Emergency Fund & Getting a Month Ahead

Is the  emergency fund  part of getting one month ahead?   

Also, should you have more than one month ahead?

Thanks for your thoughts.

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  • There's a lot of grey area in the term "emergency fund."  Most people (non YNABers) take it to mean something like, "If my air conditioning goes out, I can pay for it with this, or if my car breaks down, I can pay for it with this, or if my kid breaks his arm, I can pay for it with this."  And it's all one lump of money, that has all these jobs.  Or potential jobs, there's really no rhyme or reason to it.

    The way YNAB thinks about it (with True Expenses) is "I have a category for covering my air conditioning (house repairs), I have a category for if my car breaks down (auto repairs/maintenance) I have a category for if my kid breaks his arm (medical emergencies)" etc.  So "emergency fund" kind of loses it's meaning.  Another good one is "Income Replacement"

    So, getting one month ahead, (also known as "the buffer" around here) is having a category called "Income for Next Month" (INM) which you put all of this month's paychecks and income events, and then you budget August with that money.  Then accumulate Augusts money in INM and budget it into September, etc. It's a slow process to build up that fund, but if at the end of the month, you have some extra, stick it in INM and the next month, stick a little more in there, and pretty soon you'll have a month's worth of income sitting there, and you can budget one whole month at a time.

    In the beginning, if you don't have a lot of savings built up, you can start with an "emergency fund" which could cover any given unexpected event, but the goal is to start funding individual True Expenses which are more specific, and get rid of the need for general "emergency fund".  If you are in the building up stage of the True Expenses, and the car needs repair, you may have to steal some from home repair, or medical emergency to cover it, but then you can start building those back up.  That's the beauty of this system, Rolling with the punches makes you feel less of a failure with the budget, you simply had changed priorities.

    Oh yeah, and if you do end up saving beyond the one month INM fund, that's where the above mentioned "Income Replacement" comes in.  You can keep building that up to the point you're comfortable.  Some like a couple months, some 3-6 months, you decide what works for you.  Hopefully you'll never have to touch it.

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  • Generally, around here, an emergency fund and getting one month ahead are not the same thing.

    For beginning YNABers, who don't have the savings to split out TEs, or for those who like to have a cushion against the "there is no possible way I could have predicted this," the emergency fund is exactly that - break glass in case of fire emergencies.  For those with smaller savings pools, those emergencies can happen more often/sooner, but are still not part of regular monthly expenses.

    Getting a month ahead, on the other hand, is about getting in front of regular expenses, so that you have the breathing room to figure out what your money needs to do in the bigger picture. When you're not a month ahead, you're often scrambling to make expenses and paychecks keep up, or are just looking at the short term picture. Having a pile of cash equal to what you generally need in a month, before the next month starts, that you can assign jobs to, allows for breathing room to make longer term decisions. For many people, that's a game changer.

    There's a lot of discussion about which is more important to do first. I think the generally arrived at conclusion is build up a small EF, then get a month ahead, then build a bigger EF. But that can definitely change depending on what life throws at one, or how long it will take to do one or the other and whether you're more motivated by meeting goals in the short term or by achieving a giant long term goal.

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  • Doxie Donna said:
    Is the  emergency fund  part of getting one month ahead?

    Yes and no. They’re functionally two different things but your one month ahead funds could be used in an emergency.

    Doxie Donna said:
    Also, should you have more than one month ahead?

    Yes, in your emergency fund. Many like to call this a Loss of Income fund. Basically, to be used if you were to lose your job or source of income while you look for a new job.

    Once you are fully a month ahead, you budget all the income you make this month in the next month. That’s the main purpose of getting a month ahead. It’s easier to budget in whole month chunks as well as the additional benefit of some breathing room.

    After you have that, then you can build your emergency fund as big as you’d like. 3 months, 6 months, a year… whatever makes you comfortable. But like Bruce said, it’s a good practice to make individual categories for known future expenses as well. Like car maintenance, house maintenance, car replacement, holidays, and stuff like that.

    Good luck on your budgeting journey! YNAB has been a life changer for many of us.

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