Statue of Liberty - Liberty Fund

Moving Past the Emergency Fund: The Liberty Fund

In the past, I have written about the importance of an emergency fund many times, and have even given you updates on my progress to save up cash just in case. I have decided that am emergency fund is not good enough for my current situation, and I am saving up for something new I am calling a “Liberty Fund.”

What is an Emergency Fund?

For those of you new around the personal finance world, an emergency fund is a cash savings account that you have “just in case” something bad and unexpected happens. This is not saving for something specific, this is an “oh crap, I need $3,000 right now” kind of savings account.

I suggest keeping it at a high interest online bank like Capital One 360 (formerly ING Direct) or Ally Bank. These banks offer great service and some of the best interest rates around.

Make sure you can get to this money easily, but not too easily. If you have it in a checking account, you might be tempted to spend it. A separate savings account is best for an emergency fund.

Why that is not Enough?

I have realized that saving up for the suggested 3-6 months is not enough for someone in my situation. I am young and mobile and you never know what is going to come up next. I love my hometown, I have a great job and a great boss, but you never know what is going to happen.

What if I find myself laid off and Denver opportunities will not suffice?

What if my car dies and I don’t want to get a loan?

What if…

That is an open-ended scenario. You never really know what is going to come up down the road.

My Liberty Fund

I have decided that a $5,000 savings account is not going to cut it anymore. I have a new goal. I am going to save up $30,000 in my savings account. In my mind, that is a $5,000 emergency fund with a $25,000 liberty fund.

The liberty fund is also money put away for a real need. It is not for fun. It is not for vacations. It is to make sure I have enough money put away for anything unexpected that comes up.

How Much Should You Save?

This is a personal decision that has a lot of implications and inputs. For starters, you should always, not matter what, have a 3 month emergency fund. If you are more conservative, you should save up for 6 months.

When I say months, I mean full month living expenses. Look at your rent, insurance (probably COBRA, which is more expensive than what you pay if you have a full-time job covering part of your costs), food, and other basic needs. Add on even more if you plan to maintain your current lifestyle without any income.

If you want to have more flexibility, freedom, and the ability to adapt to whatever the world throws at you, you should really save up more. $30,000 might seem like a lot to most people. It seems like a lot to me, and it is my goal. However, I was able to pay off grad school that cost a hell of a lot more than that in two years, so saving up shouldn’t be too tough.

If You Think You Can’t Save Because You Don’t Have the Money…

You are full of crap. You need to come to terms with your income and spending situation. If you are really living paycheck to paycheck, what is the root cause? Are you blowing money on cable and a lease on a fancy car and an apartment you can’t really afford? Are you being underpaid? Are you undereducated and need to do something to fix your situation?

The word “unfortunately” is used often, but I am removing it from my vocabulary. I don’t believe in it. Fortune has nothing to do with your financial situation. Hard work, planning, and smart decisions are the drivers behind your personal finances.

Take charge and make your finances work for you, not the other way around.

What is Your Plan?

Do you have an emergency fund or an emergency fund goal? How about a larger liberty fund or savings account for “what if” situations? Please share in the comments.

Image by Abeeeer / flickr

9 thoughts on “Moving Past the Emergency Fund: The Liberty Fund”

  1. John at Married (with Debt)

    Definitely the right move to increase your buffer and self insure against most of life’s unexpected expenses. Our goal, now that debt is paid off, is to save every penny possible and get to $10,000 by the end of the year. At that point I’ll reduce the amount towards e-fund and shift towards retirement investing.

    1. Sounds like a good strategy. I have been heavily investing in retirement accounts as long as I’ve had a job, so increasing there doesn’t make a ton of sense at the moment if I have more pressing savings needs. As long as we are not spending, it is a good option!

  2. I love the conclusion of “you are full of crap” — if you can afford X, you can afford a year’s worth of emergency funding.

    1. Or at least to save a little bit at a time. It doesn’t have to be big steps right away, but everyone can cut costs and save somewhere.

  3. I love the idea of a liberty fund. I’ve always combined it with my emergency savings – but your logic makes sense. No reason to take loans, if you can loan yourself the money.

    1. You can loan it to yourself, or live on it if need be. It just can’t be used for play money. That’s my biggest rule.

  4. Great name! I love this idea of a liberty fund. I have an emergency fund and I am so glad I have it… I’m also amazed at myself for not having touched it yet…. I’ve been thinking about increasing my fund from $6k to $10k. Once I finish my emergency fund I want to build up my FU money, which is like the emergency fund and the liberty fund (ahhh semantics!) but I like the feeling and the thought that goes with it of being able to say screw it, and get out of whatever situation I’ve gotten myself into. Great post Eric!

  5. I have a Liberty fund… but I also call it the FU fund! I work in entertainment so being let go is not a mater of if but when. I have never had a problem finding work after being let go even if its just freelance. Despite this I tend to worry about what if situations and its really just a waist of energy because its beyond your control. But my FU fund has gotten large due to my paranoia. Its over 50k now so I am debating paying down my school loans which are about 30k. I will get a lot better return on my money if I do as those loans have a 4-7% intrest rates compared to the pathetic intrest rate on my savings account.

    But speaking from experience I was let go out of the blue last year and had a hefty emergency fund at the time. And while losing your job sucks knowing you dont have to worry about a thing for a long time makes it bearable and less depressing. I spent the first week of my un employment just hiking and at the beach thinking of what I wanted to do next. Instead of freaking out.

    great site by the way and best of luck with your savings goal!

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