Author Topic: pre-FIRE emergency fund - how much & where to park it?  (Read 6412 times)

Exhale

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pre-FIRE emergency fund - how much & where to park it?
« on: September 20, 2014, 10:01:30 AM »
Hello fellow MMMs,

I setting up my pre-FIRE emergency fund and have two questions:
1) How much do you set aside? and
2) Where do you park it for easy access? 

Some additional info:
I'm single with no kids/house/car/debt and live on $1,000/month in an expensive city.
My plan right now is to set aside:
- $2,000 for emergencies (unexpected medical expense, emergency plane ticket to see a sick family member, etc.)
- $8,000 so I could live without income for eight months

Thank you for your advice,
Exhale

Calvawt

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #1 on: September 20, 2014, 10:08:52 AM »
I would put it in an online savings account that is linked to your checking account.  You should be able to get close to 1% interest on it.  Try Barclays or Ally.

I think your number is right on at 6-8 months of expenses.

Exhale

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #2 on: September 21, 2014, 01:19:49 PM »
I would put it in an online savings account that is linked to your checking account.  You should be able to get close to 1% interest on it.  Try Barclays or Ally.

I think your number is right on at 6-8 months of expenses.

Thank you vawt - this is exactly the info and feedback I needed. BTW - liked your blog.

wtjbatman

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #3 on: September 21, 2014, 02:08:06 PM »
For large emergency funds I'm leaning towards the idea of saving 50% of it in an easily accessible high interest savings bond and the other 50% in a almost-as easily accessible short term bond fund. This gives you much better growth prospects in your EF and keeps it from losing too much ground to inflation over time.

My current EF is so low due to my life circumstances, so I'm just doing the high interest savings account at Capital One 360. But yours is large enough that I'd at least consider other ideas.

Bob W

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #4 on: September 21, 2014, 02:30:16 PM »
Keep it in a vanguard stock fund.  There are very few true "emergencies"   it could fluctuate down in any given year,  so just put 30% more in.  Over 30 years it will make a 100k difference.   Keep a credit card active for instant access to funds.

dividendman

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #5 on: September 21, 2014, 02:51:05 PM »
I just consider the government bond portion of my portfolio (20%) as an emergency fund... yeah, I'm giving up some gains but meh, it also helps me re-balance and feel good that I'm buying cheaper stuff.

sleepyguy

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #6 on: September 21, 2014, 03:24:49 PM »
As a Canadian it's a no brainer, we park it in TSFA (100% index funds).  Not sure the US have something like this.  We are allowed to put $5500 (started at $5000) post tax dollars into investments and it grows TAX free (Tax Free Savings Account).  Program started in 2009.  We've maxed it out every year.  Beauty is you're allowed to access it whenever you like with no penalty.

wtjbatman

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #7 on: September 21, 2014, 03:59:46 PM »
Sounds kinda like a Roth IRA. Can contribute $5500 a year (more if you're older) post-tax, depending on where you have your Roth IRA you can invest in anything, and you can withdraw the contributions (but not earnings) tax-free at any time.

Those are reasons some people like putting their EF in a Roth IRA. The downsides are that $5500 fills up your IRA space for the year, and if you withdraw your contributions you have to put them back in within the same tax year or else you "lose" the space forever.

Exhale

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #8 on: September 21, 2014, 06:40:56 PM »
Those are reasons some people like putting their EF in a Roth IRA. The downsides are that $5500 fills up your IRA space for the year, and if you withdraw your contributions you have to put them back in within the same tax year or else you "lose" the space forever.

Having to put it back in the same tax year is what makes me leery of using my Roth IRA as a EF. Ideally, if I had an emergency, I'd like there to be no impact to my Roth IRA or 401k.

Exhale

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #9 on: September 21, 2014, 06:42:02 PM »
I just consider the government bond portion of my portfolio (20%) as an emergency fund... yeah, I'm giving up some gains but meh, it also helps me re-balance and feel good that I'm buying cheaper stuff.

Okay, stupid question: is it easier to access government bonds?

Exhale

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #10 on: September 21, 2014, 06:44:29 PM »
Keep it in a vanguard stock fund.  There are very few true "emergencies"   it could fluctuate down in any given year,  so just put 30% more in.  Over 30 years it will make a 100k difference.   Keep a credit card active for instant access to funds.

By this you mean that, if there truly was an emergency, you'd withdraw money from your Vanguard Stock Fund to pay off the credit card you used? Just want to be sure I clearly understand the option you're describing.

oldtoyota

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #11 on: September 21, 2014, 06:54:27 PM »
Keep it in a vanguard stock fund.  There are very few true "emergencies"   it could fluctuate down in any given year,  so just put 30% more in.  Over 30 years it will make a 100k difference.   Keep a credit card active for instant access to funds.

I keep a chunk of mine in a Vanguard stock fund. I have another chunk in cash because it makes me feel better to have access to it. What I find, though, is that budgeting relieves most "emergencies." My main concern is job loss, so that's why I like to have some in cash. If I lost my job during a down time in the stock market, I would not want to be forced to remove money at the market bottom. The cash gives me flexibility.


Exhale

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #12 on: September 21, 2014, 07:02:48 PM »
budgeting relieves most "emergencies."

Could you elaborate on what you mean by "budgeting relieving most 'emergencies'"? I was unexpectedly laid off, have lost a family member to fast-moving cancer (necessitating several cross-country flights) and had a medical emergency. Having a EF is the only way I was able to respond to those events without major financial distress. However, I'm very open to any new strategies. Thanks!

kudy

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #13 on: September 21, 2014, 07:16:36 PM »
I am currently experimenting with where I keep my $10,000 emergency fund. I've set up pre-paid debit cards with Mango Money & PayPal. Each has an attached savings account, which allows for 5-6% interest earned on a maximum of $5k. They charge $3-5 in monthly fees, but earned interest after fees definitely beats the <=1% I was getting.

I'll let you know how it goes, and if you're interested, I can send a referral code (free $5 for each of us) for PayPal.

Exhale

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #14 on: September 21, 2014, 07:31:16 PM »
I am currently experimenting with where I keep my $10,000 emergency fund. I've set up pre-paid debit cards with Mango Money & PayPal. Each has an attached savings account, which allows for 5-6% interest earned on a maximum of $5k. They charge $3-5 in monthly fees, but earned interest after fees definitely beats the <=1% I was getting.

I'll let you know how it goes, and if you're interested, I can send a referral code (free $5 for each of us) for PayPal.

Yes, if you like it let me know - very curious about this option.

thedayisbrave

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #15 on: September 21, 2014, 08:13:23 PM »
1) I have about 8-10 months.  Which is high considering I'm young, single, so don't have many *true* emergencies (I spend about $1K a month).  But I own my primary residence and a small business so I like having a little bit higher buffer in case an unexpected expense came up with either of the aforementioned.

2) I bank with a local credit union which offers 2% in their high yield checking as long as you use the linked debit card 30x/month.  Before that, I had about 1-2 months expenses in a non-interest paying checking and the rest in a linked online savings account (ING Direct, now it's Capital One) that offered right around 1%. 

I'd say your plan is slightly on the more conservative side, but hey I'd wager mine is too ;)

kudy

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Re: pre-FIRE emergency fund - how much & where to park it?
« Reply #16 on: November 23, 2014, 04:06:33 PM »
Yes, if you like it let me know - very curious about this option.

After a few months of having these accounts set up, they are working great. Some details...

Mango Money

  • charge $3/month fee
  • earn 6% interest on $5k in savings
  • require minimum of $50/month direct deposit to keep 6% rate
  • no obvious way to pull money out without using the debit card, but I've tested a "pull" from the account to PayPal, and it worked successfully - after Nov 30th, I'll do a 2nd pull (to take out my direct deposits and earned interest). Curious if I do a pull every 1-2 months, if they'll close my account, but good so far

PayPal Prepaid

  • charge $4.95/month fee
  • earn 5% interest on 5k in savings
  • no deposit requirements
  • easy to move money from prepaid balance over to PayPal, and then to any attached accounts (checking, etc.)

If you decide to sign up for either, and would like to help me out by using my referral links, PM me and I'll send you the referrals. With PayPal, we both get $5 when using a referral (pays the first month's fee).