Why you need 2 emergency funds

This guest post comes from Lindy at Minting Nickels.

Do you have an emergency fund?

I have two of them. And I heart them both. Do you want to meet them?

Located in a humble savings account tied to our checking account, Fund No. 1 is our flexible emergency fund. Known as our "short-term savings," it's intended for those smaller emergencies that come up from time to time, like broken garage doors, trips to urgent care, and cracked radiators.

This account is also where we save up for those dry summer months when my college-teaching husband's income becomes scarce.

And when our checking account dips a little too low because we don't budget to the penny, this account serves as our overdraft protection.

We contribute a fixed amount to this fund biweekly. Sometimes it's looking plump and healthy, other times it's in need of TLC. Sometimes we put money in only to turn around and take it out the next week, but that's OK, because that's what it's there for.

In essence, Fund No. 1 is a slush fund -- intended to be our first line of defense in the face of unexpected expenses. It also likes long walks on the beach and candlelit dinners, but who doesn't, really?

Fund No. 2, on the other hand, is not so flexible. In fact, we keep it under lock and key in a tall tower guarded by our own personal fire-breathing kitten. It's accessible, but not everyday accessible.

This fund, known affectionately as our "long-term savings" (we gotta work on these names), is reserved for TRUE emergencies, like job loss or major medical catastrophes.

We contributed to it while simultaneously paying off debt by using our patented 50/50 method. Once it reached the magic (read: arbitrary) number of $10,000, we left it alone.

It's also been used for those OMG-we-need-a-lot-of​-money-fast situations. Which, to date, has only been twice -- once when we refinanced our underwater home to get out of our bad loan, and once when A-Rob's laptop died.

I have dreams of beefing this fund up even more someday. Post continues below.

Why the two-fund system works for us

This system of two emergency funds was developed originally as a way to deal with our variable income (mine is fixed, musician husband's is variable). The slushability of Fund No. 1 helps us when our income dips from one month to the next. And the stability of Fund No. 2 gives us the warm fuzzies in knowing if all else failed, we could fall into its loving arms.

But the thing I heart the most about this system is its compatibility with our hands-off money management approach. Transfers are automatic. Overdrafts are covered. And when those big expenses come up, we know exactly where to turn.

If you're in the process of building an emergency fund, I highly recommend the dual system.

Double funds in action

A few months ago, I had to replace a cracked radiator in my car to the tune of $870. Yeah, it hurt to spend that money. It left Fund No. 1 in a pitiful state when all was said and done.

But honestly, I wasn't too devastated. Partially, because I bought pumpkin-flavored fro-yo right afterward to medicate the pain, but also because I knew another automatic transfer was only a few days away. The system would take over, and transfer after transfer would slowly fill it back up again.

I also knew Fund No. 2 was there as backup if another catastrophe happened right away.

So, tell me, my friends, how many savings accounts do you have? Do you have more than two? Are you in the process of building an emergency fund? If so, how's it going?

More on Minting Nickels and MSN Money:

• Delay 'n' save
• 2012 is not for hiding
• Wardrobe planning
• Try the 50-30-20 budget
• How to build an emergency fund
• Could you weather a layoff?