Author Topic: Emergency Fund  (Read 1997 times)

fb132

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Emergency Fund
« on: May 09, 2015, 10:27:30 PM »
I have 7800$ in my high interest account with the interest of 1,3% which is obviously not high. I was reading some MMM articles and I read somewhere that he suggests to invest the EF money. My current Long term investments is in a 80/20 portfolio (not sure if that's the right word). I was thinking of leaving 2000$ in my high interest account and the rest of it (5800$) in my long term investments. Is that a good idea or should I invest in a 60/40 instead or should I just simply leave my entire fund in the high interest account?
« Last Edit: May 09, 2015, 10:34:05 PM by fb132 »

MDM

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Re: Emergency Fund
« Reply #1 on: May 09, 2015, 10:34:53 PM »
How secure is your job?  What is your maximum annual out-of-pocket medical expense?  Saving for any large purchases in the near future?  How much can you borrow (at reasonable rates)?

In other words, consider questions such as those above (and probably more) to decide how much of a cash emergency fund you want, and keep that cash in as high an interest rate as you can get.  1.3% isn't bad.

vivek440

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Re: Emergency Fund
« Reply #2 on: May 09, 2015, 10:38:01 PM »
Emergency fund (EF) should always be easy to access - When you need it you should be able to quickly withdraw it. How liquid are your long term investments?  If they are liquid, you can keep 100% of your emergency fund in long term investment. If it is not liquid, continue to keep your emergency fund (EF) in your high interest account.

While deciding the EF amount, I hope you have considered the following

1) It should be a function of your monthly expenses - Generally 3-6 times of your monthly expenses
2) How risky is your job? If you have a stable job, you can maintain a smaller EF. If your job is unstable, maintain a bigger EF

fb132

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Re: Emergency Fund
« Reply #3 on: May 09, 2015, 10:39:52 PM »
"How secure is your job?" My job is pretty secure unless the building goes on fire or something really bad happens (ex. Bankruptcy).

"What is your maximum annual out-of-pocket medical expense?" I live in Canada, so that part is not a big deal.

"Saving for any large purchases in the near future?" Nope

"How much can you borrow (at reasonable rates)?" My lowest rate is 6.84% with my line of credit, but I hardly every use any of my credit except for credit cards and I usually it pay it off. i only use my credit card for cash back purposes.

fb132

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Re: Emergency Fund
« Reply #4 on: May 09, 2015, 10:41:28 PM »
Emergency fund (EF) should always be easy to access - When you need it you should be able to quickly withdraw it. How liquid are your long term investments?  If they are liquid, you can keep 100% of your emergency fund in long term investment. If it is not liquid, continue to keep your emergency fund (EF) in your high interest account.

While deciding the EF amount, I hope you have considered the following

1) It should be a function of your monthly expenses - Generally 3-6 times of your monthly expenses
2) How risky is your job? If you have a stable job, you can maintain a smaller EF. If your job is unstable, maintain a bigger EF

Well my investments are in a TFSA (Tax Free Savings Account), I can withdraw the money at anytime and it takes 1 day to get the money without any penalties oh and my 7800$ amount is my 6 times monthly expenses.