This always felt like banker advice to me. That’s an insane percentage of cash to have sitting in an account that’s earning less interest than the rate of inflation.
I would suggest everyone have a stock investment account and not worry about the percentage. Setting aside $1 per month is infinitely better than $0.
This always felt like banker advice to me. That’s an insane percentage of cash to have sitting in an account that’s earning less interest than the rate of inflation.
The advice is to have access to your funds, you’re free to put that anywhere you like. Index funds, bonds, stocks etc
Doesn’t putting the $$ anywhere that’s not retrievable miss the point of having an emergency fund? It’s supposed to be liquid assets you can spend if you had to. Putting it anywhere with good returns would keep it from being available at 11:45pm on a Saturday night when the ER is demanding payment now or they won’t treat you.
That’s what credit cards are for. You have a while to cash in your investment and pay the bill.
Although things are so uncertain right now I’m considering pulling all my savings out of the market. I know the stock market isn’t real, it has a good chance to even go up. But I think we’re heading for Great Depression part 2 if all the threatened tariffs happen.
The goal of an emergency fund is to be available for an eventual emergency. If you lose your job and need to live on saved up money for a few months, you might be forced to sell stock at the wrong time, losing capital. There is a middle ground where you invest that money in a low-risk investment product that will grow with time, without the volatility of the stock market.
To be fair, 6 month is a lot, and most likely not the first goal someone should have when it comes to personal finance starting from zero.
Indeed. I think 3 months is reasonable too, that’s more than enough time to find another job. And you can leave it in an easy access savings account so it makes a little interest
This always felt like banker advice to me. That’s an insane percentage of cash to have sitting in an account that’s earning less interest than the rate of inflation.
First, if you’re getting less than 3% on your savings account rate, find a better bank (or even better a credit union).
Second, you will find that there are times in life when having cash you can lay your hands on immediate solves problems that nothing else can. An extreme example: if you need to get bailed out of jail or retain a lawyer right now, the stock you have in your portfolio is going to take more than 24 hours to liquidate and get transferred into your checking account you can pay the court or a bondsman. More than likely its closer to 48 for the market to open to close your position and perform a wire transfer to get the cash in your hands. A less extreme situation may be a desperate car repair or a dental root canal.
Lastly, you really don’t want your emergency money in volatile stocks. Even an boring S&P500 index fund is a bad choice, why? Because there are times of financial crisis that can drive down the value of your stocks or mutual funds. Its entirely possible that is the time when you’re going to need cash to float on. Selling at the bottom of the market in a crisis is a bad place to be. This was many people’s situation in 2007/2008 during the financial crisis where the market tanked the second worst in US history, and people were losing their jobs left and right.
Those graphs make it look scary but clearly the stock market had trended upwards. If you’re using your emergent fund within a year or two of putting the money in, I would argue it’s not an emergency.
Bail is a weird thing to be planning for and I don’t think you have the timeline right on how quickly bail is set.
But my main point was to simply put money aside at even the smallest amount rather than make excuses.
Putting it in an investment account rather than a savings account sitting right next to your checking account is too easily to access. The withdrawal delay can be a feature.
The balance of the emergency fundis not something one should be seeing or thinking about as often as one sees and thinks about their bill payment account.
Even if one is only comfortable using a saving account, I would still suggest using a separate financial entity.
The European deposit protection is fixed at €100000 pr. customer instead of a percentage. They are not allowed to use customer savings for their own investment or loan outs. It’s handled completely separately…
Regardless of guarantee, the bank earns a lot more on loans than deposits, so their advisors will always try to push their loan products even when you have money in the bank. They want the customer to be in debt to them. That’s how banks earn money and always have.
The idea that a bank is some kind of piggy bank where they use customer deposits for investment is a bedside story. They loan money to loan out and then take a cut. It’s loans all the way.
Banks have no interest in plain deposit accounts except for being a point of contact to the customer so they can sell loans.
This always felt like banker advice to me. That’s an insane percentage of cash to have sitting in an account that’s earning less interest than the rate of inflation.
I would suggest everyone have a stock investment account and not worry about the percentage. Setting aside $1 per month is infinitely better than $0.
The advice is to have access to your funds, you’re free to put that anywhere you like. Index funds, bonds, stocks etc
Check what options are available in your country.
Doesn’t putting the $$ anywhere that’s not retrievable miss the point of having an emergency fund? It’s supposed to be liquid assets you can spend if you had to. Putting it anywhere with good returns would keep it from being available at 11:45pm on a Saturday night when the ER is demanding payment now or they won’t treat you.
That’s what credit cards are for. You have a while to cash in your investment and pay the bill.
Although things are so uncertain right now I’m considering pulling all my savings out of the market. I know the stock market isn’t real, it has a good chance to even go up. But I think we’re heading for Great Depression part 2 if all the threatened tariffs happen.
The goal of an emergency fund is to be available for an eventual emergency. If you lose your job and need to live on saved up money for a few months, you might be forced to sell stock at the wrong time, losing capital. There is a middle ground where you invest that money in a low-risk investment product that will grow with time, without the volatility of the stock market.
To be fair, 6 month is a lot, and most likely not the first goal someone should have when it comes to personal finance starting from zero.
Indeed. I think 3 months is reasonable too, that’s more than enough time to find another job. And you can leave it in an easy access savings account so it makes a little interest
First, if you’re getting less than 3% on your savings account rate, find a better bank (or even better a credit union).
Second, you will find that there are times in life when having cash you can lay your hands on immediate solves problems that nothing else can. An extreme example: if you need to get bailed out of jail or retain a lawyer right now, the stock you have in your portfolio is going to take more than 24 hours to liquidate and get transferred into your checking account you can pay the court or a bondsman. More than likely its closer to 48 for the market to open to close your position and perform a wire transfer to get the cash in your hands. A less extreme situation may be a desperate car repair or a dental root canal.
Lastly, you really don’t want your emergency money in volatile stocks. Even an boring S&P500 index fund is a bad choice, why? Because there are times of financial crisis that can drive down the value of your stocks or mutual funds. Its entirely possible that is the time when you’re going to need cash to float on. Selling at the bottom of the market in a crisis is a bad place to be. This was many people’s situation in 2007/2008 during the financial crisis where the market tanked the second worst in US history, and people were losing their jobs left and right.
S&P500 returns over the last 100 years:
source
All those red years would mean your desperately needed emergency fund is worth a fraction of what you put into it.
Those graphs make it look scary but clearly the stock market had trended upwards. If you’re using your emergent fund within a year or two of putting the money in, I would argue it’s not an emergency.
Bail is a weird thing to be planning for and I don’t think you have the timeline right on how quickly bail is set.
But my main point was to simply put money aside at even the smallest amount rather than make excuses.
Putting it in an investment account rather than a savings account sitting right next to your checking account is too easily to access. The withdrawal delay can be a feature.
The balance of the emergency fundis not something one should be seeing or thinking about as often as one sees and thinks about their bill payment account.
Even if one is only comfortable using a saving account, I would still suggest using a separate financial entity.
that’s what high yield savings accounts are for
Bank advicers usually don’t advice people to it either, because the bank doesn’t make any money on those accounts,.
They do make money on those accounts as they only have to keep 10% of it to hand and can loan out the other 90
The European deposit protection is fixed at €100000 pr. customer instead of a percentage. They are not allowed to use customer savings for their own investment or loan outs. It’s handled completely separately…
Regardless of guarantee, the bank earns a lot more on loans than deposits, so their advisors will always try to push their loan products even when you have money in the bank. They want the customer to be in debt to them. That’s how banks earn money and always have.
The idea that a bank is some kind of piggy bank where they use customer deposits for investment is a bedside story. They loan money to loan out and then take a cut. It’s loans all the way. Banks have no interest in plain deposit accounts except for being a point of contact to the customer so they can sell loans.