Do you keep large amounts of cash in different "funds"?

[milla]

I'm wondering what the general Mustache stance is on keeping large amounts of money in different funds. For example, I know most people recommend having an Emergency fund. We keep 5k. For us that's a good number, that's two months of expenses, it's nice and easy. We've never had to use it for emergencies, even going through unemployment because we have multiple sources of income. But we've used it as opportunity money before and quickly replenished it.

We do have a budget and we save every month for things we will eventually use like car maintenance, life insurance premiums, clothes,etc. Those never get too big. But what about the really large funds? Like home maintenance? That could get enormous! Where do I draw the line? I hate having money sitting around doing nothing. We've never really kept a huge home maintenance fund but most people suggest 1-2% of home value... that's too much. Or is it?

[Kira]

We do have a budget and we save every month for things we will eventually use like car maintenance, life insurance premiums, clothes,etc. Those never get too big. But what about the really large funds? Like home maintenance? That could get enormous! Where do I draw the line? I hate having money sitting around doing nothing. We've never really kept a huge home maintenance fund but most people suggest 1-2% of home value... that's too much. Or is it?

How much is too much depends on your house. I think where the 1-2% of home value comes from is that every five or ten years you'll have a BIG problem. Completely replacing the roof, have to dig up the whole backyard for a sewer problem, etc. So the thinking there seems to be that if you save 1-2% of your home value every year, you'll have the money on hand when you need to pay for a big thing.

But something I really think about is the fact that these kind of savings guidelines are really for people who are spending most of their income. Someone who is socking away $2k of income every month can get $2k just by not saving the money that month. So having $2k in savings doesn't really make a big dent when you can replenish that much the next month. In this case, whether having this much just chilling in a savings account is a good idea, I think, depends on how long it would take you to come up with enough money to replace the roof if you stopped all saving. If it wouldn't take you very long, then I wouldn't have a ton of money sitting around doing nothing. And like you said, having multiple sources of income makes it much less likely that all of them will dry up simultaneously.

In short: I'd keep some on hand, but if you are a heavy hitter saver, you can probably come up with the money quickly anyway.

[tooqk4u22]

How much is too much depends on your house. I think where the 1-2% of home value comes from is that every five or ten years you'll have a BIG problem. Completely replacing the roof, have to dig up the whole backyard for a sewer problem, etc. So the thinking there seems to be that if you save 1-2% of your home value every year, you'll have the money on hand when you need to pay for a big thing.

Yes, this is exactly right.

Kira makes some good points about the savings/excess cash flow to address problems, which may work great when you are trying to FIRE.  But after you FIRE, your living on essentially fix income and IMO you should budget and set aside the 1-2%. 

I have kept a separate account for home maintenance in the past (not focused on it as much now for the reasons kira mentioned) and when I did the account got real high for a few years....then drained when I replaced HVAC and Roof. Part of the analysis should be to look at the expected (not hoped for) remaining life and plan that way - if your everything is essentially newer then it is less important to worry about major items....but if youre HVAC is 25 years old I would have the money in an account to replace it today and then ride it as long as it works.

[milla]

In short: I'd keep some on hand, but if you are a heavy hitter saver, you can probably come up with the money quickly anyway.

That's basically what we do. We have our 5k in savings account (although my husband is thinking about more now that he is transitioning to self employment) and I don't feel a need to have another, just as large fund sitting around waiting for a catastrophe when if something really expensive happens I can tap into our other accounts.

ETA: Actually I've noticed that not having a big pile of cash sitting around makes us get really creative about making new cash. I realized this when my husband lost his job right after I had a baby, we wanted to avoid tapping into our investments at all costs so we went much further out of our way to make side job money than we would've if we'd had a huge pile of cash for emergencies. I think that's probably just us.

[Frankies Girl]

Right now, I've got about 28K sitting in a "high interest" (not really) savings account. We are in process of linking up a bank account to our brokerage account and will be reducing the savings to 15K as soon as that is active, moving the rest to a taxable brokerage account. We rebuild the savings pretty fast, so every other month or so I expect to be sweeping out more from savings and into the investments..

We figured that 15K cash is a comfortable number for us for any sort of emergency or repair we could think of, and while I'd be happy with it being smaller, the husband likes knowing we've got that much immediately available.