Creating an Untouchable Emergency Fund

Emergency Briefcase

For the first time in years, we felt free! We had been working for weeks to scrape up $1,000 to create our very first emergency fund. Finally, we hit our target and it felt so good!

Getting there was difficult. We’d soon discover that staying there would be just as tough.

No Fund? No Fun.

In our first twenty years of marriage, we had an onerous balancing act. Enjoying our current life, while planning for our future one. Our retirement accounts grew, but so did our credit card debt. While we generally found ways to make our finances work each month, occasionally we’d take a punch to the gut. An unexpected car repair, storm damage not covered by insurance, surgery for our dog Cleo.

That usually triggered some sleepless nights.

The First Emergency Fund

Seven years before our Retirement, our church presented an opportunity to learn about financial security by offering weekly classes. Dave Ramsey is an author and radio show host and has built a career in coaching about money. For two months we went to weekly classes, watching videos and discussing our finances. Key to that was Ramsey’s seven “baby steps’ to managing money.

Baby Step 1 – Save $1,000 as fast as you can for an Emergency Fund. This turned out to be even tougher than we anticipated.

We scraped together what we could. $27 here, $53 there. I brought lunch from home and ate it at my desk. We stopped going out for dinner. It was a frustrating slog.

Then my wife Vivian made a bold move. As explained in this story, she gathered up some of her jewelry and visited area pawn shops. It was a courageous and selfless act.

We had the $1,000.

Where did that $1,000 go?

The relief was immense! As the next few months passed and emergencies appeared, we simply tapped the emergency fund to pay. The sleepless nights ended, and all seemed well.

But there was one problem.

Our $1,000 kept shrinking. Yes, we knew after using the fund, we needed to fill it back up. But we kept tapping it and then filling it with a little less. And we kept having ’emergencies’ that really weren’t. Now when we had a real emergency expense, the feeling of relief was replaced by the question “Do we have enough in the emergency fund to cover it?”

Making it ‘Untouchable’

Two years after starting our fund, we met with a financial planner for the first time and shared our problem. Vivian said “We need to find a place where we can get to the money if we need it, but is difficult to reach for everyday expenses.” Our situation was not unique, but we were told our solution was.

We came up with a plan to create a new and improved Emergency Fund. One that we couldn’t touch. At least until we had a true emergency.

Working next with our Banker, we created a new account. We set it up to take a direct deposit from each paycheck. The first restriction – we couldn’t withdraw money unless we physically went into the bank and asked for it.

We were so serious that we set a second restriction. We were not even allowed to check the account balance on-line! Nope. To find out how much money we had, we also needed to go inside the bank.

This was the test for a true emergency. Suddenly we found those emergencies became significantly less frequent, and our emergency fund kept growing. It had been floundering between a few hundred and $1,000. One time we checked the balance just for fun and found we had saved $5,000!

That had us ready for a significant emergency. And it was painless.

How Your Emergency Fund Can Grow

So, how quickly could you grow your emergency fund? Of course it depends on how much you contribute, but even relatively small amounts can add up if you’re able to leave the fund untouched.

Let’s assume you open an account with $100 and you get paid every two weeks. Here’s a look at how your money would grow.

Paycheck Contribution3 Months6 Months1 Year
Growth of Emergency Fund (without any interest)

Once you get that first $1,000 you’ll likely feel relieved as well. And after that, it’s amazing how quickly the money adds up. Whether you choose to restrict access like we did is a personal preference. But for us, creating an Untouchable Emergency Fund was the secret to our success.

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