Tracking Emergency Funds in Monarch Money
Managing an emergency fund is an essential part of achieving financial stability. In Monarch Money, users can track their emergency fund in two ways: using categories or goals. In this post, we will explore how to set up and track an emergency fund in Monarch Money.
Renaming the Emergency Fund Account
To start, connect your accounts in Monarch Money and rename the account to something descriptive, such as "Emergency Fund" or "Travel Fund". This will make it easier to identify in the dashboard and transaction history.
Tracking the Emergency Fund using Categories
To track the emergency fund using categories, go to Settings > Categories and create a group for your emergency fund. You can also create a category for your emergency fund or add it to an existing group. Rename the category to something descriptive, such as "Emergency Fund", and add an icon to make it more visually appealing.
Creating a Category for Emergency Fund
In the Categories section, create a category for your emergency fund. Name the category something descriptive, such as "Emergency Fund". Add an icon to the category to make it more visually appealing. You can also create a group for your emergency fund and add the category to it.
Setting up the Emergency Fund Category
To set up the emergency fund category, go to the budget section and click on the gear icon next to the emergency fund category. Turn on the monthly rollover and set the starting month to any month in the past or now. Set the starting balance to $0 if you don't have an emergency fund yet. Set the budget amount for the emergency fund, such as 10% of your income.
Understanding Rollovers
Rollovers can be complex and may not be suitable for everyone. If you're unsure how to use rollovers, it may be best to consult the Monarch Money support team or a financial advisor.
Emergency Fund Budgeting in Monarch
Tracking your emergency fund in Monarch Money can be done using categories or goals. Setting up a category for your emergency fund and turning on the monthly rollover can help you budget for it. Remember to set the starting balance to $0 if you don't have an emergency fund yet and set the budget amount accordingly.
Transfers and Syncing
When making a transfer to your emergency fund, instantaneously or 24 hours later, the transaction will sync into Monarch. You'll see two line items: one leaving your checking account and one entering your emergency fund. Mark both transactions as "transfers" in Monarch.
Why Categorize as Transfers, Not Emergency Fund Expenses
You won't typically categorize transactions in your emergency fund as "emergency fund necessary expenses." By marking them as transfers, you're keeping track of the money moving in and out of your emergency fund without affecting your budget.
Setting a Starting Balance
Set a starting balance for your emergency fund to match your current account balance. In this example, the starting balance is $6,115, and the current balance is $5,615 after a $500 contribution.
Benefits of Categorizing Emergency Fund Expenses
When an emergency arises, categorize the expense as it truly was, not as an emergency fund expense. This ensures clear reporting for expenses like medical or auto maintenance. You can use the emergency fund expenses to cover expenses, like auto maintenance, by clicking the red bubble and selecting "Save."
Using the Emergency Fund Category
The emergency fund category serves as a mental accounting tool, allowing you to manage your expenses and funds without affecting your actual accounts. You must still manually make withdrawals or transfers to your accounts to reflect the changes. Monarch is not actually moving funds, but rather providing a visual representation of your expenses and funds.
Managing the Emergency Fund in Monarch
There are two methods to manage the emergency fund in Monarch: using transfers or creating a goal.
Method 1: Transfers
The emergency fund is not driving the budget, but rather the transfers made in the budget reflect the actual balance of the emergency fund. To match the budget with the actual balance, log into the bank account and move the funds from the emergency fund to the desired category (e.g., auto maintenance). The budget may not reflect the actual move until the balance is updated.
Method 2: Creating a Goal
Create a goal in Monarch for the emergency fund, specifying the desired balance (e.g., $50,000) and linking it to the corresponding bank account. Contributions can be made to the goal, such as allocating $500 per month. The goal will track the progress and reflect the actual balance of the emergency fund. Attach transactions to the goal to show the actual movement of funds.
Tracking Progress
The goal will show the intended contribution amount and the actual contribution made. The budget will reflect the contributions and withdrawals from the emergency fund. The actual balance of the emergency fund can be seen in the goal and in the budget.
Handling Expenses and Withdrawals
When an expense arises, such as an auto repair, use the emergency fund to cover the expense by making a withdrawal. Log into the bank account and transfer the funds from the emergency fund to the credit card or other payment method. Attach the withdrawal to the goal to track the progress of the emergency fund.
Replenishing the Emergency Fund
To replenish the emergency fund, set aside the amount withdrawn, plus the regular contribution amount. For example, if a $1,000 withdrawal was made, and the regular contribution is $500, set aside $1,500 to replenish the emergency fund.
Understanding Emergency Funds and Goals in Monarch
When you need to cover an emergency expense, you may need to withdraw from your emergency fund. In Monarch, you can replenish the emergency fund by contributing to the auto maintenance expense instead of the emergency fund.
Resetting Rollovers
Monarch has a feature to reset rollovers, which allows you to start fresh and not carry over the red bubble into future months. You can reset the rollover in the next month by using the reset button.
Marking Transactions
When withdrawing from the emergency fund, do not mark the transaction as income. Do not mark the transaction as auto maintenance, as this can affect future reports.
Emergency Funds and Goals
Managing emergency funds and goals in Monarch can be a bit tricky, but it's important to keep track of transactions and reset rollovers as needed. Remember that the emergency fund is there to cover unexpected expenses, and you should not be afraid to use it when needed.
Additional Tips and Workshops
Consider signing up for workshops or one-on-one coaching with the creator to help you get the most out of Monarch and achieve your financial goals. Make sure to leave comments or questions below if you have any further questions or concerns.