Do You Have a Hidden Emergency Fund?

I do, and I didn’t even know it.

A couple of weeks ago, I mentioned that we activated ultra-frugality mode due to the expensive mold removal in one of our investment properties. What was once a very cushy bank account is now looking lean… leaner than it has been in years.

It got my wife worried.

To be honest, it got me worried too, I didn’t want to have an overdraft situation on my hands. There’s always a small gap from when mortgage is due on the first and when the tenants’ checks get through the mail. I mentioned to the wife that we should tap the emergency just to make sure we don’t overdraft at the end of the month during this time.

This worried my wife even more. There’s clearly something “not good” about tapping an emergency fund. However, this is exactly why it exists. In a few days, we can probably move the money back.

This exercise got me thinking, how can I assure my wife that it is “okay” to use this emergency fund. The answer, of course is our hidden emergency fund. You don’t have one? Maybe you do and it is so hidden that you don’t know about it.

I’m going to share with you my secret, hidden emergency fund. It consists of:

• Our Home Equity – We have about $100,000 in home equity in our primary residence. I am fairly confident that our bank would extend us a Home Equity Line of Credit (HELOC), but this is something that I should have set up before now. Perhaps better late than never. Yes, using a HELOC is not an ideal situation, but we are talking legit emergencies here.
• My Roth IRA Contributions – As Jonathan from My Money Blog points out, you can withdraw your Roth IRA contributions penalty free. He makes the point that it should be funded before an emergency fund, because it essentially doubles as an emergency fund that is typically growing in the stock market. Again, this isn’t an ideal situation because you’d want that money in the account growing, but for true emergencies it isn’t a big deal. Maxing out your Roth IRA for 10-15 certainly has its benefits, doesn’t it?
• Our Excess Possessions – Remember when I bought a $60 ball? I don’t use it that much. I could sell it on Ebay and probably not miss it. That’s just one item that is lying around my house. Now if only my gargantuan collection of personal finance books had any value.
• Ultra-Frugality Mode Itself – Some may not consider this an emergency fund, but we have a ton of food around the house that we need to eat down. We could probably not buying any new food for couple of months (other than milk, eggs, and produce) and instead use up what we have. In fact, we are doing just that with fairly good success. Money that we aren’t spending is money that is going to go straight into our bank accounts.

I hope when my wife reads this, she’ll realize that we have emergency funds on top of emergency funds. It’s fun to realize that you had more emergency fund than you thought.