house that gives us lots of wiggle room in the budget so that cash flowing is not really a problem.

We recently had two big, unexpected expenses, a huge tax bill and a sudden car replacement situation, that required tapping into our e-fund. Like hoffse recommended, we drained our travel fund and collected all the extra cash flow that we possibly could before taking anything from the e-fund. Building it back up is now our top financial priority.

Erikan73 · May 2015

I have a set amount that I put aside for car reparirs and home repairs each month. It keeps building and when I need repairs, I can take from it. We haven't had any huge bills come up as we took care of many of the major things when we moved into our house. But I use the same plan to put money away monthly for the annual expenses like License Plate renewals, AAA membership, etc.

short+sassy · May 2015

Welcome! I'll admit to not being as MM stringent as most of the other ladies on this board.

I keep a $1000 e-fund, which for most people is probably too low. But I have multiple sources of income, no kids, and a Home Equity Line of Credit (HELOC) that has most of the credit available on it. If a true emergency pops up that is more than a few hundred bucks...like I need cash NOW...I take it out of my HELOC and then pay it back to myself.

But if it is something I can plan out more for...like a vacation or home repairs/upgrades (not emergencies)...then I save towards it. Other than that, until I have every balance paid off except my mortgage, I don't keep a savings account. Once the CC debt is gone, I'll bulk up my e-fund more and that will also be my "savings".

Generally speaking, though, I wouldn't want to keep more than a few thousand permanently in a savings account. More than that, and (to me) the money could be better spent in so many other ways. For example, sound mutual funds would be a fairly low risk way to both save money and increase net worth. It could also be accessed fairly quickly, if needed. But, for me, I sock away most of my income to go toward down payments for real estate investments. Same idea. Getting my money to work for me instead of sitting in a bank. Just not nearly as liquid as mutual funds, haha.

MommyLiberty5013 · May 2015

Hi! Welcome to MM!

A savings account is an account type at a bank. Calling your savings account an efund is just a name that you designate for it on your own. Some people here have more than one savings account, but only one of their savings accounts is their efund. Other savings accounts people have may be for savings up for cars or vacations, etc.. So, instead of calling these accounts savings accounts, they give a specific name to each one like "Vacation Fund."

Anyway, this ties in to your question about saving money for the unexpected, which is the purpose of an efund - pop up/sudden car or home repairs and medical expenses are the big reasons folks have efunds. Another big reason to have an efund is for job loss - what helps you live when you're unemployed and only getting by on unemployment (if you qualify) and/or your spouse's sole income.

The general guideline most of us here abide by is to have at least 3, but generally as much as 6 months' worth of living expenses saved up in our efunds. Some posters have less and some have more. Everyone is different based on their needs, their family sizes, and their comfort levels. There really isn't a right answer, but we ALL agree that having an efund is very important!

Also, as a side note, when we say 3-6 months living expenses - that doesn't include things like manicures and extra clothing. We figure if we have to rely on the efund money, it will be for life things like food, utilities, gas, insurance, and mortgage/rent as well as the things we have to have like medications and cell phones. Efund use means cutting out on the extras so that the efund can last.

Regarding CCs and emergencies...many posters here are fine with CCs and others here are not. But, regardless everyone agrees that if you use them, you need to be paying them off on time and in full each month. Some of us do use CCs to pay for the emergencies so we can get the CC rewards points. Then, when it is time to pay off the CC for that time period, in full (of course) we take the money out of the efund savings account to do so. So like when we had to do $1k in repairs on a car we own, we paid for it with one of our CCs to get the cash back. But, when the CC bill was due, we paid for that $1k of it with money from the efund.

"Cash flow" is a general term that denotes how much money you have coming to you in relation to how much money is going out. So, if you get $100 coming into your account, but also have $120 leaving your account, you have a negative cash flow of $20. If you have $100 coming in, and $30 going out you have a positive cash flow of $70. It's always better to have a positive cash flow. This is what is important to understand when making a budget for yourself. People make budgets to track and maintain positive cash flow. Or, they make them to see why they have negative cash flow and to correct the problem(s).

All good questions!!!

jessica490 · May 2015

Welcome!

dragonstarjk · May 2015

Welcome!

Unexpected Expenses: We do try to 'cash flow' unexpected expenses whenever possible. To me, an unexpected expense isn't something like car insurance or taxes that only comes once a year; those things are budgeted for and not unexpected. Unexpected includes things such as unplanned medical visits, vehicle breaking down, etc.

Cash Flow: I agree, this probably means different things for different people. For us, our savings account are treated as bills. They get funded before any fun money/slush fund. In that way, I am a little different than a lot of people on the board. Basically, whatever is left after paying all the bills AND funding the savings accounts would be consider 'fun money'. When I say we cash flow something, that means that we were able to pay it out of this leftover money without dipping into any of the savings accounts.

Savings vs Efund: We use both of these as well. I am okay with having a small e-fund because I know we could also draw from other savings accounts if we had to. However, it is important to me to have them completely separate. Our e-fund is $1K in a COD. It would only ever be used in a real emergency. We also have multiple savings accounts--one for vacations, one for home improvements, and one for shopping/gifts. We would use these accounts before we would touch the e-fund. I plan to open a $1K COD every year until I have five of them; then I will consider that our fully funded e-fund.

Credit cards: I love to work credit cards for points, so I use several of them and we put EVERY purchase possible on our cards. This is 100% a bad idea unless you KNOW you can be very diligent about paying everything off; I never carry a balance. We also frequently have taken advantage of 0% financing offers to pay for furniture and large appliances, but like @Hoffse said, you should never do this unless you know what the terms are. I would never, ever do this if I was going to have to pay interest.

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