Author Topic: Invest EF?  (Read 2833 times)

DavidDoes

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Invest EF?
« on: July 22, 2016, 12:43:00 PM »
Hello, everyone! Longtime reader, first time poster. :)

My wife and I are still always working towards building our six-month emergency fund. Currently, we have only half a month's worth of expenses saved, and that's after a year of saving. We also don't have health insurance, so the savings will most likely go to that next tax season.

Should we invest this EF to help it grow? And if so, invest it where?

BTW, before you say anything, we are working on increasing our income. ;)

Frankies Girl

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Re: Invest EF?
« Reply #1 on: July 22, 2016, 01:23:10 PM »
Absolutely not. And welcome to the forum. ;)


Emergency funds are supposed to be money that is there for things like a unexpected car repair, medical bill, travel to a funeral... you really need the money to be instantly accessible (or within a day or two). That means a savings account. There are some out there that have ~1% interest rate.

You do not invest funds you might need in a hurry. So emergency funds, savings for a home purchase, or any money that you might need access to within a 5 year or less time period goes into either a savings account or (for the mortgage situation) possibly CDs if you can find some that offer a better interest rate.

The reason is that while the market does always go up, it isn't a straight line, and you can't know if it will have retained the principal value of the investment exactly when you need that full amount.

Say you invest your $5,000 emergency fund. 6 months later, your A/C unit goes out and the repair is going to cost you exactly $5k. Problem is, the market is in a down phase, and that original $5K you put in has dropped down to $3K. So you unfortunately have to sell it all (at a loss), and still need to come up with an extra $2K. That emergency fund just compounded the emergency.


And I have no idea what your situation is, but if you can only manage to save half a month expenses in one year, you really, really need to take a very hard look at your debt/spending habits. Suggest you check out how to write up a case study and get some triage going.


boarder42

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Re: Invest EF?
« Reply #2 on: July 22, 2016, 01:37:35 PM »
sounds like you should do a case study and evaluate where your money is going if you cant save a 6 month (which is too much IMO) EF.  My EF is invested but i have lots of safety nets around me so i keep all my money invested.  i have credit cards for the quick spend needs.  i can hold back some of my 401k contributions if i need to.  then cover them back after its paid off with the money that would go to my taxable.  i have a taxable account, i have a roth thats got investmetns over 5 years old. etc. etc. but it sounds like you have a fundamental issue of spending somewhere  if you can complete step one in a year and save 6 months expenses (which should really be 3 or less IMO) but thats just risk tolerance.

DavidDoes

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Re: Invest EF?
« Reply #3 on: July 23, 2016, 12:34:17 AM »
Thanks, folks.

We had to also save for moving expenses ($2,500) and summer camp for the kiddo ($1,200). In a year, we managed to save a total of almost $6,000. Not bad making $44,500 in a city where the median is $75,000.

Also, we spent $740/month for 10 months on school for the kiddo (she was too young for public at the time).

Frankies Girl

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Re: Invest EF?
« Reply #4 on: July 23, 2016, 12:47:06 AM »
Thanks, folks.

We had to also save for moving expenses ($2,500) and summer camp for the kiddo ($1,200). In a year, we managed to save a total of almost $6,000. Not bad making $44,500 in a city where the median is $75,000.

Also, we spent $740/month for 10 months on school for the kiddo (she was too young for public at the time).

Well, right there I see a big problem... Over a grand for a child's summer camp? Your kid's school cost more than my mortgage... And did you move to the moon or something? All on an income of less than 50k? Wow, no.

You probably have lots of unnecessary spendypants expenses like that which could be cut easily. Do take a look at the case study link if you are at all interested in help with reducing debt/spending and becoming mustacian.

« Last Edit: July 23, 2016, 07:08:21 PM by Frankies Girl »

boarder42

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Re: Invest EF?
« Reply #5 on: July 23, 2016, 09:49:00 AM »
You have spending issues. Your efund being invested or not is the least of your current limitations. Do a case study. Based on the summer camp at 1200 and 7400 a year for "school" and then 2500 to move. I would assume you likely have cable and 100 dollar cell phone plans etc. You should do a case study if you're at all serious about retiring ever   you spent over 25% of your income on non essentials last year.

ender

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Re: Invest EF?
« Reply #6 on: July 23, 2016, 09:54:53 AM »
You have spending issues. Your efund being invested or not is the least of your current limitations. Do a case study. Based on the summer camp at 1200 and 7400 a year for "school" and then 2500 to move. I would assume you likely have cable and 100 dollar cell phone plans etc. You should do a case study if you're at all serious about retiring ever   you spent over 25% of your income on non essentials last year.

+1

whodidntante

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Re: Invest EF?
« Reply #7 on: July 23, 2016, 07:03:02 PM »
It doesn't matter what you do with the money if it's just a few hundred dollars.  If it's 30 grand, it starts to matter. 

DavidDoes

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Re: Invest EF?
« Reply #8 on: July 24, 2016, 11:59:14 AM »
You have spending issues. Your efund being invested or not is the least of your current limitations. Do a case study. Based on the summer camp at 1200 and 7400 a year for "school" and then 2500 to move. I would assume you likely have cable and 100 dollar cell phone plans etc. You should do a case study if you're at all serious about retiring ever   you spent over 25% of your income on non essentials last year.

$7,400/year is more affordable than child care for the year, so why not put her in a school? Same goes for summer camp. Have you priced child care or nannies in the Seattle area?

$2,500 to move is not uncommon, and is actually ~$1,000 less than what most people pay to move. We're even on Seattle' MFTE program now, meaning we get a much more expensive unit at a drastically lower price, as it is an income-based ladder system.

We don't have cable. We don't even have a TV, and haven't had one since we were both single (over 6 years ago).

We also don't own a car and went car-free in the middle of the winter.

You're right about the smartphones though, but we're on a family plan with some of my family members, so that $100 is actually for two plans.

Our issue is not as much with spending as it is with income. We need to increase our income and we're working on that.

Thanks for your assumptions though?

boarder42

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Re: Invest EF?
« Reply #9 on: July 24, 2016, 12:39:20 PM »
You should do a case study that point stands I threw random darts and some hit.  So with 2 incomes your gross is 44k in Seattle? 

DavidDoes

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Re: Invest EF?
« Reply #10 on: July 24, 2016, 01:15:26 PM »
I looked at the case study post. Sounds like something that my spreadsheet already does.

Yes, we gross $44,500 in Seattle. Like I said, definitely an income problem! We made $72,500 last year, but I had to leave my job and now we both work in service.

boarder42

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Re: Invest EF?
« Reply #11 on: July 24, 2016, 01:22:09 PM »
There are other cities out there. The case study is so we can help you bc as I have stated multiple times in this post you're original question is the least of your real issues