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How do you pay for unexpected expenses?
In the personal finance community, the resounding answer is with an emergency fund. But what if you could avoid using your emergency fund without breaking your budget? There’s got to be other ways right?
Since my wife and I have been together, we’ve always had a pretty solid emergency fund. It’s part of the foundation in personal finance. The problem was, we hated using our emergency fund! For some reason we didn’t want to part with those hard earned dollars.
Instead we created a built in “emergency” buffer to help us keep our true emergency fund in tact.
We Created a Rollover Fund, Just Like Phone Plans Use
Here’s what we referred to as “the rollover”. We’ve used the Dave Ramsey cash envelope system for years and it’s helped us save so much money. The truth is when you use cash, you spend less money than if you use a card.
At the start of each month we took out enough cash to cover basic expenses like groceries, gas, basic household expenses, and our pet budget. Most months we spent every penny in each of these budget categories. However, every once in a while we had a little left at the end of the month.
The way we saw it, we had two options. We could put any leftover money right back into the budget and put the money toward paying off our student loans or into savings. The other option was to stash it away for later.
If you remember way back to the 90s and early 2000s, phone bills had Rollover Minutes. Nowadays we have Rollover Data. This is essentially what we did with extra cash, we rolled it into the next month.
For example, we took out $150 for gas every month, but we didn’t always spend that much to put gas in our cars, get oil changes or travel. We figured since we essentially already planned to spend the full amount, it was already budgeted for, so why put it back?
It might have been more effective to our end goals to use the money to help pay off our student loans.
However, our budget was pretty tight, and we wanted a plan if we needed some wiggle room. It seemed like a perfect compromise. Our emergency fund remained fully funded and we didn’t take money away from paying off our student loans.
Planning for Emergencies Comes in Many Forms
In the last couple years, this rollover fund has saved our butts a few times, and at other times allowed us to make necessary upgrades, specifically for our cars.
A few years ago my car started producing a cacophony of new sounds coming from the front passenger side wheel well.
At first I was a little alarmed, but like sometimes happens with car noises, it went away so I crossed my fingers and hoped that was the end of it. This is obviously a horrible strategy for handling car troubles, but I promise I’ve learned and do a better job of fixing problems when they pop up. 🙂
But as I dreaded, the noises came back accompanied by grinding and clunking noises and I knew that we needed to take it in figure out the problem.
As the mechanic started rattling off everything that needed to get fixed, I mentally added up the costs, or at least what my car-ignorant brain thought it would cost. It was worse than we expected and as it turns out it cost around $1000 to fix everything.
WHAT!?!?!! Strange, but that’s not the news I was hoping for.
Rollover Fund Helped Out in a Big Way, With a Little Help from Our Emergency Fund
At the time we had $300 stashed away in our rollover. Sadly this didn’t cover all the costs of our broken car, but it kept our emergency fund more intact. As a result, it didn’t take us as long to replenish our emergency fund, and ultimately we experienced a shorter derailment from paying off our student loans.
Another time we desperately needed new tires for the car.
We live in northern Minnesota and it’s a requirement to have good tires in the winter. Otherwise, I’d be stuck in my house a lot, or get a lot of steps in walking everywhere. It turns out tires aren’t super cheap either.
We saved up over $500 in our car rollover fund and were able to replace all four tires without making a dent in our budget or emergency fund! It was awesome to walk in and pay straight cash.
Which is Better, Rollover or Emergency Fund?
I go back and forth on this, and so has our budget. In the last year we’ve moved away from the rollover, and I find myself missing it. Now we use our emergency fund a little more often, but it’s also bigger than it was before.
In addition, we have more room in our budget these days now that we are debt free. Having zero student loans allows us to spare the extra expenses out of our monthly budget without touching our emergency fund. It just means we have less money to add to our savings goals.
Let Me Know in the Comments
What do you think? Which would you prefer? Do you have emergency buffers besides your emergency fund?
I totally remember those rollover minutes. I had a ton of them because I’m not much of a phone talker. Love this idea, just wish we had more money left over, so we could build up the rollover fund.
I never used mine either! The rollover was really a life saver for us when our budget was REALLY tight. And gas was really the only category we had an excess often enough to add up.
The idea of dipping into our emergency fund gives me the shivers. I don’t even like to spend our savings. Trying to cash flow everything is exhausting, though. I love the rollover idea! We try to always have a 0% credit card on hand. That way, we can toss the expense on the card and create a loan for ourselves 🙂
I’m glad to hear I’m not the only one who doesn’t like to use my emergency fund! Having the 0% credit card on hand is great buffer!
We use a rollover account as well. Good tip Jamie!
Thanks Mike!
I really like this idea of a smaller rollover fund to cushion semi-big expenses in order to leave your emergency fund alone. We’ve upped our savings rate now that each month we have significant slush in general, but this would have been a really good plan in the past, just for then mental difference in where the money is coming from.
The mental game is where it makes a big difference! And a big savings rate is always helpful! 😉