I mentioned in my Income and Expenses for July that I have a high deductible insurance for my home.  Hindsight is always 20/20, and I would have fared better this first year getting a lower deductible, but I will work the math out later to see how it compares in the long run.  However, having to shell out $5,000 in cash brings up the important topic of Emergency Funds.

I have referred to needing an emergency fund, but I haven’t yet talked about this topic on the blog yet.  When I read financial articles about emergency funds they seem to be this nicely wrapped up basket of money that sits around in a savings account waiting for your call.  I am not going to sit around and say the typical advice that you need 3 to 6 months of savings, because every situation is different.  If you have multiple streams of income, very low expenses, and no debt why would you really need that much just sitting in cash?  Besides, why would you want this money only sitting in, at worst a savings account, or at best a 3% interesting checking account?  But really, what is the “3 to 6 months savings” based on?  Your income?  Your expenses?

Although the reference to layers makes me think of Shrek explaining to donkey that Ogres are like onions in that they have layers, it kind of can work for emergency funds as well.  Your outer layer can fend off scary situations being in cash, that quick instant liquidity in time of need.  But inside, you are more mature and developed than what can be seen on the outside.  You may utilize a Health Savings Account, Brokerage Accounts, and ROTH IRA’s to expand your emergency fund if needed.  If you don’t like onions then maybe you could go with a layered lasagna instead.  Just picture whatever layered food will keep you interested enough to continue reading. Continue reading →