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January 24, 2023

Greetings Thrifty Friends,

You've heard financial experts say it, you've heard me say it... you've probably heard your dad say it; you have to keep six months worth of expenses in an emergency account somewhere. That is in addition to long-term savings like a 401(k), an IRA or CDs.

An emergency fund should only be used for, well, emergencies like; an urgent repair, a medical expense, or heaven forbid, unemployment. That's where we get the 'six months worth of expenses' rule. If you find yourself without an income you won't have to worry about covering your rent or mortgage, insurance, utilities and car payment while you look for work.

But how do you keep a healthy, well-padded emergency fund when expenses constantly pop up? The first trick is to fund it regularly. I have a couple hundred directly deposited from my paycheck into my emergency savings account every month. That is part of my budget. I never even see it. This way the account is constantly growing, albeit slowly, instead of contributing to it in bits and chunks.

The other secret is to never use it. Please scroll down for more.

Keep pinchin' those pennies,

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I have had expenses come up, just like everyone else, but I have always been a little paranoid about dipping too deeply into my emergency savings account. So if I can avoid taking money out of it I do. I do this by finding alternative ways of paying for big expenses whenever possible.

One good example was about 5 years ago when I replaced the sump pump in my basement. This was one repair I didn't want to go cheap on, so I sprang for a top-of-the-line, 1/2 horsepower pump with a battery backup that cost me about $2,500. You would think a repair like this would be the perfect thing to use my emergency fund on. Especially since I'm not likely to replace a sump pump more than once every 15 or 20 years. But by calling around a little bit I found a company that offered me 18 months of zero percent interest if I financed the equipment and installation through them.

In order to pay off the the loan within 18 months I had to divert some of the money I was directly depositing into my savings account, so it stopped growing for 8 or 10 months, but the important part is I never had to withdraw from it. And that means I never had to replace any funds.

I do the exact same thing with auto repairs, and since I drive a 16-year-old vehicle, repairs are inevitable. But by taking advantage of zero percent interest cards, I can finance repairs for free without ever having to dip into my savings account.