Author Topic: Emergency Fund Strategies (2019)  (Read 4476 times)

TyGuy

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Emergency Fund Strategies (2019)
« on: February 02, 2019, 11:37:41 AM »
Hello,

I have been reading about the correct way to allocate money for an emergency fund but I am feeling a bit overwhelmed at the moment. There are many options (some new) such as betterment's smart saver account, hight-yield savings, and other various accounts at banks such as Ally. I am looking for recommendations on how to invest my emergency fund money correctly so that it will at minimum keep up with inflation. I currently have ~3 months worth of expenses saved in a standard savings account (looking to increase this over the next year to 5 or 6 months). Any suggestions are welcomed and I appreciate your feedback.

Cheers!

CindyBS

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Re: Emergency Fund Strategies (2019)
« Reply #1 on: February 02, 2019, 11:50:29 AM »
I think a lot of it depends on what percentage of your income you are saving, and how much you have in accounts already.

If you don't have much, a large emergency savings is needed with easy access - most likely a savings account.

If you are contributing a lot to savings every month, or you have a lot in accounts already, you need less for emergency money and can use your money to work for you instead of languishing in a savings account making almost nothing in interest.  In this scenario you can just stop contributing to accounts for a few months, borrow from a 401(k), withdraw principal from a Roth IRA, Charge emergency spending to credit cards, cash out an HSA for medical expenses already paid.  Other options include selling items in your house, getting a part time job for a short time including things like driving for Uber.    We chose to have a minimum in savings account knowing all those options are available to us.

TyGuy

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Re: Emergency Fund Strategies (2019)
« Reply #2 on: February 02, 2019, 12:13:56 PM »
I think a lot of it depends on what percentage of your income you are saving, and how much you have in accounts already.

If you don't have much, a large emergency savings is needed with easy access - most likely a savings account.

If you are contributing a lot to savings every month, or you have a lot in accounts already, you need less for emergency money and can use your money to work for you instead of languishing in a savings account making almost nothing in interest.  In this scenario you can just stop contributing to accounts for a few months, borrow from a 401(k), withdraw principal from a Roth IRA, Charge emergency spending to credit cards, cash out an HSA for medical expenses already paid.  Other options include selling items in your house, getting a part time job for a short time including things like driving for Uber.    We chose to have a minimum in savings account knowing all those options are available to us.


I tend to have about 30-40% of my take home pay to use for savings/investing/paying extra on my student loan debt. Having an emergency fund is more to give me a piece of mind than anything else. I want at the very least 3 months available to me in some sort of liquid fund (I do not like the idea of drawing from the principle of an IRA, as I do not want this to become a habit). I am wondering if there is somewhere I can stash my emergency fund that will receive more earnings than a regular savings account.

beer-man

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Re: Emergency Fund Strategies (2019)
« Reply #3 on: February 02, 2019, 12:26:31 PM »
Our emergency fund is cash flow/credit cards/investment account in that order.
 At a high savings rate and an FU taxable account there isn’t a need for a large traditional emergency fund in a savings account.


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Adam Zapple

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Re: Emergency Fund Strategies (2019)
« Reply #4 on: February 02, 2019, 06:01:15 PM »
My ROTH IRA contains my emergency fund (in a mix of money market/bond funds.  I also have a home equity loan on standby.

Livingthedream55

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Re: Emergency Fund Strategies (2019)
« Reply #5 on: February 04, 2019, 08:07:04 AM »
I have an Ally account for my emergency fund plus my Roth IRA also serves as a backup to that.

DaMa

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Re: Emergency Fund Strategies (2019)
« Reply #6 on: February 04, 2019, 08:44:10 AM »
I have an Ally saving account and a Roth IRA with Vanguard.  When I started out, I kept about $3000 in savings, which was about 30 days expenses and enough to cover a major repair or appliance replacement.  I then started contributing the annual max to a Roth IRA on a monthly basis. 

Now I keep $20k in savings, which is about one year's expenses and enough to replace my car which I carry minimum insurance on.  I built that $20k up after I maxed my 401k and before I started my taxable Vanguard investing. 

HamsterStache

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Re: Emergency Fund Strategies (2019)
« Reply #7 on: February 04, 2019, 08:59:59 AM »
I have a few thousand in a traditional Capital One savings (no interest rate to speak of) account that covers overdraft protection for our checking account (never needed it, but nice to know) and can be withdrawn immediately if we have an immediate emergency of any kind. The rest of our emergency fund is in a CapitalOne360 money market savings that currently earns 2%. Withdrawals are not as immediate as the other savings account, but if anything major came up that couldn't be covered by the first emergency fund, it is liquid money we can easily access. As we are really just starting to build our stache and have a somewhat low risk tolerance, we're building this fund up fairly substantially before solely focusing on investments etc. So we're throwing some in retirement accounts, some extra at the mortgage, and some into this savings account until it is built up sufficiently for us to feel comfortable that if things go sideways, we'll be OK.

Others will probably feel we are being too cautious since we already have about five months worth expenses in those funds, but it's really what you feel comfortable with. For us, because of high daycare costs, we're barely breaking even month to month, so we don't have a lot of wiggle room. If you already have 40% of your income free each month, you probably don't have the need for as high of an e-fund and can focus on more productive investing, since you can probably just use that 40% towards expenses and skip a month or two of investing if something comes up you need to deal with.

DadJokes

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Re: Emergency Fund Strategies (2019)
« Reply #8 on: February 04, 2019, 11:44:15 AM »
My emergency fund is a little diversified (I think most people's is, and they just don't realize it).

I have a 2% savings account with 3 months' expenses or so in it.

I have an HSA that only has $5k right now, but I am now maxing it out every year, so that can be accessed for medical emergencies.

I have a couple Roth IRAs from which I can get contributions if needed.

Schaefer Light

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Re: Emergency Fund Strategies (2019)
« Reply #9 on: February 04, 2019, 04:06:26 PM »
My strategy was to have at least 6 months of expenses in an Ally savings account as the primary EF and a Roth IRA as an "emergency" EF.

What I feel is really important is considering worst case scenarios when deciding how big your EF should be.  Trust me when I say you don't want to have a 3 month EF if all of your household income goes away due to a job loss.  I've been unemployed for a month and a half and I'm already stressed out to the point of having difficulty sleeping in spite of having a decent sized EF and receiving a severance package.  I can't imagine how stressful this would be if I had no EF and didn't receive a severance.

letired

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Re: Emergency Fund Strategies (2019)
« Reply #10 on: February 04, 2019, 05:03:22 PM »
I have an Ally account for the bulk of my emergency fund, and I have done the hoop-jumping for a few of the 5% interest savings accounts. I've also started dipping my toe into bank bonuses so I'm getting a slightly better return on the emergency funds.

diapasoun

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Re: Emergency Fund Strategies (2019)
« Reply #11 on: February 04, 2019, 05:30:53 PM »
The amount that's best for you, and the method that's best for you, will vary based on your situation. Things to consider:

1. Your age and your health -- are your healthcare costs high, or do you have reason to believe they could become high soon? is it likely that your health will interfere with your ability to work?
2. Your responsibilities -- spouse? kids? mortgage? debt leveraged to the hilt?
3. Your income sources -- how reliable is your line of work, especially in a recession? if you lose your job, do you have other income coming in?
4. Your other assets -- if you didn't have income coming in, what other assets could you access besides your EF?
5. Your risk tolerance -- what's gonna keep you from panicking?

For me -- I'm healthy and relatively young, have no dependents, and have relatively little debt and no mortgage. That means that I can keep a smaller amount for my EF than I might otherwise, because I don't have to worry about providing for children and a spouse while dealing with side effects from lupus and paying a mortgage. I personally keep ~5 months of spending in my EF, which is much less than I'd be keeping if I had kids.

On the other hand, my job (although well-paid) is in a sector of the economy that got hit really hard by the Great Recession. I'm also early on my journey to FI and just plain don't have a lot of assets. I therefore don't keep my EF in an investment vehicle, because job loss for me would be most likely during a downturn, and I don't have a ton to draw on outside the EF. If I need that money to live on, then I really need to be assured that it will be there!

I, like HamsterStache, keep mine in a Capital One 360 MMA; 2% is below inflation, but it's not the worst. You may find other savings accounts or money market accounts that get better interest rates. My personal view here is that my EF has nothing to do with investment, or with growth; it's self-insurance against job loss and medical emergency. It is for my safety, not my progress forward.

Depending on your needs, you may also be interested in a CD ladder or I-bond ladder. I personally was pretty meh about this, because I wasn't finding CDs that were short-term enough (6 months or less) with the amounts I wanted ($2500 or less) with a good enough rate (i.e. better than my 2% MMA). I also don't like the amount of management I'd have to do with that, frankly.

achvfi

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Re: Emergency Fund Strategies (2019)
« Reply #12 on: February 04, 2019, 08:23:12 PM »
My strategy was to have at least 6 months of expenses in an Ally savings account as the primary EF and a Roth IRA as an "emergency" EF.

What I feel is really important is considering worst case scenarios when deciding how big your EF should be.  Trust me when I say you don't want to have a 3 month EF if all of your household income goes away due to a job loss.  I've been unemployed for a month and a half and I'm already stressed out to the point of having difficulty sleeping in spite of having a decent sized EF and receiving a severance package.  I can't imagine how stressful this would be if I had no EF and didn't receive a severance.

I am with you. I think many people have low EF around in these forums. If you actually consider a worst case scenario such as job loss in combination of medical expenses, recession or bad job market with a family, I think we should plan more conservatively. Recently I had job uncertainty and that opened my eyes to how insufficient my EF was. My primary would last may be 3 months max.

My strategy is to use following in order.

12600 - high yielding savings. I want to increase this to 35000 over time. This is my primary EF and hopefully never have to to touch others listed below.
3000 - taxable and intend to focus on growing this big.
Credit cards - short term.
35000 - Invested HSA. of which 14000 ready for withdrawal if needed.
Large Roth balances.



TyGuy

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Re: Emergency Fund Strategies (2019)
« Reply #13 on: February 04, 2019, 09:16:40 PM »
Thank you all so much for the replies, this has been very helpful for me. I will be looking into likely starting an account with Ally for my emergency savings. To add a bit more to my background, I recently graduated from undergrad and have student loans that I am pay 3-4x the minimum on each month, while also stashing away $100 for the EF and 10% for my 401k. I like the piece of mind of having an EF and could not rest easily without it. I will likely stop contributing to this fund (if it remains unused) once I finish paying my student loans(1-2 years), as my living cost will be minimal then.

HBFIRE

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Re: Emergency Fund Strategies (2019)
« Reply #14 on: February 04, 2019, 09:22:34 PM »
I keep 6-9 months expenses in Heritage Credit Union checking @ 3.3%.

the_fixer

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Re: Emergency Fund Strategies (2019)
« Reply #15 on: February 04, 2019, 09:49:53 PM »
I keep 6-9 months expenses in Heritage Credit Union checking @ 3.3%.
Do you have a link? I tried finding it on their site but did not come across it.

Looking for a place to put my e Fund... Thanks

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HBFIRE

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Re: Emergency Fund Strategies (2019)
« Reply #16 on: February 04, 2019, 10:09:54 PM »
I keep 6-9 months expenses in Heritage Credit Union checking @ 3.3%.
Do you have a link? I tried finding it on their site but did not come across it.

Looking for a place to put my e Fund... Thanks

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https://www.heritagebankna.com/ecentive-account/

note: 50 cent amazon reloads work for the debit card requirement.  Also, you can have more than 1 account (I have 2).  They even integrate the accounts together for you if you open more than 1.  Very happy with this bank.
« Last Edit: February 04, 2019, 10:12:27 PM by dustinst22 »

jlcnuke

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Re: Emergency Fund Strategies (2019)
« Reply #17 on: February 06, 2019, 07:19:30 AM »
Our emergency fund is cash flow/credit cards/investment account in that order.
 At a high savings rate and an FU taxable account there isn’t a need for a large traditional emergency fund in a savings account.


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This is how I do things as well. Though I'd clarify that CCs are for the initial payment only, to be paid off from the brokerage account after the ACH transfer clears.  Once the value of my investments were such that a significant drop would still leave more than I wanted/needed in an EF, I saw no reason to not invest the money and seek those higher returns.