I have a hard time keeping extra money in the bank (in addition, building on an emergency fund). It's not that I spend it...its that I immediately transfer it either to Fidelity to fund a 401k/roth ira or I transfer it to my daughters MESP (Michigan Education Savings account).

What can I do to stop this habit! Just for reference I am 36 years old, I am married and have 3 kids. I have a 401k with about 200k and contributing around 9%. I also have 3 MESP accounts for my kids that total around 25k, I have a roth IRA with only 5k as I just started this guy. Unfortunatly my emergency fund is only around 5k presently.

Am I putting too much into my 401k? Should I stop contributing to my roth for the time being? Currently I put in around 250 bucks a month into it. I make close to 120k a year before taxes. My only payments are a purchased car payment (around 600 bucks a month) and a house mortgage around 1700 bucks a month.

Note: The company matches half of what I put in up to my contribution of 8%.

What steps can I take to start building my emergency fund?

  • 3
    If your 401k is through your employer and they provide a match, I would definitely keep contributing to the 401k because the match is money you wouldn't otherwise get.
    – Lexi
    Commented Dec 28, 2015 at 14:17
  • The company matches half of what I put in up to my contribution of 8%.
    – JonH
    Commented Dec 28, 2015 at 14:18

2 Answers 2


An emergency fund is about managing risk.

What would you do if your furnace, water heater, and cars all broke down at the same time? Being in Michigan, I can imagine that you wouldn't want to take cold showers, heat the entire house by wood fire, and walk to work every day. So how do you manage this risk? What would happen if you lost your job and couldn't find one for a few months? By only having $5k in the bank in an emergency fund, you are putting your family at risk. If these sorts of things happened, you would be in trouble. You would have to borrow money either hurting equity in the home that you have worked hard to build up, or by some other means.

You and your spouse should sit down and decide what a good emergency fund looks like for your family. A reserve of 3-6 months of expenses is a good emergency fund. This could cover your family in the event of a lost job while you look for a new one. It would also cover you when Murphy strikes and things break down all at the same time.

Once you and your spouse have determined how much you want to set aside, you two must determine how you will get there. Maybe you put in some extra hours at work, maybe you lower the retirement contributions temporarily, maybe you try to pay off the car as quickly as possible then put what you were paying on the car into the emergency fund. It will likely take a mix of things to get you there. You don't have to get it done in a day, a month, or even a year. But once you have that emergency fund fully funded, you will feel better. What may be a catastrophe now will be a minor annoyance with a fully funded emergency fund.

Finally, I'd recommend going to your bank and setting up a separate account for this emergency fund. A separate account specifically labeled as your emergency fund. This way you will think twice before spending it on a non-emergency.

  • 1
    I like this answer a lot.
    – JonH
    Commented Dec 28, 2015 at 19:01

Budget. Figure out how much money you need to keep for your own spending purposes, then figure out from that how much you can afford to move to longer term savings for youeself and/or the kid. Try it for a while, see if it works, adjust how much you can afford to save, repeat. (Actually, you want to further reduce the savings a bit until the emergency fund comes up to a level you feel comfortable at, then increase them to acceptable targets.)

It's OK if you miss or reduce some deposits to the savings plans while you get the emergency fund up to a level you're comfortable at.

If you don't feel you're saving enough after making these adjustments, you need to economize somewhere so you have more money to save, or make more money, or recalibrate your expectations. You can't get a gallon out of a quart container.

  • (For what it's worth, few of us are depositing to a 401k and an IRA simultaneously, since they serve the same purpose. You might want to ask yourself why you're not just putting more into the 401k.)
    – keshlam
    Commented Dec 28, 2015 at 14:36
  • 1
    Well the Roth IRA is tax free when the money is pulled out at retirement no? I guess at the end of the day it's the same considering its taxed initially whereas the 401k isn't.
    – JonH
    Commented Dec 28, 2015 at 14:37
  • Not exactly the same, but similar. Figuring out which is better is nontrivial; it depends on what you expect your retirement taxes to look like. Your employer may also offer a Roth option on the 401k, if it does appear to be a better choice for you. Or you can fund the 401k to 8% to get the match and put the rest into the IRA, but first step is still to determine what your actual savings targets are and set the budget.
    – keshlam
    Commented Dec 28, 2015 at 14:46

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