The Difference Between a Money Cushion and Emergency Fund

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For most people saving money may seem like a low priority. Our brains are usually too tuned in to the instant gratification of spending, but having a money cushion and an emergency fund are an important part of your financial well-being.

Wait a minute, I need an emergency fund and a money cushion? WTF. I thought I just needed an emergency fund. 

That’s right, I said and. You shouldn’t just be sticking your savings away into one giant account (as I've learned throughout my twenties.) Let’s look at the differences between a money cushion and an emergency fund, as well as some tips for how to jumpstart your savings. 

The Difference Between a Money Cushion and an Emergency Fund (+ How to Start Saving One of Each)

What is a Money Cushion?

Do you ever have those months where no matter how hard you try, you just always manage to go over budget? Maybe it’s a fun-filled weekend of “treat yo self” spending or a higher-than-average utility bill that leaves you scrambling to make up the difference. These instances are where your money cushion comes in!

Your money cushion isn’t “play money” – it’s a cushion to help fill in the gaps in your budget whether you've been naughty or legitimately just got blindsided by life. That being said you shouldn’t be relying on your money cushion to get you through every month. (If you are, it may be time to re-evaluate your budget!) Keep your money cushion in a separate savings account so you are discouraged from treating it like spending money, but you can also have your small “money cushion” linked as the overdraft bank account to your primary checking account.

How much should be in a money cushion? I recommend anywhere between $200-$500.

The Difference Between a Money Cushion and Emergency Fund

A money cushion doesn’t have to be thousands of dollars – in fact, I think it should be the opposite. You want your money cushion to be easily replenishable as you use it, so try keeping it a lower amount. This serves two purposes: first, it keeps you responsible for not overusing your cushion. Secondly, it makes refunding your money cushion easier.

Think of your money cushion almost like a line-of-credit to yourself. If you use it, you’ve got to pay it back! Future-you will thank you.

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This is different than an emergency fund – your savings account for the unexpected financial twists and turns of life that have larger ramifications than a runaway bill or shopping spree. Most experts say that your emergency fund should have around 6-9 months of expenses – that means rent, utilities, and groceries. We're talking job loss, health problems, loss of home and/or auto. These are definitely expenses that your money cushion wouldn't be able to cover. 

Saving for  Your First Money Cushion

My spending used to be all over the place: $70 a month in one category, then I'd only spend $7 the next month. There were a lot of things I bought only once a quarter or so, and I was budgeting for it, but I wasn't really putting that money anywhere. I decided to try the money cushion method.

This is different than an emergency fund, which everyone should have.  A “money cushion” is an amount left over in your account to cover those little expenses that come every so often. I'm not talking about the money left over after you have paid bills and put money in savings. Your money cushion needs to have more structure to support you, see?

Having used Learnvest for over a year now I have a wealth a data, and cute, colorful graphs that show me how much I have spent on a given category over a period of time. They even conveniently give you an average dollar amount spent for the category, which helped me plan. I took this information and set aside the actual amount in my monthly budget. It doesn't have to be big enough to cover the desired expense in one swoop-the important part is that you are saving for these items.

What if you don't have historical data? Think about what you are going to need going forward. I know exactly how much it costs for my monthly prescriptions, my dog's food, to get a haircut. I take these amounts and divide them by the number of months they regularly occur.

For example:

  • It costs $33.00 for a bag of organic dog food for Murray. The bag usually lasts about two months.
  • So I take $33.00/2=$16.50

First, I set aside $16.50 in an envelope/jar/safe place (in cash and in hand, because that is the way it works best for me. Otherwise I will spend the money if it is in my checking account.)

I ended up taking a small amount of money out of my emergency fund to help balance out the difference and avoid putting the purchases on my credit card, and now I start fresh saving next month.

There are several ways to implement and use a money cushion, every blogger I know has a different method and they all work, just so long as you have some variable money is the important thing. It's vital if you want to stay on track and avoid massive overages.


Other Ways to Start Saving a Money Cushion

It’s okay to start saving small – in fact, one of my favorite ways to start building your money cushion is to hack your budget. Setting new savings goals can also be a great reason to finally start your side hustle! Check out this post for some of my other tips and tricks for building up your savings. There are many online apps that “save the change” from your expenses that make it easy to save up a money cushion – this is THE place to start, in my opinion. See our picks here. 

If you want to learn more about saving for an emergency fund, click here or here. 

Starting from scratch or simply in need of a financial re-boot? Click here to enroll in Financial Best Life's FREE 7-Day Money Cleanse!

You'd be surprised how many people don't know the difference between a money cushion and emergency fund! Do you? Check out why both are important (and tips on how to start saving!)

    • Lisa
    • January 19, 2017

    Great idea! I don’t have a separate money cushion per se. Instead, we just budget in a “buffer” of a couple hundred in our budget every month to take into account any purchases we may have throughout the month that doesn’t fit into a normal budget category.

    1. Very smart! Always fascinated by how people do their budgets. 🙂

    • Giulia Lombardo
    • January 17, 2017

    Really helpful post thanks for sharing, in this moment I’m rebuilding my emergency fund for unexpected bills:D

    1. 6-9 month expenses for EF, maybe $500-$1000 for money cushion

    • The Wallet Moth
    • January 16, 2017

    Great article, Lauren! I’ve always had a ‘money cushion’ that acts as a buffer for any unexpected costs (like my car breaking down this weekend!), but a solid emergency fund is definitely next on the list.

    1. Thanks! Up until recently, the EF was my money cushion and I was killing myself with guilt any time I dipped into it. I knew it was time to “reformat” the way I was thinking to make things both easier on myself and the way I do my finances.

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