Budget-How do I budget for Emergency Fund Savings?

[Michael Hendry]

On 8 Mar 2013, at 18:41, Richard Lindgren <richard_lindgren at comcast.net> wrote:

> I am currently using the GnuCash Budget. I am able to schedule in both
> income and expenses with no problem.
> 
> When it comes to budgeting a savings for an emergency fund? Should this be
> considered an expense, a transfer (which the GnuCash Budget does not allow
> for) or what?
> 
> How is budgeting for a savings account best handled?
> 
> 
> 
> Richard


Disclaimer: Not an accountant.

I would do this by setting up two new accounts, one an expense account called something like "Emergency Fund", and the other a current asset called "Reserve for Emergencies".

Every month I would plan to transfer a regular amount from the Emergency Fund account to the Reserve for Emergencies account, and when the emergency happens, I would "pay" for it by transferring money from the Reserve account to the relevant expense account (or, at least, enough money to stay within budget for that month).

Provided income is predictable and the budgetary items are well managed, the effect is to build up cash in the real-world bank account outside your accounting cocoon, which is then available to deal with the emergency. If the sums are substantial, you'd be better to make a regular transfer from your current (checking) bank account into an instant-access deposit account, which then takes the place of the Reserve account I've described.

Michael