The Hidden Emergency Fund

In a small independent bank several hours from where we live sits a savings account. That account is in our names. It earns a solid interest rate but does not have an ATM card associated with it. It has about a month’s worth of living expenses in it.

In order to access this account, one of us would have to actually go to the bank and present identification to make a withdrawal.

Why do we have this account at this point? It’s simple. It’s our “hidden” emergency fund for when things go deeply awry.

Why? Here are some reasons we have it.

It’s convenient, but with an obstacle in the way. At any time, one of us could drop in at that bank, pull out the cash, and do with it what we wish. No questions asked. At the same time, there’s a pretty significant obstacle to overcome: getting to that bank. It’s about four hours from where we live.

This is a much different obstacle than that blocking some of our other savings, such as retirement savings. I could get those with just a few mouse clicks, but I’d be paying a steep financial penalty for that opportunity. On the other hand, I could retrieve this money without financial penalty, but it’s tricky to get to. I would have to basically make a special trip (or take a side journey on another trip) to access that money.

That obstacle keeps us from wasting the money. Because we’d have to go out of our way to get it, we’re naturally prevented from wasting this money on a spur-of-the-moment thing. We can’t conveniently get it with a few mouse clicks or a stroll to the ATM or even a trip to the local bank.

This emergency reserve gives us peace of mind. If all else fails and we manage to get through everything we have on hand easily here, we still have that month’s worth of living expenses in the hole if we really need it. Not only is it cash, it’s also security and breathing room. It’s the ability to sleep a little better at night.

Here’s how we set it up.

My wife had a savings account in high school, to which she later added a checking account. This account was in a city not too far from where she lived during her junior high and high school years.

When she went to college, she never closed the accounts. In fact, she used them for her primary banking during her college years. When we eventually combined banking, she closed the checking account but left the savings account intact with the savings in it, intending to eventually pull it out and move it to our own accounts.

We never truly needed it. That cash remains from what seems like a lifetime ago, when my wife and I were both still single and both still childless.

In our minds, it’s something of a loan from our past selves. That money was socked away during a completely different time in our lives, left there for a time when we would need it. That time hasn’t come yet, but when it does, our past selves will have done us a big favor.

This exact same plan could work for anyone, really. Just open an account not too far from a place you regularly visit, like your hometown. Fill it with a bit of cash, then walk away. Keep the account information somewhere safe and let the money quietly build there, waiting for a moment when your life is really in a pinch.

Consider it a loan from your past self, one that you can cash in when you really need it.

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