Last summer I decided that it was time we had a proper emergency fund.

We had a garden variety savings account, but that’s not really the same thing.

We had other assets we could have tapped if we needed to – retirement savings, college savings, credit card lines of credit, life insurance cash value. Again, none of them the same thing.

So I took a small savings account we had with about $2200 in it, called it an emergency fund, and started adding to it.

Over the next year I made some healthy deposits to our emergency fund in the form of a tax refund and some insurance reimbursements.

I added some more modest deposits from credit card cash back checks and Craigslist furniture sales.

And I threw in some downright unimpressive deposits, like the $24 rebate on our dog’s Heartguard medicine.

Together, those amounts grew our emergency fund from $2232 to $11,871.

I’m kind of in love with our emergency fund. I’m still adding to the total (most experts recommend you have anywhere from 3-8 months of living expenses set aside exclusively for emergencies) but I love looking at the progress we’ve made.

If I were talking to myself from a year ago, here is what I would have said to do:

Open a separate savings account and call it an emergency fund.

Emergency money needs to be readily accessible but not too accessible. You don’t want it tied up in CDs or retirement accounts that would be hard to get to or would cost you a penalty to access. But neither do you want it combined with your everyday money – like your checking account – where it could be easily spent on very non-emergency things.

One of our online savings accounts at Capital One 360 works perfectly for our emergency fund. And since Capital One 360 lets you name your savings accounts (you can see how that looks here), calling this account an Emergency Fund reminds me what this money is for.

That’s a little thing, and it’s purely psychological, but it works.

We have another savings account that is attached to our checking account and, in looking at that account register, I see withdrawals for things like my son’s senior trip, patio construction, IRA contributions, and a furniture purchase.

That’s okay; that’s what savings accounts are for. But it’s really easy to pull money out of that account. Having a separate account that lives at another bank and is called an emergency fund says that that money is OFF LIMITS.

Make frequent deposits.

I make several deposits a month into our emergency fund and I make them as soon as any extra money become available. Doing this keeps the emergency fund in the front of my mind and reminds me that increasing it is a goal.

No deposit is too small.

It’s tempting to ignore small amounts (it’s only $25), but when I added up the deposits of $100 or less I made to our emergency fund over the last year (there were 16 of them), they came to over $1000. That’s money worth paying attention to.

So that’s what’s brought us this far. Here’s what’s on my emergency fund to-do list:


I have yet to automate our emergency savings, but I have done it with our college fund so I’ve seen how effective it can be. One way to automate your emergency fund is to have a portion of your paycheck direct deposited there. Another is to schedule a recurring transfer from your checking account to your emergency fund each week or month (tying it to your payday works well).

The recurring transfer is something that could work well for us, but first I want to have a few months of paying for my son’s college expenses under our belt.

Decide on a savings goal.

I don’t have a specific dollar amount in mind for our emergency fund. Right now I just know that I’m happy we have one and it needs to be bigger than it is.

How much bigger is something I need to spend some time figuring out. That sounds like a good idea for a future blog post.

How do you manage and feed your emergency fund?

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There’s a debate that persists in the personal finance world about the right order in which to pay off debts. Generally speaking, there are two main schools of thought:

  1. Pay off debts off in the order of interest rate (highest to lowest) because it makes the most mathematical sense; you’ll pay the least amount of interest this way. Most financial experts I’ve run across advocate this method.
  1. Pay off debts in the order of the balance left on the debt (lowest to highest) because it makes the most psychological sense; eliminating small debts quickly will keep you motivated. Dave Ramsey, probably the most well-known debt guru, is a strong proponent of this strategy.

So which is the best way? My take: the one that works for you.

And that’s not a cop out answer.

As you read the description of those two strategies above, my guess is that one of them resonated with you more than the other.

While both of them (hopefully) made sense, one of them probably felt the most right in your gut.

That’s the strategy to use.

Seriously, don’t overthink it.


Personally speaking, we used #2 – the small balance to large balance method – when we were in aggressive debt reduction mode. Like Dave suggests, it was motivating to me to eliminate small debts and save the biggest balances for last when we had freed up more money (the payments on those earlier debts) to throw at them.

Did we pay more in interest that way? Maybe a bit (I never did the calculations). But I know that we paid way less in interest than if we had started a debt payoff plan and then lost our mojo along the way.

Jean Chatzky quote

Still, I get that it would drive some people crazy to be paying off a 2.9% car loan when they have double-digit credit card debt hanging around. Never mind that math; the real issue is that ignoring the interest rates and paying off debt according to balances would keep them up at night. So, for them, the interest rate method is definitely the way to go.

And here’s something else to keep in mind:

You may not be dealing with an either/or situation. At least not much of one.

Once you gather all your information you may find that some of your smallest balances have the highest interest rates anyway. That was our case. There was a little bit of difference in the order of the debts with the two different methods, but not much.

So what’s the best plan? It’s the plan that makes the most sense to you. The plan that keeps you motivated and moving forward. The plan that keeps you excited about paying off debt.

Once you’ve decided on that, get busy throwing money at whatever debt is first on your list and then put your head down and keep going.

The decision to do that is more important than any method or order you choose, based on what some expert or another has to say.

Question: Have you used one of these methods to pay off debt? What’s worked for you?

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Survey Results

by Julie July 18, 2014

Thank you to everyone who took the time to take my two question survey this week. Do you like seeing the results when you take a survey? I know I do, so I wanted to share these with you. (You can click on any of the charts below to make them bigger.) Blog Topics I was […]

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How Big Should Your Emergency Fund Be?

by Julie July 17, 2014

The following is a guest post. Today’s low interest rates make opening a savings account about as appealing as stashing your cash under a mattress. However, you need to have money set aside for major emergencies, such as job loss, health emergencies or other unforeseen crises. So how big should your emergency fund be? Popular […]

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Imagine Yourself Rich: Who Would You Be Then?

by Julie July 17, 2014

The following is a post by Sam Peters. Dang! The old lawn mower is really on its last legs. Whatever it is, it is likely terminal. It’s missing a muffler, anyway. Now, like an old dog that has begun to snap at the postman and look at the cats with real hunger in its eyes, […]

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A Two Question Survey

by Julie July 16, 2014

I’m popping in to ask if you’d take a minute to take the two question survey below. I’d be most grateful! Create your free online surveys with SurveyMonkey , the world’s leading questionnaire tool. Receive future posts by email Email Address

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Found Money: a 2 Year Update = $43,082

by Julie July 7, 2014

I’m a big believer in little amounts of money. Two years ago, in July of 2012, I wrote about the $318 in proceeds from my garage sale and what I was doing with them. I didn’t realize it at the time but that was the first of what would become regular found money update posts. Since […]

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Happy 4th, Some Housekeeping, and a Found Money Reminder

by Julie July 3, 2014

Happy Thursday and Happy (almost) 4th of July to my US readers. I wanted to pop in to say hi and – for some of you – this may be the first time you have heard from me in a while. That’s because I’ve switched email subscription services, and that shouldn’t interest you at all unless you […]

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Enjoy fireworks and sparkling cash bonuses

by Julie June 30, 2014

Offer details: 360 Checking®: Earn $100 when you open a 360 Checking® account. Sign up for fee-free 360 Checking®, make 5 Debit Card purchases or 5 mobile deposits with CheckMateSM within 45 days and snag a cool $100 on day 50. This has to be your and your joint account holder’s (if you have one) […]

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Financial Thoughts from a New Student College Orientation (with Some Actual College Cost Numbers)

by Julie June 30, 2014

Last week, Tom and I accompanied Grant to his new student orientation at Saint Louis University (SLU). It was a day and a half event, so we drove down on Wednesday evening and back on Friday afternoon. St. Louis is a four hour drive from Kansas City and I was pleasantly surprised to find that […]

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