Should You Have More Than One Emergency Fund?

Last week we focused on building an emergency fund that would tide you over for three months in the event you lost your job. This is something everyone should have in place, particularly as you can never rely on having a job for life anymore.

However is this the only emergency fund you should have? It is certainly the most essential one, but it may be prudent to have another one in place too. The main reason for your first emergency fund is to cover the monthly bills if you were ever to lose your job. It also gives you some breathing space while you look for more work.

It is not designed to provide you with a fund you can dive into if something happened to your home. All properties need repairs and they rarely come at a time that is convenient. Let’s say a winter storm blew through and took half your roof with it. Your insurance may pay out for this, but if the roof was aged and on its last days anyway, they may not pay out. Even without a storm you could suddenly be faced with a roof that is in such poor condition it needs replacing as a matter of urgency. Would you be able to lay your hands on the cash you’d need?

Your main emergency fund would be tempting to dip into at a time like this. If this was all you had you might need to do this and then work hard at building it back up again as quickly as possible. However if you had the chance to create a second fund to begin with, you’d have a reserve of cash to dip into.

Most people realise that their first fund should be instantly accessible. If you do decide to create a second fund as well, as mentioned here, you will realise that you should be able to access this relatively quickly as well. There are options with regard to where you store it though; while instant access may not be as essential here, you’d still need to get your hands on it within a few days.

Clearly you want to be able to get a reasonable return on the money so you can let it build and grow all the while you don’t need to use it. It’s worth checking out the latest accounts and options available so you know what your options are.

We’d still advocate the need to prioritise your most important emergency fund first. If you can do this you will know you have coverage in case you did lose your job. Once that need is taken care of you can focus on the next task, which is to set up another fund as described above. It may take some months to complete both funds but once you have them organised and available to draw on if needed, you will have the peace of mind you were aiming for to begin with.