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Dear Cath

Q. ​I was wondering if you could tell me the difference between the ‘emergency fund’ and the ‘peace of mind’ account? Can it be rolled into one account or best to keep them separate? Kate
A. In a nutshell, an Emergency Fund is the cash fund you build, in a savings account, to fall back on if you have a financial emergency. 

It is a sum of money that is set aside for the “what ifs” in life. Any one of us can have a misfortune befall us. Natural disasters put people in financial binds all the time. Accidents, job loss, death, divorce, and other situations can set us back quickly. Unless you are independently wealthy, your finances will take a hit.
 
Be prepared for the worst with an emergency fund. It does require sacrifice on our part to set up the fund. No one just has money lying around to put in a savings account so we have to create the opportunities.
 
The basis of the fund is to have at least three to six months (I recommend at least 12 months) of income set aside for those rainy days. If you and a spouse work then both incomes are included. But, for some, that is a large dollar amount. Start with something a bit easier. Aim for $1,000, then $5,000. Once you have that $5,000 saved, continue adding to your Emergency Fund until it reaches your goal of three, six or twelve months income.
 
It can take a while to save that much money. Set smaller goals so that the larger one doesn’t seem so unreachable. Begin with saving a certain dollar amount from each pay and have it direct deposited straight into your Emergency Fund Account.

Your Peace of Mind Account is the account where you put the cash for the irregular expenses you have coming up. 

We all have regular expenses: mortgage or rent, food, school fees, petrol etc. And then occasionally we have those irregular expenses, for example braces to make Junior's smile even brighter. 

These are the expenses you know will be coming up, but that aren't a part of your regular budget so they don't really have a category. You'll need to add money to your Peace of Mind Account over time to cover the cost of those braces (which at current rates could be anything from $6,000 - $10,000, and health insurance doesn't cover a lot of it!). 

Without either of these accounts, when disaster strikes and you need an income, or Junior gets hit in the mouth by a cricket ball and needs those braces earlier, chances are you'll need to resort to putting the cost on the credit card and you're back on the very expensive debt cycle.

And yes, they should be separate accounts - they are for very different things and need to be treated that way.

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  • Home
  • Join the Club!
    • Twenty Reasons to Join the Cheapskates Club
    • Gift Memberships
  • About Us
    • Cath's Story
    • Ask Cath
    • Glossary of Cheapskating Terms
  • Forum
    • Current Forum Discussions
    • How to Use the Member Forum
  • Inspiration
    • Getting Started
    • Handmade Christmas Central >
      • Handmade Christmas 2025 is about to start
    • 31 Days of MOO Index
    • Articles
    • Back to Basics >
      • Back to Basics
      • Back to Basics Index
    • Housekeeping Routines
    • Budget Renovations
    • Saving Stories
  • SAVING REVOLUTION
    • 2025 Saving Revolution Index
    • Saving Revolution Resources
  • Recipes
    • Recipe File Index
    • Meal Plans
    • Add a Recipe
    • $300 a Month Food Challenge >
      • $300 a Month Food Challenge
      • The $300 a Month Food Challenge Forum
  • Newsletters
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