Author Topic: Help convince me  (Read 3375 times)

Neustache

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Help convince me
« on: March 24, 2015, 07:20:25 AM »
To move this money.

I have 25K in an savings account - it's technically an IRA savings account and it makes close to no interest.  We had rolled over my husband's 401K money when he left a job, but we were moving at the time and I was overwhelmed so the financial advisor said to just park it there and move it once things calmed down. 

Well....that was 18 months ago.  I've missed out on a lot of interest in the interim!  Gah!

My problem, is that it's emotionally serving as my Emergency Fund.  I like knowing that it's there, and while it's not making me money, it's safe as it won't lose money, either.  Yes, I'd have to pay a penalty if we ever have to use it.  No, we've never had to use it for an emergency in the past, so it's quite possible we'll never need to dip into it. 

My plan is to move part of it (or do I have to move all of it?) into Vanguard.  Maybe move like 15K of it, but leave 10K for my mental health.  Once we get rid of PMI on our mortgage, go ahead and pay for an appraisal to get a HELOC on our house so that can be my emergency fund, and then move the rest of it?

We have another small emergency fund of $750 in a savings account, plus I like to keep a 0% APR credit card around.  We cash flow most 'emergencies'. I guess this is my worst case scenario mind playing tricks on me...to have this as a back up if my husband loses his job and I can't get a job (I'm a SAHM....but I've had two unsolicited offers for job interviews in the past month from former bosses so this is probably silly thinking on my part.)  My husband losing his job is unlikely - and the last time he went looking for a job (trying to switch careers) he got one in 3 weeks and had to turn down 2 other interviews. 

I do have a weird hang up with paying for an appraisal to get a HELOC - I just don't want to!  But if the HELOC becomes my EF my emergency fund, then not only would I not be paying a 10% fee for dipping into my IRA, I'd also be gaining potential interest on the 25K which will probably make up for the $450 appraisal fee in a year. 

Help? I just need the push (or if I shouldn't tell me that as well!)

I think I also get hung up not understanding the tax implications of different moves, so it contributes to the inertia. 


neo von retorch

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Re: Help convince me
« Reply #1 on: March 24, 2015, 10:04:46 AM »
I had a $10k emergency fund. I was worried about the "upcoming stock market correction." This was back in September 2014. The market dipped like 5% and I threw $5k in. Since then, the S&P has gained about 10%. But I had that $10k sitting on the sidelines much longer. In 3 years the S&P has risen about 50%. Ugh!

What's the moral of the story? If ALL of that money is truly an emergency fund, a 1% savings account is probably fine. But you probably need a lot less in cash. Maybe enough to get you through 1-2 months. That's enough time to make use of your HELOC. And in a pinch, use a credit card or two.

Why don't you throw $10k in VTSAX and then revisit the idea in 3 months. See if you feel more comfortable by then, and maybe you can put another $5-10k in investments?

snshijuptr

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Re: Help convince me
« Reply #2 on: March 24, 2015, 10:24:15 AM »
If your money is in a tIRA, then it is not available as an Emergency Fund. Invest the money and do a strict calculation of how much you would realistically need for 6 months of unemployment for the top earner in your family (We are dual earners in the same field so I like to also calculate 3 months of dual unemployment and take the higher number). Include unemployment in your calculation. Include how you would reduce your lifestyle and cancellation fees. At minimum keep enough for your highest insurance deductible. Keep 1 pay period in your Checking account and the rest of the money in a normal Savings account.

Neustache

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Re: Help convince me
« Reply #3 on: March 24, 2015, 12:11:52 PM »
Okay...worst case scenario and my hubby loses his job, I can't find any job, and our renter stops paying....we need about 12K for a 6 month emergency fund, if I factor in unemployment payments which cap out at 1200 a month for us.  Okay....I can do this.  I can transfer 13K now, pay down our mortgage to get the PMI off and then get a HELOC, and later transfer the rest over.   Thank you!

One thing though....I don't understand why a tIRA is not available to me as an emergency fund.  I'm still learning all the acronyms....but isn't it available just a really bad move because I'll be charge a 10% penalty?




robbyho

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Re: Help convince me
« Reply #4 on: March 24, 2015, 12:35:54 PM »

One thing though....I don't understand why a tIRA is not available to me as an emergency fund.  I'm still learning all the acronyms....but isn't it available just a really bad move because I'll be charge a 10% penalty?

I think he was saying that it would be a really bad decision to tap into it and do not CONSIDER it an emergency fund but more of an ULTRA emergency fund.

Retired To Win

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Re: Help convince me
« Reply #5 on: March 24, 2015, 02:18:06 PM »
Okay...worst case scenario and my hubby loses his job, I can't find any job, and our renter stops paying....we need about 12K for a 6 month emergency fund, if I factor in unemployment payments which cap out at 1200 a month for us.  Okay....I can do this.  I can transfer 13K now, pay down our mortgage to get the PMI off and then get a HELOC, and later transfer the rest over.   Thank you!...

DO THIS.  I've always considered an Emergency Fund to have higher priority than an investment stash.  And that the amount of interest earned by that Emergency Fund is strictly gravy.

In our case, we keep a one-year Emergency Fund in a savings account.  Great for our peace of mind.

Good luck.

nereo

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Re: Help convince me
« Reply #6 on: March 24, 2015, 02:37:38 PM »
Quote
My problem, is that it's emotionally serving as my Emergency Fund.  I like knowing that it's there, and while it's not making me money, it's safe as it won't lose money, either

Please realize that unless your savings account is more than inflation (lately ~2%, but historically closer to 3%), you are losing money.  Every year that goes by you have 2% less than the year before.  On $25k you are losing $500 per year, or about $10 every single week.  It's a slow leak, but is a leak.

FWIW I'd roll the entire thing over into a low-cost index fund since it's already an IRA account.  Vanguard is a good choice, but it's not the only choice.  Start building up an emergency fund with your very next paycheck until you have a low-line of credit available like a HELOC.