Building emergency savings is like eating your broccoli, only less satisfying

Piggy bank family under red umbrella

I'm starting to wonder why I'm working so hard to build up a large emergency savings fund.

My goal had been to set aside $10,000, which would easily cover three months of expenses.

(If I had a full-time job, I'd go for six, but since I'm a freelancer, I can't really get fired. And three is enough of a cushion to make me comfortable.)

After I had to take out money for car and home repairs, I'm still more than halfway toward my goal.

Whenever I get a check, 10% immediately goes into the emergency savings fund, which is kept in an American Express Bank online savings account.

I also throw 10% of that check into an ING Direct savings account. This is money earmarked for taxes. (Since I'm self-employed, I make quarterly estimated payments.)

Another 10% goes into a Discover Bank online account that serves as a holding spot for funds that will eventually be sent over to my Vanguard retirement funds.

That's three online savings accounts, all of which pay less than 1% APY.

Amex offers a measly 0.75% APY, ING pays 0.80% and Discover is down to 0.85%.

Now I figure two of those savings accounts are only temporary homes for the money, so interest isn't as big of a deal.

But if I made it to $10,000 in my emergency savings account, I'd earn just $75 a year in interest.

That's not even enough for two tanks of gas.

Which makes me wonder why I'm working so hard to make it to $10,000.

Sure, it'd be nice to have the cash to buy outright a decent used car should my trusty Honda Civic die. But that's a lot of money sitting there just to earn me a couple of bucks in interest.

I can see why it's so hard to save when that money could be doing something else, like contributing to equity in a home or earning stock dividends.

I've always secretly wanted a Coach leather briefcase, but, for someone who works at home, that isn't really necessary.

What incentive do I have to save the money instead of using it?

Is this why the Fed has vowed to keep interest rates low?

Don't save America! Buy, buy, buy our way out of this recession.

But isn't that how we got into this mess in the first place?

I know the importance of the emergency savings fund.

Because I had emergency savings, I didn't need to charge the car or home repair to my credit card, where it'd accumulate 14% interest. So I know I need to have money socked away.

Yet I needed a compromise.

So I'm not shooting for $10,000 anymore. Instead, I'll stop at $7,500, and then push that 10% of every check toward retirement so I'm saving 20% of every single payment for my golden years.

The money will be doing a lot more for me there.

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