This is a guest post from Gail Vaz-Oxlade, the host of the popular Til Debt Do U$ Part on CNBC (Saturday nights at 10 and 10:30). Gail is a columnist for MoneySense, Chatelaine, and Zoomer Magazine and blogs daily at her website, where she also offers terrific tools people can use to dig themselves out of the hole. Gail’s latest book is Debt-Free Forever.
Despite the best laid plans of mice and men, there are times when the unforeseeable just waltzes into your life and poops on your budget. Sure you have a budget of $400 a month for groceries. But then:
- Your brother and sister-in-law and their four kids came for a week.
- Or when you least expect it, your best friend announces she’s getting married and you have to find a way to pay for a $200 dress.
- Or you find out your kid is failing math and the only way to pull his butt out of the fire is with a tutor that’ll cost you $60 a week.
Friends and family can be your worst enemies when it comes to staying on a budget. It can be a real struggle not giving into to the pressure to go out for dinner, see a movie, or come to a shopping-party where you’ll be expected to lay out some dough. They aren’t trying to mess up your budget, they just want to have fun. And it can be frustrating to watch your pals say they’ve trimmed their budgets even as they head out for a day of mall grazing.
The Curveball Account
One of the best ways to cope with life’s constant financial challenges is to have a Curveball Account. This isn’t your emergency fund, which you need for major disasters. This is just a slush fund from which you can draw when unexpected expenses come whizzing at you at 60 miles an hour and you don’t want to throw your budget totally off track. Whether you deposit a little or a lot into this account every month, it can be a real budget-saver.
And if you move all the money you “save” by shopping smartly into this account right after you haven’t spent it, it’ll grow even faster. So the next time you save 50¢ on a coupon, go home and drop that 50¢ into an “I’m-a-Smart-Shopper Jar” and then deposit all those savings to your Curveball Account at the end of the month.
If your slip is minor, you can always cut back on something else in the short-term to get things back on track. So that’ll be less coffee or you’ll take a pass on a night out with the boy so you can rebalance. But if the expense is a whopper — a major car repair when you simply haven’t accumulated enough in your car-repair account — you may have to borrow from your emergency fund to pay the bill. Then you’ll have to trim your spending throughout your budget so you can crank up the automatic transfers to your emergency fund to get it back to where it was.
Short-Term Cutbacks
Over-spending may mean you’ll have to balance by under-spending: All those things you routinely buy each day may have to go. Here are some other ways to compensate for over-spending:
- No Spend Days are becoming increasingly popular among the frugal set as a way to focus on where the money is going by eliminating the automatic itch to spend. Assigning one day a week as a no-spend day may wake you up to all the ways money disappears, while shoring up your bank account.
- Use those points you’ve accumulated on your loyalty cards for things that you would normally have to buy so you can use that money to start or boost your Curveball Account. Airmile points can be redeemed by grocery coupons. Use the coupons for grocery shopping and use your grocery money to boost your Curveball Account.
- Give up a vice for one month: no wine, no beer, no ciggies, no candy-bars, no potato chips, no __________________ (insert your weakness here). Once you have the $75, $150, $500 you think you need in your Curveball account, you can go back to your vice if you really want to.
- Sell something. Y’know that sewing machine you never use, that guitar you never play, that exercise bike you never ride? Wouldn’t you rather have the money in a Curveball Account so you’re not twisted in knots every time something unexpected comes at you? Have a garage sale, take your stuff to a consignment shop, sell it on e-bay or Craigslist. Bank the money.
Your turn: How do you keep your budget flexible while keeping it on track?
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This seems like overkill. An emergency fund, plus a “curveball fund,” plus a “car repair fund,” and all in separate accounts? This seems like a sure recipe for stress-induced illness, if only from agonizing over how to account for each unexpected expense.
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I have a curveball account – I have small amounts regularly transferred from my checking to my savings. It’s small enough that it doesn’t put a dent in my budget, but it builds up over time so I can deal with a last-minute unexpected expense. I keep my actual emergency fund in a different account so they don’t get mixed up.
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Life is not perfect. If you plan your budget as though everything must go perfectly for you to meet your goal, you will be disappointed. I recommend a little room in your budget for the unplanned. It is called a contingency plan or plan B, because you do not have control over everything.
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I have separate savings accounts. My passion is dog training and competing, so I have a “Pets” account to cover sports injuries to the dogs, a “Vacation” account which covers travel to major competitions, “House”, and “Car”. Then there’s regular savings and money market. It’s a little ADD, but it really helps me stay on track to divide up the savings and track things seperately. I used to think I wasn’t saving enough, but it all adds up to about $2600 a month.
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Life happens. My wife and I have started itemized savings accounts for a great deal of disparate purchases, and are diverting a little bit every month, slowly building up these funds over time for when unexpected expenses come up.
Pat
http://compoundingreturns.blogspot.com
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I do this. I have an emergency fund that I don’t touch except for in a true emergency. Then I have a slush fun savings account. The slush fund one is funded by whatever is left in my checking account at the end of my budget month, whereas the emergency fund gets the savings at the beginning of the month.
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I keep my budget flexible by budgeting “worst case” every year: I don’t expect raises, I don’t expect bonuses; I always assume by worst month for groceries or gasoline will be my average this year, I always assume utilities and insurance will go up 5% this year and I CONSTANTLY feed by EF with leftover cash even though it is fully funded (8 months of cash with NO assumption I would get STD/LTD or unemployment benefits if I were unable to work).
Lastly, I have 10% of my income directed to my “Irregular Spending” account: this is used for home updates, travel and, in a pinch, unexpected budget busters.
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I honesty don’t understand having so many various emergency type accounts – it seems like a hassle. I just have a miscellaneous line item in my budget, for such surprises – no special account. Over the course of a year, it all averages out.
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We’ve had a “big-ticket item” account for years and it’s a must for us. It’s similar to the curveball account and pays for homeowner’s insurance, appliance replacement, property tax, trips to the dentist… This is in addition to our emergency fund which we would only tap in a real emergency such as unemployment.
We also have a fun version of this labeled “travel”. It’s a great feeling to pay cash for a cruise! We keep all of these accounts topped off at all times. Another big advantage to this method is that we only need to do a budget for routine living expenses.
BTW, Gail, I really enjoy your show!
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I am with Jonathan and believe it’s overkill. Why not create a $100 emergency fund, $1000 fund and $10000 fund. And just in case, maybe we should have a $500 fund–you just never know… Really?
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The last thing I need is yet another account to worry about. My policy: have an emergency fund for real emergencies and say NO to everything else. None of the three examples that you listed would require me to have a “curveball” account. Extra food for house guests is a small expense that I would cover by cutting my grocery spending in other ways that month (using some coupons, substituting several really cheap meals for dinners, etc). If I couldn’t afford a tutor, I’d do it and I’d have family and friends help if needed. I don’t like math, but surely I could learn it at my child’s level in order to help if I didn’t have money for a tutor. Regarding the wedding, I’d say NO. People need to learn to say no. You don’t have a right to things you can’t afford. I’ve said no to being in and attending several weddings because I couldn’t afford them. It’s a simple fact of life. In some cases, best friends have paid for me to attend entirely of their own choosing because they really wanted me there. In other cases, I just didn’t attend (or I attended but wasn’t in the wedding because I couldn’t afford all that goes with being in a wedding) and it was just fine.
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I love the idea of the curveball account! It’s so simple, I don’t know why I didn’t think to do this. I allocate a certain “miscellaneous” budget that covers everything from birthdays to Christmas to cat food to clothing to eating out once in awhile. I can’t just divide by 12 and spend that much every month, because by the time December rolls around I wouldn’t have enough for Christmas, but if I still deduct a fixed amount each month (my allotted miscellaneous minus actual expenses) and deposit the rest in my ING savings account, I’ll have a little extra for the end of the year!
So simple, just like most of the best things in life…
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I like Karen’s approach: “The slush fund one is funded by whatever is left in my checking account at the end of my budget month, whereas the emergency fund gets the savings at the beginning of the month.”
That’s roughly what I do, too. Long-term savings (including retirement, EF, and HSA) come first.
What constitutes a real emergency has been discussed here before … weddings, family visits, and even tutors aren’t emergencies. (It shouldn’t come as a surprise to a parent that their kid is struggling in school, and anyone on a restricted budget ought to make that crystal clear to the friends/family who might otherwise initiate expensive leisure activities.)
Fun money comes last. If it’s a hairy month and there isn’t any fun money left over, well … .
I say NO to myself a LOT more often than I say NO to friends/family. Either way, the NO has to be in play. I’m acquainted with a lot of people who are always broke because they don’t want to break out the NO!
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The only problem I see here is that the budget is too restrictive and so you have a pressure release valve. too many different accounts and categories stifles your ability to make a decent decision based on your values. If your Efund is 9 months of salary taking out a week’s salary and paying it back over the next couple months isn’t significantly adding to your risk.
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I put money every paycheck into my bill-paying checking account, and could use that as a small curveball fund if I needed to. I always transfer about $50/month more than I actually have allotted to my bills. Right now my overage is about $100 but it slowly builds up over time.
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I encourage people to create a save/spend account that contains funds to cover period and “known” expenses (car registration etc.)and a save/don’t spend account (yes they are separate) which serves as an emergency fund and is not intended to be used unless absolutely necessary.
The key to any such program is the behavior that goes with the decision to set up an unplanned expenses account. Information alone is not sufficient to change behavior and when you help people link their values with their choices this type of model will be much more effective.
I don’t believe that shaming and blaming helps people in the long run. Financial coaches, counselors and planners who take the time to understand the core money beliefs that are the underlying reason for the behavior are much more effective in helping people change.
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If it’s a smallish amount, say under $200, I just try to cut it out of my current cash flow. I always have a full pantry and freezer, so I can avoid grocery shopping for a week or two if I have to. I hate taking unplanned money out of any of my accounts.
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I’ve got one of these, but we call it the opportunity fund. The emergency fund is basically for one of two things: a job loss or totaling the car. The opportunity fund acts like an alternative to a credit card if we ever need money for a budget busting item.
We keep our “curveball” account funded at about $5000. I can’t tell you how many times it has helped us out.
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My Emergency Fund is $1000 and I started it to cover my car insurance excess. Now, it acts more as a buffer for the little unexpected things. If I use it, I have to pay it back in full when I get paid. This account is with the same bank as my everyday transaction account so if I need the money, I can get it easily.
I am working on a cushion of 6 months worth of expenses. This will be my real Emergency Fund and won’t be touched unless there’s a large emergency (touch wood). This account is with my savings accounts at a different bank and the money would take about 2-3 days to get to me.
I think everyone should have some “slush” money put aside whether it’s $50 or $500. It doesn’t have to be in a separate account, it could just be in your everyday account.
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I think that people are confusing the term “account” with bank account, instead of bookkeeping “account”. I have separate bookkeeping accounts in my spreadsheet and QuickBooks (others might use Quicken, Money, mint.com, etc.) but only one bank account where all the money is stored.
I really appreciate the level of the article. It seems targeted to those who have gotten out of debt but aren’t necessarily financially independent. I started a curveball account in January. Income in our home isn’t salaried. We’re budgeted for an amount we definitely will get. Every check there is extra. Prior to January we’d just eat out and blow it all in other ways. Now those small overages $100-$300/check are going in this account. It can go for those times we spend $20 extra here or there in a month (last month we got sick and we got some medicine without going over budget!). I figure we’re still saving extra rather than increasing our budget by $25-50 a week. We NEVER go underbudget. We always spend what we allot ourselves. This is the answer for us! We don’t feel deprived and are still saving money.
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As Always, An Excellent Idea, Gail. We Must Inevitably Learn To Live Life By The Phrase “To Expect The Unexpected” Especially In Regards To Our Personal Finances.
It Dismays Me, Though,That This Article Was Posted Much Later In the Day; We GRS Readers Are All Well Aquainted With the Fact That Much Attention Is Rarely Paid To Second-Day Articles, As This Is Not A Common Occurence At This Site. Infact, Posting This Article Solely Would Have Likely Made J.D.’s Preparations For South Africa Much Less Stressful.
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“The unexpected is only unexpected if you don’t expect it.”
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God forbid we not use credit cards when in a crunch and must pay cash for everything that comes along. I have no problem putting a small balance on my card and paying it off as quickly as possible.
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“Curveball” scenarios + my replies
Your brother and sister-in-law and their four kids came for a week.
“Yo, bring some groceries for your tribe”
or
“Sorry, we can’t have you over this week. Maybe some other time.”
Or when you least expect it, your best friend announces she’s getting married and you have to find a way to pay for a $200 dress.
“Sorry mang, we can’t come cuz WE PO. Best wishes.”
(Isn’t clothing supposed to be part of one’s regular budget anyway? Once we got invited to this charity ball and my wife got an awesome dress for $60 at a consignment shop, which was less than I paid to rent a tux. $200 for a dress?Pfttt.)
Or you find out your kid is failing math and the only way to pull his butt out of the fire is with a tutor that’ll cost you $60 a week.
“KId, if you don’t study and pass you’re grounded for a year. Now hit the books. I’ll be watching. And if you need help, ask me.”
total cost = $0
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I can see the point of a curveball account, but only if you’re a zero-sum budget person. I’m not. I am able to handle most “curveballs” and even most “emergencies (car repairs, etc)” out of my general cash flow. I know that I’m mostly able to do this because we have a fairly high income and low fixed expenses, and that it’s not everyone’s situation.
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I don’t think having all the extra accounts is overkill. Our budget is not so tight anymore that we need to have an extra account for life’s little surprises. However, after stagnating in the savings department for the last few years, breaking apart our savings into smaller targeted accounts (an idea I got here) has really jump started us.
Psychologically, it works for us. Here’s a list of what accounts we’ve got now: Emergency, car replacement, private school tuition, vacation, general unknown savings.
Because there’s enough padding in our checking each month, I take what’s left over and distribute. Emergency is fully funded, Tuition for next year is done, so what’s left right now is going 3/4 into car replacement and 1/4 into general unknown.
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I don’t think it has to be complicated. I have an emergency fund – something I don’t touch unless a true crisis arises. I’m actively putting money into this account until I hit my goal balance.
I set up another account to automatically set aside money for bills that don’t come every month – for me that’s my car insurance premium which I pay every six months. I’m only using maybe 2/3 of the amount that goes in there annually, so in reality if I needed a couple hundred I could raid it without fear of not being able to pay said car insurance premium when it comes due.
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I like El Nerdo’s reply for the kid failing math because I have one of those kids. It’s like this:
“Kid, you better hit the books, stay after school for extra help and study more because if you fail math, you’ll be going to summer school & you can kiss your vacation goodbye!”
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Absolutely! But it’s not used when you can’t/won’t stick to your budget as some are suggesting. Ours is for the expenses that we usually have every year, but can’t predict exactly when it will happen. For example, new car brakes and tires, birthday and Christmas gifts, home repairs, doctor’s appointments and prescriptions, etc. We can budget how much we will spend in a period and then divide it monthly. That amount goes into the curveball fund to regulate the budget over the course of the year.
I don’t have to say no to the present for the family member with the last birthday of three in March because we happened to also have to replace car brakes. Instead, I can take it all from our fund knowing we haven’t had/won’t have these expenses in other months.
It also keeps us from overspending in months we don’t have anything major.
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Long-time reader, first-time commenter, prompted by all the “hate” at this post.
I agree with Sara, that the curveball account works especially if you are working off a zero-based budget. But it seems like those who are taking issue with the idea of this separate slush fund, kind of already have it in place. Whether it’s a little extra padding in their budget, or the way they mentally spend and allocate money, it seems those who are categorizing this account as “overkill” already use this idea, just not as a real (three-dimensional) account.
I say this because I technically have a curveball account that I didn’t consider as such until reading this post. I use Chase as my regular checking acct bank, and it comes with an associated savings acct. However, I choose to use ING for my savings (and yes, I have an emergency fund, a vacation fund, a wedding fund, a house fund, etc) and fund it in regular amounts at each pay period. But with each new pay period, I take whatever is left and unaccounted for in my Chase checking (usually only between 20-50 bucks) and transfer it to my Chase savings acct. I use this money as a buffer against my own rare but well-documented impulse Target runs, and against my husband’s less rare everywhere runs.
Things happen, and a buffer is good. I think this post is great for those who have not yet figured out their own buffer system, and that even those who have can agree that they like to leave some wiggle room themselves.
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We do the worst-case budgeting too – and since the worst case rarely happens, there’s enough overage in the housekeeping account to handle these kinds of small “emergencies”. When we track our savings these expenses seem to even out over time – if we have a few months without unexpected guests or repairs or family events (forget the dress, how about the $100 wedding gift or the care package to South America for a sick sibling) then we’re likely to get hit with a biggie that wipes out the “extra” money.
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We have a jar for spare change, like a lot of people. However, we also use it for irregular income, such as very tiny dividend checks, accidental overpayment refunds, odd job income, and kids (FINALLY!!) paying back in fits and starts money that they borrowed at various times. Since this money is off-budget, we use it to buy off-budget items. This past weekend we walked into the furniture story and bought a new box spring and mattress set. The clerk was astonished when I pulled cash out of my purse (yes, I used big bills — not mean enough to have it all in ones!). It hadn’t occurred to me that paying almost $ 1000 in cash was such a big deal, but the look on her face was priceless!
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We just waaaay underbudget so when those unexpected things come up (as they always do)it’s not a big deal.
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This is a good topic! My wife and I are very blessed to be able to budget for everything we foresee needing during the month and leave a couple (if not more) hundred dollars left over. Hopefully this cushions, if not covers, anything unexpected (like a recent tire replacement). Now, if it doesn’t cover something unexpected that’s more tricky. I typically consider two options:
1) Over the years, I have built up a cushion (maybe even too much of one) in my checking account. Recently and before a big transfer to my savings account, this was on the order of a $5K cushion. I suppose if something big came up, I’d let the cushion counteract it.
2) I have nearly $10k so far in my emergency fund, and I guess if it was major, we’d dip into that. Thank the Lord that I have yet to resort to this one.
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This is a good topic! My wife and I are very blessed to be able to budget for everything we foresee needing during the month and leave a couple (if not more) hundred dollars left over. Hopefully this cushions, if not covers, anything unexpected (like a recent tire replacement). Now, if it doesn’t cover something unexpected that’s more tricky. I typically consider two options:
1) Over the years, I have built up a cushion (maybe even too much of one) in my checking account. Recently and before a big transfer to my savings account, this was on the order of a $5K cushion. I suppose if something big came up, I’d let the cushion counteract it.
2) I have nearly $10k so far in my emergency fund, and I guess if it was major, we’d dip into that. Thank the Lord that I have yet to resort to this one.
Love the blog!
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Shopping through cash back portals like Ebates, ShopAtHome, AAfter Search and FatWallet is a great option for saving while spending. So, whatever you buy you can always go for any of the cash back sites to save while spending.
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While I don’t have a separate account as in a savings/checking account with it’s own number, I do something similar, and caught a couple echoes of this in other answers:
I underbudget for income. I know almost to the penny what I will make as my monthly salary doesn’t vary, and I underbudget for that by about $60 each month. I go with worst-case scenario on my husband’s hourly wage, that for that week, he won’t make any overtime. Then I undercut that worst-case about $50 per check. Any overage after all the twice-a-month budget items are reserved out of our income goes into what I call “overdraft” but is basically a slush fund within the checking account that I never let drop below $100. That way if I blow my addition somehow (not that easy, ’cause I use Excel, but hey, typos happen), I’m covered. And, should something unexpected happen, I’m covered there, too.
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I have a “blow $$” category in my budget, which is for things in my life that are fun and not absolutely essential. All of my usual fun stuff, such as booze, nights out, and whatever, come out of that. And any social events with friends. AND any oddball purchases that aren’t absolute necessities.
Once it gets to zero, that’s it. No matter what. People who are really my friends can come over to my house or invite me to theirs. Really.
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I do not have it in a separte account, but each payday, after allowances are distributed, I put an extra “allowance” aside in a separate place, calling it “Backup money”. I use it for an extra dinner out with friends, an unexpected birthday, or other unexpected expense. If it goes for several weeks or months (sometimes) there is enough for a weekend away for my husband and myself.
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I actually do exactly this. I have a category in my budget called “buffer” that is my slush fund. When we overspend, I take it out of that category. I know that we always overspend in some areas (such as groceries), so I tend to put less than what we usually spend in those. My idea is to try to trick us into spending less in groceries, because we have less in that budget category. But if we do go over, I just take it from the buffer category. It works great for us, and it makes things a lot less stressful. It removes that ridgedness that comes from a typical budget, and helps me think it’s more free.
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I like the general principle of this article. Like someone posted earlier, this doesn’t have to be a separate “account”, but for people who budget, it’s a separate category. Though I don’t think the examples provided were great “curveballs” for the GRS crowd, I think there are several times when it would be needed. Examples include:
1) A big storm hits your town and you need to pay the $2500 deductible on your home insurance.
2) You get in a wreck and need to pay the $500 deductible on your car insurance.
3) You start experiencing dental pain and need to pay $1500 for a root canal and a crown.
These sums are larger than most people want to come up with by minimizing other parts of their budget, but are not necessarily severe enough to pull from an emergency fund. Hence, the curveball fund.
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