How I Sabotaged My Emergency Fund: 5 Mistakes & Cures

Common wisdom tells us to have an Emergency Fund with at least three to six months of living expenses. I’m on my way to that savings target, but my efforts have been hit by setbacks. Here’s where I have made mistakes, and here’s how I plan to fix those errors:

1) Easy Access: For the sake of electronic ease, the account containing the Emergency Fund was linked to my primary checking account. Bad move! For sure, that link made it easier to transfer money into the Emergency Fund. But that same e-link made it easier to transfer money out of the Emergency Fund.

Solution: The April 2009 issue of Money Magazine offers this advice: “Your emergency fund - cash you’ll need if you lose a job - must be in a bank account that’s 100 percent safe but needn’t be so convenient; if you get a good yield, don’t worry if it takes a day or two to transfer the money.”

2) Multi-tasking funds: I’ve erred by establishing a one-size-fits all savings account. It’s too easy to use emergency funds for other savings goals or spending binges.

Solution: Vacation account savings, funds for long-term purchases and emergency money should not be housed together. General household funds also need their own home. “Grocery money goes in checking,” according to a great piece featured in Money called: “5 Things to Know About Stashing Your Cash,” by Sarah Max. See also: The 7 new rules of financial security

3) Unreasonable goals: Unrealistic targets are formulas for failures. When I set the savings bar too high, I feel defeated and slide back into bad savings habits.

Solution: I’m downsizing my dreams and targets. I’ll save more if I demand less.

4) Lack of Priorities: When I pay myself last, I often fail to pay myself at all.

Solution: The Emergency Fund should rank above other savings goals, including vacation accounts, holiday gift funds and other savings targets.

5) Emotional loopholes: As a creative writer, I can be very creative with my rationalizations about saving, spending and living. A wide list of so-called emergencies can rain on the Emergency Fund umbrella.

Solution: Effective April 1, I will track my expenses for a two-month period. This daily accounting should provide an honest picture of where my money is going. Also, I will create and adhere to strict definitions about the emergency cash. It might help to have a lowercase emergency fund for household expenses and an uppercase Emergency Fund with cash sufficient for three to six months of living expenses.

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