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Emergency Funds: what kind of account?
Posted on 7/1/13 at 2:37 pm
Posted on 7/1/13 at 2:37 pm
Fairly new lurker here. Sorry if this has been covered before.
I always seen people talk about saving up an emergency fund first as a priority with regards to how to best save/invest. What's the best kind of account to have this emergency fund in: savings, money market, or what? Or just any liquid account?
I'm 31, engaged, no kids, annual salary ~$119K before taxes and 457 contributions (current value ~$145K). I also have a Roth IRA and an additional account for investing worth ~$45k total. But I don't have a savings account and only have ~$4-5 K in my checking account. I was wanting to start investing more now that my fiancé has moved in, bringing some additional income (~$44 K before taxes) with next to no additional bills.
Should I be focusing on accumulating a true emergency fund first (and what kind of account), or just keep investing my additional money and if need be I can sell some of my stocks for emergency funds?
TL;DR: What kind of account do you have your emergency funds in?
TIA
I always seen people talk about saving up an emergency fund first as a priority with regards to how to best save/invest. What's the best kind of account to have this emergency fund in: savings, money market, or what? Or just any liquid account?
I'm 31, engaged, no kids, annual salary ~$119K before taxes and 457 contributions (current value ~$145K). I also have a Roth IRA and an additional account for investing worth ~$45k total. But I don't have a savings account and only have ~$4-5 K in my checking account. I was wanting to start investing more now that my fiancé has moved in, bringing some additional income (~$44 K before taxes) with next to no additional bills.
Should I be focusing on accumulating a true emergency fund first (and what kind of account), or just keep investing my additional money and if need be I can sell some of my stocks for emergency funds?
TL;DR: What kind of account do you have your emergency funds in?
TIA
This post was edited on 7/1/13 at 2:39 pm
7
Posted on 7/1/13 at 2:42 pm to That's BS
I 've always heard a money market account where you have 3-6 months income. Then main thing is it has to be readily available. If you can find a better interest rate then take it.
Posted on 7/1/13 at 2:47 pm to Duckman13
I keep like $30k in a checking account, all my money is in stocks, if I hit a scenario where I need more money than that and the market is down, I figure Ill sell at a loss and take that as a deduction.
Im not too interested in keeping $100,000 or whatever in a bank account collecting 1 penny per month per $10k.
Im not too interested in keeping $100,000 or whatever in a bank account collecting 1 penny per month per $10k.
Posted on 7/1/13 at 2:49 pm to ThaBigFella
quote:
I keep like $30k in a checking account,
Be careful throwing out absolute values in a thread like this, or you'll have people attempting to put 30K away when they shouldn't.
Posted on 7/1/13 at 2:54 pm to Teddy Ruxpin
Haha, honestly $30k is too much to keep yielding almost nothing, I really can't forsee any scenario where I would an emergency $20k even right then and there. That is so much money. Maybe if a business is going under, but that's not an emergency, you've got time to get the money together and you can see it coming.
There is no emergency like that besides possibly losing one's job. In that case $20K should hold over anyone for at least 2 months at a very high standard of living but more likely 4-5 months
There is no emergency like that besides possibly losing one's job. In that case $20K should hold over anyone for at least 2 months at a very high standard of living but more likely 4-5 months
This post was edited on 7/1/13 at 2:55 pm
Posted on 7/1/13 at 2:56 pm to That's BS
I would definitely recommend getting an emergency fund set up.
3-6 months is the standard. I personally have 5 months put away, but it is up to you and what you are comfortable with.
I have half of mine in a basic savings account and the other half in a money market account. Can't go wrong either way there.
3-6 months is the standard. I personally have 5 months put away, but it is up to you and what you are comfortable with.
I have half of mine in a basic savings account and the other half in a money market account. Can't go wrong either way there.
Posted on 7/1/13 at 2:56 pm to That's BS
money market
even though they're paying like shite right now
or some savings accounts pay 1+%
even though they're paying like shite right now
or some savings accounts pay 1+%
Posted on 7/1/13 at 2:56 pm to That's BS
Nice topic, I'm interested to hear responses. I'm unsure of where to store future efunds
Posted on 7/1/13 at 2:57 pm to ThaBigFella
quote:
Im not too interested in keeping $100,000 or whatever in a bank account collecting 1 penny per month per $10k.
I would hope not
Posted on 7/1/13 at 2:58 pm to ThaBigFella
Yeah, I kinda don't like the idea of having a big chunk of money sitting there losing value (vs. inflation). That's why I've always been looking to invest more instead. But now I'm thinking I might should take a bit of a break, or just not invest any more than I currently am, and let my fiance's income build us up an EF.
Posted on 7/1/13 at 3:01 pm to That's BS
quote::|
But now I'm thinking I might should take a bit of a break, or just not invest any more than I currently am
Posted on 7/1/13 at 3:03 pm to GoCrazyAuburn
quote:
3-6 months is the standard. I personally have 5 months put away, but it is up to you and what you are comfortable with.
I keep seeing the 3-6 months income thing as well, but I'm guessing I should just look at net take home pay? My take home pay is only about 60-65% of my salary before taxes and 457 contribution.
Posted on 7/1/13 at 3:05 pm to That's BS
Well, with the additional income and relatively no additional costs, it shouldn't take long to set up a basic emergency fund, and then you can invest away
Posted on 7/1/13 at 3:05 pm to That's BS
I keep my emergency fund in a savings account. I have both a 401(k) and Roth IRA, though I do not even include that in my emergency set up. Roth IRA's are a popular choice for emergency funds, yet I prefer to have the cushion sitting in savings for now.
I figure, once I get more comfortable with investing in general I will then empty out a large portion of my savings into some mutual funds/stocks. Right now I am still largely uncomfortable with my knowledge of the markets, thus why I am reading a Random walk down wall street.
I figure, once I get more comfortable with investing in general I will then empty out a large portion of my savings into some mutual funds/stocks. Right now I am still largely uncomfortable with my knowledge of the markets, thus why I am reading a Random walk down wall street.
Posted on 7/1/13 at 3:07 pm to That's BS
It doesn't have to be 3-6 of income you can go for 3-6 months of living expenses. That is what I do. My income has some fluctuation, so I based it off of what it takes for me to live each month.
Posted on 7/1/13 at 3:09 pm to That's BS
Why can't a taxable investment account be used as an emergency savings fund? Barring a crash and burn of the entire market, a diversified account in some mature markets would be better than a savings account collecting next to nothing.
I'm of the opinion to keep a small part, ie. 1-2 months in a savings account, some fat in checking (ie. another month or so), and the rest to be safely invested. There's not many emergencies that would require more than a couple months funds in short notice. Otherwise, stocks can be sold and used as cash. Diversity in that account will ensure the funds don't disappear.
This also assumes you don't have significantly varying expenses or "risky" investments that could quickly call for sums of money (ie restaurant, rental property, etc.).
I'm of the opinion to keep a small part, ie. 1-2 months in a savings account, some fat in checking (ie. another month or so), and the rest to be safely invested. There's not many emergencies that would require more than a couple months funds in short notice. Otherwise, stocks can be sold and used as cash. Diversity in that account will ensure the funds don't disappear.
This also assumes you don't have significantly varying expenses or "risky" investments that could quickly call for sums of money (ie restaurant, rental property, etc.).
Posted on 7/1/13 at 3:12 pm to That's BS
quote:
I keep seeing the 3-6 months income
That is merely a common suggestion. If you keep a 1 month emergency fund and can sleep at night then that will do the trick. Simply put, you should not live pay check to pay check, and you should not keep everything in an emergency fund if you are aware of inflation eating the value of your fund.
Think of the worst case scenario you could experience, and what it would take to recover from it. I am not talking about something absolutely ridiculous, more or less, unemployment and the time it takes you to get a new job, etc...
Posted on 7/1/13 at 3:20 pm to GoCrazyAuburn
quote:
It doesn't have to be 3-6 of income you can go for 3-6 months of living expenses. That is what I do. My income has some fluctuation, so I based it off of what it takes for me to live each month.
That's what I was thinking.
I've needed a large chunk of cash 2 different times over the past couple of years and I took out margin loans against my investment account each time at 6%. Borrowed $8K to make a bulk principal payment so I could refinance my house with no PMI (3.375% for 15 yr loan), and paid that loan off in 6 months, costing me about $250 in interest. The 2nd time I borrowed $4K to go towards the purchase of the engagement ring, and will pay that off this week costing me $60 in interest. By having that money invested the whole time instead of sitting in a checking account, I earned more return than I paid in interest on those loans. Good strategy? And should I consider this at least PART of my EF? I can borrow up to about 50% of my single account at any given time, so up to $20 K currently and growing.
Posted on 7/1/13 at 3:27 pm to LSUtigerME
quote:
Why can't a taxable investment account be used as an emergency savings fund? Barring a crash and burn of the entire market, a diversified account in some mature markets would be better than a savings account collecting next to nothing.
This has been my way of thinking as well. See my other post above about my margin loans.
I agree with what you said, just making sure I wasn't missing anything.
Posted on 7/1/13 at 3:29 pm to RickAstley
quote:
Think of the worst case scenario you could experience, and what it would take to recover from it. I am not talking about something absolutely ridiculous, more or less, unemployment and the time it takes you to get a new job, etc...
I honestly feel like I could find a job relatively fast. Would be surprised if it took me more than 2 weeks if I was really looking for a new job.
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