Back to the Basics Part 2: Savings-Cash Savings

Happy St. Patty’s day everyone! Hope you celebrate it by wearing lots of green and pinching some people. 😉

Now for your feature presentation…


Remember what my emergency funds are for?

What do you think the difference between that and cash savings is?

What’s the Diff?

Recap: Emergency funds are for 6-8 months of normal living expenses if you were to lose your source of income and need to support yourself while looking for another.

Cash savings are for everything else that comes up while you still have that source of income!

What Cash Savings Is For

Car breaks down and needs a $1100 to repair it. Then you break your arm and take a little trip to the ER. And on top of all of that you finally see the laptop you’ve been wanting for 4 months on a killer sale?

What to do? Well, it’s NOT time to break into your emergency fund.

When and How Much

Side note: Until you hit your 6-8 months living expenses mark in your EMERGENCY FUND you may have to use your E-Fund for these kind of “emergencies” you‘d normally use your cash savings for (ok, maybe not the laptop!) But when you’re emergency fund is on its way up beginning your cash savings is a very good thing. It serves as cash for this emergency or that rockin’ sale. That way you don’t feel strapped down and unable to take care of yourself and splurge (every now and then. =)

Our cash savings doesn’t necessarily have to have a limit (but maybe it should because at some point you’d want to invest your extra cash not just let it sit there waiting to be used making .01% or whatever your money market account makes…maybe 3.5% like mine. 😉 But really, it’s just a very nice thing to have.

I say it’d be nice to keep at least $2k-$4k in here for random expenses that may come up and perhaps even more depending on your income and lifestyle.

Freedom

I’d consider this funds existence as the point where we are truly not living “paycheck to paycheck.”

This way you don’t have to break your budget, and you don’t have to dive into your emergency fund in order to get your car fixed or buy your mom those spontaneous flowers you know she’ll love.

Why is getting your car repaired or new tires not considered something to dive into your emergency fund for? Because it definitely will happen, and thankfully we can be ready for it!

This “cash savings” really doesn’t exist for me right now, but I can’t wait until it does. I am putting my main focus on my emergency fund and a few “small savings” funds for certain things I’m wanting to purchase.

Breaking It Down

And on that note, cash savings can be broken down to true “cash savings” and to “specific item funds” where you foresee a larger purchase and specifically save just for that. I‘m doing this for a vacation right now. Technically it’s still cash savings, but I don’t keep it in the same place as the other because I know there’s a difference. It is not really “free” money; it’s going to be spent on something in particular.

Depending on our level of discipline your cash savings could be kept in your checking account or in a savings account for use at a specific time.

Thoughts? How important do you think a cash savings is to peace of mind and living an enjoyable life? Do you separate your emergency fund from your cash savings?