How To Build A Reserve Fund

Money mavens always harp on you to stash some money away to stave off disasters such as layoffs or having to blow $1,000 on a pair of tickets to see the Giants play in the World Series for the first time in forever.

Some say you need eight months of savings, while other experts say you’re fine with three. The truth is no amount of savings will maintain a lack of financial discipline, so the amount you need to save depends on your personal comfort level.

Krystal at Moneyville warns you not to let the colossal figure you’ll need in the fund stop you from taking the early steps to get there. She recommends making up a pretend bill – something as small as a $25 fee you’ll need to pay yourself every other week – to get things rolling.

What’s your reserve fund strategy?
Why you need an emergency fund [Moneyville]


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  1. dreamfish says:

    “What’s your reserve fund strategy?”

    To hide under the bed until the problem goes away.

    • Cameraman says:

      Phony kidnapping!

    • lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

      Thank you for the your comment – it made me laugh out loud! I would say this strategy exactly follows my cats’ strategy when the dog hassles them.

    • Loias supports harsher punishments against corporations says:

      1. Determine amount needed for a healthy safety net.
      2. ?
      3. Profit!

    • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

      That’s ridiculous, hiding under the bed….

      …under the bed is the most common hiding spot. Hide in a closet next time, or better yet, a crawlspace. I’m submitting this comment from the rafters. (Don’t look up.)

  2. ryder28910 says:

    I’ve gotta say kudos to Phil for posting a series of really useful articles (like back in the Gawker-days useful…seriously) today. It’s hard to say this without sounding completely harsh, but this is a welcome throwback to the sorts of things that made the site worth reading back in the day, rather than the usual inane garbage that’s generally put out (by, well, mostly Phil) now.

    • Coles_Law says:

      Hear, hear!

    • pecan 3.14159265 says:

      Consumerist Throwback Edition – Now with less HFCS?

    • longtimegeek says:

      I quote you from another thread, “Frankly, I’ve been a commenter on this site for years; longer than the vast majority of you. This site is full of nothing but whiny, entitled douches who deserve to be blamed for their blatant stupidity. It’s amazing how many people actually *deserve* to get called out for their idiocy, and this case is no different.”

      If you really hate the site so much now, stop reading it already.

    • skylar.sutton says:


  3. hills says:

    2 strategies – first is that the paycheck is directly deposited into 2 accounts – a majority goes into our regular acct for normal bills, while the amount for the mortgage + a few hundred goes into another acct – we never see the extra few hundred – it then gets auto transferred into a savings acct.

    Second, is that I have a spreadsheet of monthly bills hanging by my desk – with “extra savings” as one of the items to be checked off every month – If I can reach our monthly goal, then it gets checked off, just like all the other bills – usually transfer into an ally cd so once again, out of sight out of mind, but still liquid if needed for an emergency…

    • bnceo says:

      I currently work for a military branch of the US government and they don’t allow direct depositing to more than one account. So for some of us, this might not be an option. Just an FYI. Good suggestion tho.

      • notovny says:

        If your bank supports automatic repeated transfers, set it up to automatically transfer the desired amount from the direct deposit account to the backup fund account on the day you receive the paycheck. Been doing that for years myself.

        • Harry Manback says:

          I only have DD into one account, but I take $200 a month automatically transferred into an online savings account. I recently bought a house, but my checking account still has $10,000, my online trading account is up to $11,500, and my online savings accounts are up to $2,400. I still worry that I don’t have enough saved up…

        • cheezfri says:

          I have been doing that for years as well. But here’s how it goes for me: Put $25 in savings acct per month (that’s all I can afford). Repeat every month until I have about $300. Withdraw savings because A: car broke down, B: roof sprung a leak, C: every other emergency under the sun.

          So yes, saving works, but not so well for me. The Fates seem to know when I have money and when I don’t. I’ve never been able to save more than maybe $400, which doesn’t work out so well when serious emergencies arise.

          • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

            Of course it would always help to have a bigger cushion no matter where you are financially, but at least the car and the roof didn’t push you into taking out high-interest consumer debt! Sounds like It’s working exactly as intended.

      • Firethorn says:

        If you’re military, you do indeed have the option to direct deposit into multiple accounts, they’re just called ‘allotments’ instead. They pay once a month, not twice, but can still be nice.

  4. sadolakced says:

    My emergency fund is in cash. Since I make most my large purchases online, it removes the temptation to dip into it. (also, i’m a student. So I don’t have that much money to begin with)

    • suez says:

      Dude, have large amounts of cash just lying around is NEVER smart. It can easily be lost/stolen, it isn’t insurable, and it’s not earning interest (however small the percentage is right now). If you want it to be inconvenient to reach, just put it in a saving accound with a bank separate from your checking account.

      • aja175 says:

        Check out It’s an online savings account that you can’t easily touch until you reach your goal.

      • Harry Manback says:

        Why have it separate from my checking account? My checking account is currently accruing 2.5% interest, whereas my savings account is getting 1.5%…

        • Bibliovore says:

          My checking account also pays much better interest than my “high-interest” savings account (which was once 5% but has dropped to 1.15%), so I, too, transferred almost all of my savings to checking. The catch to doing so is that all of the money is then just sitting in the “spending pool,” making it psychologically harder for some people to increase it. For those who think, “Yeah, I can afford that; I’ve got plenty of money in the account,” it can be trickier to mentally subtract an increasing-monthly amount of unspendable saved money from the visible balance.

          Some banks let you subdivide single accounts into different funds. That can help.

  5. Copper says:

    I hide cash all over the house like my grandma. My favorite place is inside the Dumb & Dumber VHS I still have.

  6. Mr_Human says:

    Make more money?

  7. CompyPaq says:

    I make my monthly expenses budget. Then I transfer the parts of my paycheck I don’t anticipate needing into my savings account (minus a $100 buffer that I always try to keep in my checking). If something comes up, I put it on my credit card and transfer the money back before the bill is due.

    Basically, if at the end of the month, my checking account has more than $100 in it, the remainder goes into my savings.

    • CompyPaq says:

      Oh. And my savings account is in a different bank and I generally ignore the amount in there. If I don’t have the money in my checking account, then I consider it non-existant in terms of making purchases.

  8. Blow a fuse? I can fix that... says:

    My reserve fund strategy is… my sofa. I never remove the pillows unless there’s an emergency.

  9. Big Mama Pain says:

    I disagree that the reserve fund should never be for discretionary spending; it’s nice to treat yourself to something every once in a while and not worry about it impacting your normal monthly budget. I find it easier to save larger amounts of money when I can occasionally dip into it, it feels like I am actually saving for a reason rather than dumping it into a “just in case” fund that I may never need. That being said, our method is to set up automatic transfers from checking to savings on our paydays; we honestly never even know the money was there to be missed.

    • frank64 says:

      What happens if just when you spend it something happens that you need it? I would be a little concerned. It really isn’t an emergency fund then. At least you would have splurged on cash instead of credit though. Still not the most conservative approach.

      Best to leave that alone and then save up for the splurge. That helps out a little to because sometimes you see that the splurge wasn’t worth it. It all depends on your finances, and job security though, plus how much the splurge is as compared to your income. The bigger the ratio of splurge to income the worse the impact would be.

      • bnceo says:

        How about making yourself the rule that you can only spend 15% of your saving funds for a really special treat. So, if you want to buy that $1500 TV, you can only do it when you have $10K

        • Know Power says:

          Why not just create a separate fund for spending? I have a bucket for my donations to charity, a bucket for clothes and another bucket that I use to dump extra change. I also ride my bike a lot. Not to save money, well, sometimes to save money, but I enjoy cycling. I take all the money that I would have spend on the train and store it in another bucket. In two months I had 230 bucks in that bucket. I was able to buy a luxury item flat out. I never had to touch my savings or any of that other stuff.

    • Bibliovore says:

      That makes some sense; it’s often recommended for people on a diet to have one meal or day per week when they can ignore the diet, to make it easier to stick to their meal plan at other times. I guess the trick is to figure out whether your net savings are higher or lower than if you just put a little less into savings each month, or had automatic deductions go into two savings accounts each month — one for savings, one as an occasional splurge fund.

      • frank64 says:

        Yeah, mixing up the funds could be dangerous. I would rather have a hard emergency fund and then if you want have another. Don’t mix. Not talking physically, just have a set floor that is what you need for an emergency.

  10. lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

    I use online banking with my credit union, and it is so easy to set up separate funds & transfer money between accounts. So, I have $1000 in my vacation fund, not to be touched, and I use the savings account for other large bills that arrive semi-annually, like car insurance, home owners insurance, and property taxes. Money for fuel oil goes in there, too.

    I figure out how much money, per payday, I need to cover the big stuff, and then transfer funds each payday to cover it. That way, when the car insurance bill comes, it’s not such a big shock.

    I’d like to beef up the emergency portion, though, as $1000 seems a little low.

  11. kwjayhawk says:

    Saved it by moving it to a checking account I had no card to (never activated). $50 here, $50 there and in three months we made it. But I agree with a previous commenter, it’s a little low for comfort. I’d like to see it at 5-10k.

  12. no says:

    A couple hundred comes directly out of my paycheck every month directly into my credit union saving account (where it is isolated from my day-to-day banking at a different place). The money’s readily accessible if I need it, but it’s where I’d have to go out of my way to get at it.

  13. rpm773 says:

    Since I paid off my car last year, I use the “pretend bill” method to move the installment amount into an account. I don’t have a purpose for this right now, but it will serve as a reserve for a future down-payment or to defray repair costs.

    A great way to save is to not let bonuses, raises, or the sunset of a loan payment schedule change how much you spend in a given period. When your inflow increases or your outflow reduces, move that change into savings.

    • FatLynn says:

      In moderation, of course. When I get a raise, I let myself blow the extra money on the first paycheck, then put the increase into savings in subsequent months. You can’t tell yourself to NEVER have fun, or you won’t bust your ass for that raise in the first place.

      • Firethorn says:

        Personally, I allocate ‘fun’ money for month to month. Still, I’m cheap to entertain – $200/month more than covers me, and that includes occasionally replacing my gaming computer.

    • Ce J says:

      I did the same thing. I had my car loan through a credit union with an automatic withdrawal. I kept the automatic withdrawal, but had the money transferred into a savings account. This is my new car fund. I hope to drive mine as long as it takes me to save for the purchase price of a new car (new to me, at least).

    • ceriphim says:

      Similar to what others have said, but I have it set to automatically transfer a percentage of my paycheck instead of a fixed dollar amount.

      That way when I do see more income, the same proportion but more actual $$$ go into savings.

  14. Vandil says:

    I get paid every 2 weeks. I transfer $50 per paycheck into an interest-bearing savings, plus whatever change to make my savings account have a zero-cent balance. It’s adds up to only $1200+ per year, but it’s good to generate that kind of minimal savings cushion as a habit.

  15. C. Ogle says:

    My strategy is, if I can’t afford something now, I never will. Problem solved.

  16. FrankReality says:

    Well, I already have my reserve fund, so I don’t need a strategy to build it.

    The key to keeping it is to have some self-imposed rules on what constitutes proper use and sticking to the rules.

    My “reserve fund” is named an “emergency fund”, which indicates that it’s for essentials such as a emergency expenditure to repair my car (necessary to get to work where I live) or to cover deductables for insured losses such as storm damage to my home. It’s not to get the hot new gadgets or go to the World Series or tickets to concerts. If you want to do that, set up a separate “fun money” account.

    Backing the “emergency fund” is a significant pool of available funds for larger, planned items like cars.

    You also need a plan to rebuild the fund after using it – you can use the same strategy you used to build it. The “pay yourself first” and the automatic deposit of part of your paycheck works if you can arrange them.

    A wise person once said that no matter how much you make, take the first 10%, save it and live on the remainder. Eventually, these 10% savings grow beyond that emergency fund, then grows beyond that into investments.

  17. brownhb says:

    I actually started a large emergency fund with my student loan money. I know it doesn’t entirely make financial sense with the interest, but I also figured that I don’t know when the next time someone is going to give me thousands of dollars to jump start the thing. Also, if the payments get to be too much, I can always throw the savings into my student loan payments to get a big chunk of them taken care of, and start over with the savings account.

    I typically like a $500-1000 buffer in my checking account for fun and small emergencies. Then I’ve been sticking $50 a paycheck into two separate savings accounts automatically ($100/mo each). Once those both get to $500 and my student loan payments start in a few months, I’ll drop it down to $25 a month and let them go. The accounts are for vacations, larger purchases, and small emergencies. I kind of figure I will use one up each year and start again, and hopefully keep the second mostly intact.

    • brownhb says:

      also, the boyfriend and I cat sit and do other odd jobs here and there. We are planning on sticking that extra $40-100 into an envelope to save for new house buys (furniture, patio, etc.).

    • FatLynn says:

      It actually does make sense, financially. I don’t know your exact details, but if you have, say $1000 in cushion at 9%, something will happen where you need it, and you will avoid paying 25% on a credit card.

  18. Murbob says:

    The fact that people have to be told how to save money is pretty sad. Make up a pretend bill? That’s pretty stupid if you ask me.

    If you can’t stop yourself from spending money on things you don’t really need, you’re an idiot. It’s that simple.

    • hills says:

      To each his own – I’m a visual person and I like seeing it on a list that I can check off – that doesn’t make me an idiot (or if you really still think it does, then at least I’m an idiot with a fat savings account)…

    • ceriphim says:

      What’s the difference between making up a pretend bill, creating a fund inside your account, or opening a separate account? They all do essentially the same thing (with minor changes in the details, I know). What matters is they get the job done.

      Why not contribute something worthwhile to the discussion or stop trolling? If people read things here that provide insight into helping them handle their money more responsibly then there’s some value added.

      If you don’t like it go back to /b/

  19. demonicfinger says:

    buy whatever i need and then return it when im done

  20. wackydan says:

    I’ll share my experience in reserve funding.

    First, a little background is in order…

    -Wife and I have no credit card debt.
    -We have no car payments except for a very small motorcycle payment.
    -We have a mortgage which is $792.00 per month – cheaper than what we can rent for here. We bought a fixer upper for about $35K below market value back in 2004. Nice neighborhood, Modest 3 bedroom 2.5 bath house with large garage.

    Note: We could have taken out a $350,000 mortgage and bought a really super duper house at the time, but we chose to live more simply. This is key to having a reserve fund. We also didn’t go right out and try to fix/remodel everything in the house at once or furnish it with new stuff all at once. Six years later, we still have some rooms to remodel, and are still needing more “grown up” furniture.

    I had a great job making really good money and I got an even better job making even more money since we bought the house.

    February 22nd of this year I received notice that I was being laid off. I had 60 days WARN Act notice so my effective last day of employment was April 30th, 2010 and my severance package was two months of pay plus vacation pay. I also ended up getting an award for my performance in 2009, and some additional follow on commission.

    Filed for unemployment and went on my merry way.

    Point is… The day I got laid off wasn’t the end of the world. I wasn’t stressed out financially and felt pretty good about the finances actually. I would really miss the job and the people, but it was nothing I could control. I had a stellar resume and felt that something would come along.

    I took three cross country motorcycle trips between March and September. I never thought in a million years I’d have the time to do so until I retired. It was also nice not to have to check voicemail, email or do conference calls while on my motorcycle “”vacations”.

    As for my reserve or emergency fund…. I didn’t use a separate account or “pay” myself a payment every month to build it… I just saved. That simple.

    I always planned for a fund that would last one year WITHOUT unemployment benefits.

    This took into account the mortgage and utilities, groceries, some eating out (though far less), surprise expenses, and the cost of COBRA. We didn’t renew things like magazine subscriptions, and I reswizzled out cell phone minutes and such to cut back.

    I ended up with a large enough solvent reserve that I could probably have stretched far longer if needed. This is what allowed me to embrace my lay off and enjoy my freedom with the motorcycle trips to see family and friends and ride some roads I’ve been dieing to.

    Most importantly, it allowed me to look at every job opportunity closely and decide if it was the right one. I wasn’t tempted to take one that was seriously low balling me because we were secure.

    What else happened? Well, my wife became pregnant shortly after the layoff and had complications with the pregnancy resulting in a delivery at 27 weeks gestation. This means our newborn child will be in the NICU at the hospital for the next 60 to 90 days… total cost should be between $900k and $1 million dollars. Now do you see why it is important to have your reserve + reserve for surprises?

    If we had been living paycheck to paycheck because we just had to have the newer larger shiny house and had to drive brand new cars every two years, our story might be far different. It is one of the reasons I do not have a lot of sympathy for many, but not all that are losing their homes during this time.

    The job market has been terrible. Utterly FUBAR. I finally have potentially found new employment and am told by the hiring manager that I will have the offer by Wednesday or Friday of this week. The offer is going to be pretty much what I was making in my previous job.

    It all does work out in the end… It does take some luck, but what you do leading up to events that force a change in your life will determine just how lucky you need to be. I chose to make my own luck

    • Bibliovore says:

      Good for you, and best wishes for your newborn and with the new job. Congratulations, too, for having figured COBRA into your financial planning, which I hope will cover enough of those preemie birth expenses to make them manageable.

  21. jp7570-1 says:

    In this economy, you actually think people will only be laid off for 3 months before finding work? Eight months is more realistic, but there are some out there that have exhausted their unemployment benefits (99’ers their called, as in 99 weeks unemployed).

    A better rule of thumb I’ve heard from employment search firms is to expect to be out of work one month for each $10,000 you were making in salary. (If you were making $80,000 a year, it would not be unreasonable to think you could be out of work for 8 months.)

    Having said all that, no one rule applies to everyone. While the “official” unemployment hovers aroun 9.5%, the actual number is more than double that – taking into account those that are no longer eligible for unemployment insurance, and those that have simply given up trying to get a job.

    So, the lesson here is plan for the absolute worst-case scenario. Calculate your basic payments (mortgage/rent, utilities, food, car, etc.) and save as much as possible. Ideally between a 9 to 12 month emergency fund.

  22. J. T. says:

    I personally suggest one month of savings per % of unemployment. Unfortunately, I only managed to get six months saved up before I got laid off on Friday. Still, I’m glad I have that much, as it’s enabled me to actually feel liberated rather than stressing out over finding work.

    My savings gives me plenty of time to find work. In the meantime, I get my first “vacation” in two years.

  23. Sarcastico says:

    You can never have too much money in reserve. Have a stash you could live off for the next six months liquid in a money market account. Keep a ladder of rolling stashes in a series of CDs that mature every six months. Start by buying ever increasing maturities like a 6-month, 12-month, 18-month and 24-month at a particular moment when you are flush with cash. Then as each CD matures, roll it into a 24-month CD. As long as you don’t need to access the cash when it matures, it continues to roll into a 24-month CD, but you always have the option to cash in a CD every 6-months to replenish what you may have spent from your money market account.

  24. Sarcastico says:

    Easy, don’t have a need for $1000 to drop on a few hours of entertainment that the World Series that comes around every year and you can see better and cheaper on TV.

  25. sufreak says: has been helping for a couple years now. Best budgeting tool I’ve used.

  26. longtimegeek says:

    My strategy was that every time I got a raise, I got to keep half of it, the other half went to the savings fund. That fund was a true lifeline when I lost my job in November of 2008 and I had to get by on unemployment for 5 months. Since I didn’t have to incur any debt during that time, getting it back up to level it was before I tapped it was then the number 1 priority when I got a new job.

  27. Beaufoux says:

    Your reserve/emergency fund shouldn’t be more than $1,000 with debt. Paying off debt (besides long-term mortage, etc) should be priority. Once immediate debt is paid, a goal for a reserve amount should be $20,000 – 50,000. I understand reserve to include investments that can be made liquid in a short amount of time.

    Some may balk at the amount, but it’s necessary for the serious issues that may arise. Primarily, medical issues can be the biggest sudden drain. Many a friend were financially solid until they, or a family member got whacked with medical issues. Or, you got to pay off a made man to knock off an “associate. Whatever the reason, You gots to have some serious cash on hand when able.

  28. Robofish says:

    Currently as I’m paying down debt my reserve is to have at least one full month’s rent stashed away. Since there are two of us living together that actually is two months rent for me

  29. HogwartsProfessor says:

    I have nothing right now, but I’m supposed to get a raise next month (desperation money – they’re afraid I’ll bail and honestly, if I could I would). My strategy will be to sock that away and pretend it’s not even a part of my pay. I’m also trying to sell stuff off, both to get money and reduce the amount I’d have to move, should that come up.

  30. MaxH42 thinks RecordStoreToughGuy got a raw deal says:

    That’s ridiculous, hiding under the bed.

    Under the bed is the most common hiding spot. Hide in a closet next time, or better yet, a crawlspace.

    • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

      No wonder this didn’t show up as a response….

      Broken comment system iz broken. :(

  31. mandy_Reeves says:

    change. It’s never more than 40 dollars a month, but it’s nice to be able to use it to get a pizza or chinese buffet or starbucks and a small item at the mall, or meds for the dog, or meds for myself or the hubby during flu season without dipping into rent money or bill money.

  32. dolemite says:

    I’ve had good luck with Wachovia’s Way-2-Save. Each time you make an online or debit card transaction, they take $1 from checking and put it into savings. On top of that, you can put up to $100 a month into it as a (payment). It adds up pretty fast.

  33. jsfetzik says:

    I have two online savings accounts in addition to my main account. My paycheck goes to the main account on the last day of the month. Automated transfers move money to the other two accounts on the third of the month. One of those accounts is meant for reserves/emergencies, the other is for “fun stuff”.

  34. sassypants says:

    The only thing that has worked for me is “hiding” money from myself. My paycheck is direct deposited into 2 checking accounts and from there, automatic transfers to 1 additional account. I have 1 primary account for daily use, a vacation account, and an emergency account.

  35. TPA says:

    “Either you live below your means now, or you will be forced to live below your means later”

    I can’t remember who said it, but they’re entirely right. I’d much rather have control over it now than find myself in a jam later.

  36. McNuggz says:

    At first I was putting XXX amount of dollars into a spending account while the rest went into my bill account and I tried to accumulate money in the bill account. That didn’t work to well. What I found to work the best is that I buy everything on my credit card. I know how much my credit card can be every month and I’m always around that number. Sometimes over, sometimes under, but its always paid off every month. I never once put more on the card than what I could pay off. I like having 3 main bills per month. Rent, power and credit card. Almost all my bills go on my CC. I pretty much know a rough number in my head of how much I have put on
    my card at any time.

    Since I know my 3 bills cost, I know how much I can put away each month. which right now is about 1/3rd of my take home pay. At the right time of the month, I move that to my “back-up” checking account. I keep 3-5k in my backup account that I can access the same day. If I get more than that, I put into a savings account that will take a few days for me to get. If come across a large sum of money, I put most of it away. I live well below my means, but I still treat myself to things. If I drop 1k on a once in a lifetime opportunity, it doesn’t really bother me anymore because I have about 18-20k of liquid assets saved up.