Where to keep emergency fund

[stillmovingforward]

Where does everyone keep their emergency fund? Not for general "emergencies" such as needing a new fridge but for real emergencies like losing your job and unable find a new one for several months, major illness, etc?
Why? I have several thousand sitting in a standard savings account and I'm not sure i need THAT much in a low interest bearing account. But in case something goes wrong, I'd like to be able to access within, let's say, a week or two (I gave a credit card to tide me over).

[qofcc]

I keep a months worth of cash in a savings account in addition to a months worth of cash in checking and the rest invested in a brokerage account. I have enough low interest credit lines available to get by for months if the market was down and I didn't want to sell stock right away.

[giramomma]

We have a scant 3 month EF in a credit union.

The rest is in a brokerage account.  We sold stock once, and that was over a decade ago. I forgot how long it took, but it wasn't particularly long. We had 4 weeks from when we put an offer on our house to when we  closed.  So the money had to come to us pretty quickly.

[Regis]

We only keep enough money in our checking account to cover our expenses until the next paycheck and about a month's worth of expenses in our savings account.  The rest is in a taxable brokerage account.

[movingforward]

I keep Around $5K in a traditional savings. The rest is in a post tax account (index fund).

I'm probably going to start putting more into my traditional savings though because I will need to purchase a car in a few years. I would like to pay cash for it especially with interest rates rising.

[Lizard Queen]

We're not particularly organized with our money, but I've got more tucked away into tax shelters now. I still have lots in cash. If we went through our unsheltered money, I have some cash in my Roth and my inherited IRA. Let's not even talk about my rollover. My DH reminds me warren buffet believes in keeping lots of cash, but he's in a whole different league of a different league.
Anyway, even if I didn't have all that, I got a 457 I could tap. Also, turn in receipts for reimbursement from our HSA. Could do the same with my old education savings account.
Anyway, you could call our strategy, "emergency resources".

[thyme4change]

I keep as much of it invested as possible in a s&p mutual. The theory that it should be in savings seems long outdated. Granted, the first year the money is in there you could lose money if you need to cash in, but the longer it stays invested, the more likely you made gains on it.

That said, right now I have enough in savings to cover both my kids next school year - tuition, living expenses, etc.

[minnesotapaintlady]

Mine has been dwindling the past few years with shoveling a lot into retirement and paying down the house.  But right now (and in order I'd hit them up) 

3 months expenses in high yield checking
3 months expenses in I bonds
4 months expenses in taxable account

At this point things would start to get uglier, I would tap the HELOC or raid Roth contributions I guess. 

I do want to beef it up some.  I think I'm going to wipe out the first layer of protection in the first few months of the year already. 

[laterbloomer]

I've kept my expenses low enough that EI would cover them if I became unemployed, I qualify for at least 10 mths of EI so that is my first line of defense. Then I have an LOC that would cover 2 years of living expenses. That would cover me until it's a good time to cash in my after tax index funds. That will cover either catastrophic expenses or another 3 yrs. By that time I'm at an age that I can look at dipping into RRSP'S and collecting CPP and OAS. If life is still difficult that's when I look at selling the house.

I got a plan 😁

[haapai]

I've been keeping my EF in a savings account.  I'm careful not to look at the balance and to segregate it from the savings that I maintain for vacations and semi-annual automobile insurance premiums, but the return is atrocious and I cry inside every time that I buy a candy bar that has increased in price.  There has to be a better way.  What's a brokerage account? 

[Peace77]

Jan 29, 2022 14:11:44 GMT -5 haapai said:

I've been keeping my EF in a savings account.  I'm careful not to look at the balance and to segregate it from the savings that I maintain for vacations and semi-annual automobile insurance premiums, but the return is atrocious and I cry inside every time that I buy a candy bar that has increased in price.  There has to be a better way.  What's a brokerage account? 

Your emergency fund should be in an insured savings account or money market account, not in a brokerage account.   You can look for better interest rates at Bankrate.com or check credit unions near you at NCUA.gov

[Tiny]

My EF use to be in a savings account and CDs... over the years I've decreased the total EF amount - by moving CD money to my Roth and then then investments. We're talking 2K to 3K here and then 2K to 3K there... I have to admit I'm glad I moved some to my Roth back when I was trying to build up how much I was contributing to tax advantaged accounts - I couldn't really max my 401K and didn't have anything left for a Roth (or after tax) - so moving some of my too big EF to my Roth turned out to be a pretty good idea. the money in the Roth started out in a "cash fund" but slowly got moved to investments. I keep about 10K in my Roth in something "safe" the rest is invested.

That said... my current EF is 1 months gross income in checking/savings account. 2 months gross income at Ally. And then 17K in I-bonds (which I can't touch as none of it has been in i-bonds for a year yet).

[haapai]

Isn't anyone here going to confess that they consider contributions to a Roth IRA a type of EF? 

[minnesotapaintlady]

Feb 2, 2022 10:04:00 GMT -5 haapai said:

Isn't anyone here going to confess that they consider contributions to a Roth IRA a type of EF? 

I did.  Not the first money I'd tap, but I never hesitate to drain more liquid accounts to make sure the Roth is fully funded every year as it can always be taken back out penalty free if necessary.

[haapai]

I've never tapped mine for an emergency either, but I do know that it is there and available in case one of the big, big bads happens. 

[laterbloomer]

Feb 2, 2022 10:04:00 GMT -5 haapai said:

Isn't anyone here going to confess that they consider contributions to a Roth IRA a type of EF? 

We call that a Tax Free Savings Account (TFSA) here and that's where mine sits.

[swamp]

Under my mattress

[haapai]

Jan 29, 2022 11:49:49 GMT -5 thyme4change said:

I keep as much of it invested as possible in a s&p mutual. The theory that it should be in savings seems long outdated. Granted, the first year the money is in there you could lose money if you need to cash in, but the longer it stays invested, the more likely you made gains on it.

 I wonder if that advice is still being doled out.  It's been years since I read one of those Money-for-Dummies-or-Beginners books and I've never read any of the decade-specific books.   Can anyone give a report on whether "in savings" is still being pushed or still being pushed for everyone or for all of your EF?

It seems so weird to be typing this since I reacted so badly when Phil first talked about the $5K in savings and the rest in the market version.  (That was about 15 years ago and I was just getting my act together after paying off some very expensive credit card debt very slowly and not putting a dime into retirement while doing it.  I think that I said at the time that I could accept a 1% return that was negative after inflation was considered if it kept me from paying 12% interest on credit card debt ever again.)  I don't feel that way anymore. 

[minnesotapaintlady]

Feb 2, 2022 12:32:09 GMT -5 haapai said:

Jan 29, 2022 11:49:49 GMT -5 thyme4change said:

I keep as much of it invested as possible in a s&p mutual. The theory that it should be in savings seems long outdated. Granted, the first year the money is in there you could lose money if you need to cash in, but the longer it stays invested, the more likely you made gains on it.

 I wonder if that advice is still being doled out.  It's been years since I read one of those Money-for-Dummies-or-Beginners books and I've never read any of the decade-specific books.   Can anyone give a report on whether "in savings" is still being pushed or still being pushed for everyone or for all of your EF?

It seems so weird to be typing this since I reacted so badly when Phil first talked about the $5K in savings and the rest in the market version.  (That was about 15 years ago and I was just getting my act together after paying off some very expensive credit card debt very slowly and not putting a dime into retirement while doing it.  I think that I said at the time that I could accept a 1% return that was negative after inflation was considered if it kept me from paying 12% interest on credit card debt ever again.)  I don't feel that way anymore. 

I think it kind of depends.  Once you get to a point where you have enough in a taxable account that you could easily cover an emergency no matter how the market is doing, it makes more sense to keep most of it invested.  But if you need a 20K EF and that's all you have then you should keep it somewhere safe since having a 30% market downturn when you need it would be bad.  But if you have 200K in a taxable account...meh. It would suck to cash in 20K if the market was down, but you still have way more than you need.

Phil's been retired for like 100 years now and I believe has quite a bit in bonds.  He can access all his retirement accounts and they're probably way, way more than he'll ever need so there is no real point to keeping cash. 

[haapai]

I seem to recall that he started with his cash-light strategy when he was quite young,  I also seem to have gotten the impression that he was never poorly paid and I always suspected that he had assets before he started working.  I also got the impression that he started working well before IRAs or 401(k)s existed -- i.e. a time when if you wanted any kind of independence from your employer or wanted to retire before being eligible for a pension or social security -- taxable accounts were your only decent bet.  He also was definitely old enough to remember some painful bouts of inflation. 

It was easy for me to dismiss what he had to say as a strategy conceived out of necessity that only got better as time went by. 

But now I am not so sure.  The opportunity cost of holding cash is pretty high.  I've also gotten much, much better at anticipating when I'll need cash.  I know what my expenses are now.  I know the difference between emergencies and routine replacement of big-ticket things, now.  Shouldn't I be encouraged to take more risk with the part of my emergency fund that I am least likely to need?  

[Tiny]

Feb 2, 2022 10:04:00 GMT -5 haapai said:

Isn't anyone here going to confess that they consider contributions to a Roth IRA a type of EF? 

When I first started out - I did consider my contributions as part of my EF - because those first bunch of years of contributions weren't invested. And I was running close to the bone on "cash" money - because I was moving my EF money to my Roth... If I needed to pull the money out - I wouldn't have to potentially sell at a loss...          I don't think of my currently yearly contributions as "EF money".    

It's part of making early retirement work money (as a way to temper how much taxable money I have to pull from 401K once I hit 59.5).   Well, that the current thought/plan at this point. 

[Tiny]

Feb 2, 2022 13:57:02 GMT -5 haapai said:

 The opportunity cost of holding cash is pretty high.  I've also gotten much, much better at anticipating when I'll need cash.  I know what my expenses are now.  I know the difference between emergencies and routine replacement of big-ticket things, now.  Shouldn't I be encouraged to take more risk with the part of my emergency fund that I am least likely to need?  

I think this is why "Emergency Fund" advice  needs to be more nuanced than "Save up 6 months or 12 months expenses in a safe investment/savings account/checking account"  and you are done with your EF building.   

I think the appropriate amount to have in an EF and how much of one's EF to hold in "Cash"  changes over time.    

I know my "cash" EF has decreased over time as my income has gone up and as taxable account has grown bigger.     I can "cash flow" some types of Emergencies  from my monthly paycheck - by stopping the monthly transfer to my taxable account and/or my sinking funds.    

If I lose my job - the 2 months of gross income I kept in "cash" would have been sufficient... during those 2 months I could choose the best account/place to pull money from for month 3 to whenever...

When I was younger  - the biggest pile of money I had WAS my EF.   having to pull month 3 from an investments during a downturn  would have been very painful back then. 

[grumpyhermit]

I don't really have a "job loss" EF so much as a variety of mid-to long term sinking funds that could be tapped if needed. 

Up until very recently I kept it all in regular savings, but given the effectively zero gain, and the fact that most of these funds would not need to be tapped for years if not longer, I finally opened a taxable account and bought some shares of an index fund. Nothing exciting, but its likely to yield more than my savings over time. 

I still have far more than I should sitting in cash savings, and I need to probably shovel more at the index fund, but part of why I like the savings accounts is I can carve it up into a lot of discrete buckets. And logically I know I could just track on a spreadsheet how much is for what, but so far I've been too lazy to just make the switch. 

[haapai]

Feb 2, 2022 20:07:00 GMT -5 grumpyhermit said:

I don't really have a "job loss" EF so much as a variety of mid-to long term sinking funds that could be tapped if needed. 

Up until very recently I kept it all in regular savings, but given the effectively zero gain, and the fact that most of these funds would not need to be tapped for years if not longer, I finally opened a taxable account and bought some shares of an index fund. Nothing exciting, but its likely to yield more than my savings over time. 

I still have far more than I should sitting in cash savings, and I need to probably shovel more at the index fund, but part of why I like the savings accounts is I can carve it up into a lot of discrete buckets. And logically I know I could just track on a spreadsheet how much is for what, but so far I've been too lazy to just make the switch. 

Don't beat yourself up for laziness when you're just tripping over the same things that the rest of us are.  I'm old enough to remember when being able to have more than one savings account at the same institution changed things dramatically.  It was such a relief to be able to store cash outside of checking and not have to keep track of how much of the single savings account was designated toward the next semi-annual automobile insurance payment and what was the mere beginnings of an EF. 

I sometimes think that banks made segregating these separate accounts intended for different ends much, much easier at almost the same point in time that it became much easier to invest in the markets.  That is, right when transaction costs for market moves dropped dramatically and account minimums dropped, banks and credit unions suddenly allowed you to open multiple savings accounts and even give them unique names to distinguish their purposes, just to make keeping your money in the bank or credit union a little bit more attractive. 

[kadee79]

I keep some in a money market acct. and some in a regular savings acct.  There is also a bit of excess in my checking acct. for something that might need to be fixed/replaced asap, like a well that was struck by lightening...one time.  That needed repaired asap!