Never Spend Your Emergency Fund Again
The Jesse Mecham Show
YNAB
4.7 • 1.1K Ratings
🗓️ 12 October 2020
⏱️ 4 minutes
🧾️ Download transcript
Summary
Jesse lays out a strategy for managing unknown expenses without continually dipping into your emergency fund. Traditional budgeting advice tells you to create an emergency fund for dealing with unforeseen expenses, but often people end up using their emergency funds for irregular, but foreseeable expenses -- things like new tires, new cars, A/C repair, etc. They don't happen regularly, maybe only every several years, but if you look into the future you know they are coming.
For YNAB'ers that are following Rule #2, Embracing Your True Expenses, these aren't true emergencies, and they are already covered in the budget. In the rare event of a true emergency that catches you off guard, Jesse recommends that rather than spending money out of your global emergency fund, set up a new category for that expense. Maybe it's a house repair that you had never encountered before. Make a new category for that type of repair, and start a new sinking fund for it like you do for other Rule #2 expenses.
Over time, this strategy will give you useful data about your true expenses, so that you can be more prepared for next time.
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Transcript
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| 0:00.0 | Hello, Wineabbers. My name is Jesse Meekham, and this is podcast number 449 for Wineab, where we teach |
| 0:09.8 | you four rules to help you stop living paycheck to paycheck, get out of debt and save more money. |
| 0:14.9 | Today I want to talk about what it might look like if you used a little bit of a tactic in the software. |
| 0:20.1 | I don't talk about the software per se very often but I wanted to give you a little tip today. |
| 0:26.0 | A lot of times when people are following, Wynenevers specifically, are following Rule 2, they're embracing |
| 0:30.6 | their true expenses, it means that they're looking ahead and they're trying to find |
| 0:34.4 | those larger, less frequent expenses and then they're breaking them up into manageable monthly amounts. |
| 0:40.3 | So Christmas, if you're going to spend $1,200 a year, easy math. You would take the $1,200, |
| 0:45.2 | you would divide it by 12, and then you would give yourself a $100 monthly bill. |
| 0:49.5 | You could do the same thing for an HVAC repair. You can do the same thing for your Bosch dryer, not recommended, and replace that thing. So you're always |
| 1:00.3 | looking ahead to those larger amounts and then you're saying okay what |
| 1:03.5 | would I need to save or set aside these are traditionally called sinking funds and |
| 1:07.2 | you put them right into Winob and it's your category where you build up that money |
| 1:10.3 | over time clear what a lot of the time, traditional advice would be you have an emergency fund and that also makes good sense, right? |
| 1:18.7 | We're living in a bit of an emergency year. |
| 1:21.2 | So you would say, well I'm going to have three to six months of |
| 1:23.6 | expenses saved for an emergency. What happens is you have wine abbers that |
| 1:28.5 | don't have emergencies anymore and the reason is because they're following rule too. |
| 1:33.3 | They're looking ahead and they're thinking about those expenses that will come up. |
| 1:36.3 | They're true expenses and they are embracing them with love, affection, and money because you need |
| 1:40.9 | that third thing more than any other. |
| 1:43.0 | So, when you are not having emergencies anymore, |
... |
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