ACH pulls works if your bank/CU recognizes the routing number Mango uses, which is problematic for some. Alliant CU (Chicago) works fine. Go lightly. Probably faster/easier to load up a Serve/BB/Redbird with the debit card if the money is needed. There's a post on thefinancebuff with some comments regarding which banks work and which don't.
Emergency Savings Fund
- Thread starter Ryan-o
- Start date
Without going into EF vs Float. I try to manage it in this way. I have money spread across several banks. Simple $3k, Chase $1.5k, a local CU $2k, and ST $3k. This totals about $10k. I'm young, so I don't have much saved up, but my 401k has more than this in it. Simple let's you use goals to separate money, but it's all in the main account. I can "withdraw" from this account, and it keeps track of what I have in my goals, so it's immediately replenished upon another deposit. I can pull $2,000 from Simple to cover float if a statement is closing soon, of if liquidation is taking too long, and it's replenished upon the next deposit(s) totaling $2k.
Once Freedom 10% goes away I'll move that over to Mango, if it's still around, and will be moving about $1.5k from a local CU once the accounts are linked. ST will get put there too once it's killed due to abuse, which should be next July, assuming Mango is still around.
Once Freedom 10% goes away I'll move that over to Mango, if it's still around, and will be moving about $1.5k from a local CU once the accounts are linked. ST will get put there too once it's killed due to abuse, which should be next July, assuming Mango is still around.
penncomm
Level 2 Member
I used ShareBuilder (Capital One) to build up my emergency fund over the last couple years, investing weekly in a couple stocks along the way. Once it hit my emergency fund target, I took most of the funds out of the market. I can get access to it within a couple days if I need it. Probably not the best way to do it, but it worked for me.
6% APY at Mango? What's the catch?
6% APY at Mango? What's the catch?
nickelfish1
Level 2 Member
.
I actually keep 8k in a safe deposit box at a bank. It's been there for six years. At first, it was about saving as a secret from hubs. I put every bday, Xmas, refund, dividend, yard sale dollar in there. This was before I had a point or mile to my name and was planning a big trip to Europe. I expected hubs to say we couldn't afford it and I was prepared to be all ...Ah! But we can! Look! The plan backfired because when I sprung it on him he said he'd been squirreling money away and had the whole trip saved in a different bank. I kept my money and there it sits. I guess now its an extra emergency fund since I rarely think about it.
I keep an asset allocation were I have about 5% in cash at Vanguard for emergency (about 90 day of expenses), on my regular checking accounts I have 2 main accounts I keep minimum to avoid bank fees, if something happens were I get 20k frozen because of MS, I have enough CL on several cards that I can tap in to buy GF for several months to cover that float.
LoveMountains
Level 2 Member
Personally, I am not sure how I'd feel if I'd know that I am guaranteed to lose 8,000 * ~2.4% (inflation) = $192 of purchasing power every year.
So, I am trying my best to avoid such situation. At least I-bonds protect you against the inflation.
thorax
Level 90 ( ͡° ͜ʖ ͡°) Warlock
Finding a financial tool with high return, low risk, and liquidity is kinda hard.
What is "ST" and simple? What is the benefit in spreading it across so many accounts? Are you hitting minimums to get a higher interest?
PointsMahalo
Level 2 Member
Here's a post I wrote about 6 months ago with some additional options/information: http://saverocity.com/forum/threads/liquid-fdic-insured-high-interest-accounts.132/
I think these types of accounts are great for EF purposes. But everybody is different.
I think these types of accounts are great for EF purposes. But everybody is different.
Your argument for them being great is that they pay more interest. I think there is a point there, but equally if you go for quirkier programs you increase the chance that something might slow down your access to funds. I don't think this should necessarily stop people, but they should consider it.
PointsMahalo
Level 2 Member
Yeah, you're right of course. Accessing the money this way isn't as simple as it just being in a savings/checking account. If you're managing money for your family and have some sort of accident where you suddenly go to the hospital, you want to be sure that someone else knows how to get the emergency money out if cash is needed urgently and you aren't available.
I guess my planning for emergency funds typically revolves around the potential case of needing cash pretty soon but not absolutely immediately. For absolutely immediately my emergency plan is to pay with a credit card. Or in the most dire case that required cash-only you could use a card to get a cash advance (if there was no other way to cover the needed amount before you could manage to transfer out the cash from the prepaid accounts).
In my mind (/situation), the expected value for leaving the EF money in accounts like this is higher than the expected value of keeping the funds in an account that has immediate access (factoring in vague guesses at the probability that cash is needed immediately vs just very soon). So all that being said - I think we're on the same page that different people have different levels of risk and risk tolerance and it is important to understand one's situation before putting important money like EF somewhere. I should have written that more explicitly
ST = Suntrust - Delta Debit card
Simple = www.simple.com which uses Bancorp as a holding bank for the money, so they are FDIC insured.
One of my CUs gives me 5% on the first $500, so I leave $500 plus some old savings accounts there. Chase I need $1.5k to avoid monthly fees, and it gets me the 10% dividend on the Freedom card. Suntrust needs $3k to avoid monthly fees, and Simple gets the rest as it's my main bank.
PointsNovice
Gold Member
I have a prepaid Paypal debit linked to my personal Paypal. It comes with a savings account that gives 5% for the first $5000. There is a $4.95 monthly fee. But, i funded with paypal cash with OBC and now every now and then I put some money in the prepaid account and use for regular purchases to keep it "open". So far so good. As far as I know, there is no limit on the number of Prepaid Paypal debit cards you can link. However, each one will come with a 4.95 fee per month. On another note, I just got a 5% cash back offer in it for shopping at walmart. I may just be able to get 9-10% back on all my holiday walmart shopping .
.Probably three, as this is a netspend product.
thorax
Level 90 ( ͡° ͜ʖ ͡°) Warlock
Does that really even matter though? As (I think) DB and others pointed out, we've all got high credit limits and are therefore as almost as liquid as we want to be in the short term. Paying with credit card, V/MC gift cards, and cash advances gives me lots of options. In fact, headed to Thailand, see you guys in 10 years. Anyone wanna meet me there for a DO?
MickiSue
Level 2 Member
I'm old enough that I could start drawing from IRAs whenever I want to...so that's my "emergency" account. TlofML is in his 50's, and I've been badgering him to get his EF out of the savings acct that pays less than 0.5% interest...he knows he needs to, but hasn't yet gotten off the dime to do it.
That said, it seems to me that, whether you are my age, or in your 20's, you need to define two really important criteria for yourself.
1: What is an emergency? and
2: How much do I need in case of that emergency?
As Haley's scenario with her parents demonstrates, an emergency that becomes chronic is no longer an emergency on its own, and may foment further issues, if not handled properly from the beginning.
I would posit that MSing as an EF is a fine example such "not handling properly" from the beginning. Losing your job is a real and, for nearly all of us, likely possibility at some point in our lives. I spent the final 8 years of my employment life working for small corporations. I worked for four, and was laid off from three. At that point, I became a full time entrepreneur, with my very own set of challenges. Had I bought $20K in gift cards, something I could easily have done with available credit, I would have just added to the pressure, not relieved any of it.
Assuming that your plan is to be re-employed at some point, even a fully stocked 6 months of income EF can be insufficient, if the economy is in the state it was in 2009. Once the unemployment insurance runs out, you are completely dependent on that fund. And the chances that, once you actually find a new job, that it will pay what the old one did, are not fantastic.
I don't like to define savings as EFs, myself. To me, anytime that expenses stay consistent, and income drops, or income stays consistent, and expenses rise, is a time to think about those savings and using part of them, even knowing they'll need to be replaced when the crisis is past.
A dead oven, a week before Thanksgiving? You may have budgeted for Christmas, but not that extra $1K for the oven. Taking the funds from the EF, and replacing them in the next two to three months makes better sense to me than to let interest accrue on the cost of the oven. You'll lose less on that $1K, no matter where it's stashed, than you'd pay in interest on it, even for a month.
That said, it seems to me that, whether you are my age, or in your 20's, you need to define two really important criteria for yourself.
1: What is an emergency? and
2: How much do I need in case of that emergency?
As Haley's scenario with her parents demonstrates, an emergency that becomes chronic is no longer an emergency on its own, and may foment further issues, if not handled properly from the beginning.
I would posit that MSing as an EF is a fine example such "not handling properly" from the beginning. Losing your job is a real and, for nearly all of us, likely possibility at some point in our lives. I spent the final 8 years of my employment life working for small corporations. I worked for four, and was laid off from three. At that point, I became a full time entrepreneur, with my very own set of challenges. Had I bought $20K in gift cards, something I could easily have done with available credit, I would have just added to the pressure, not relieved any of it.
Assuming that your plan is to be re-employed at some point, even a fully stocked 6 months of income EF can be insufficient, if the economy is in the state it was in 2009. Once the unemployment insurance runs out, you are completely dependent on that fund. And the chances that, once you actually find a new job, that it will pay what the old one did, are not fantastic.
I don't like to define savings as EFs, myself. To me, anytime that expenses stay consistent, and income drops, or income stays consistent, and expenses rise, is a time to think about those savings and using part of them, even knowing they'll need to be replaced when the crisis is past.
A dead oven, a week before Thanksgiving? You may have budgeted for Christmas, but not that extra $1K for the oven. Taking the funds from the EF, and replacing them in the next two to three months makes better sense to me than to let interest accrue on the cost of the oven. You'll lose less on that $1K, no matter where it's stashed, than you'd pay in interest on it, even for a month.
thorax
Level 90 ( ͡° ͜ʖ ͡°) Warlock
Yes, but paying interest is also for people that don't post here...
MickiSue
Level 2 Member
Paying interest, when life is clicking along as planned, IS not for people who post here. But there are times in everyone's lives when budgets are tighter than others and the holidays tend to be among them.
We, for example, have three of our four kids living anywhere from a 1200 mile to a 7500 mile flight away from home. When they were younger, we picked up the bulk of the cost of their flights home for Xmas, because it was a gift for us, as well as them. And we could afford it, they could not.
The year the oven died a week before Thanksgiving (this was a true example!) we'd already paid out $2500 over our usual monthly expenses for three plane tickets (pre-miles earning cards). It was either interest or EF, at that point. We chose EF.
If you (the generic "you") are single, with a decent to high income, and relatively low fixed expenses, then none of this applies, does it? But for those who are trying to fit MS into a life filled with mortgages, high utility costs d/t hot summers and cold winters, along with the usual expenses of kids, grandkids, and for some, parents, then thinking critically about all this becomes very important.
We, for example, have three of our four kids living anywhere from a 1200 mile to a 7500 mile flight away from home. When they were younger, we picked up the bulk of the cost of their flights home for Xmas, because it was a gift for us, as well as them. And we could afford it, they could not.
The year the oven died a week before Thanksgiving (this was a true example!) we'd already paid out $2500 over our usual monthly expenses for three plane tickets (pre-miles earning cards). It was either interest or EF, at that point. We chose EF.
If you (the generic "you") are single, with a decent to high income, and relatively low fixed expenses, then none of this applies, does it? But for those who are trying to fit MS into a life filled with mortgages, high utility costs d/t hot summers and cold winters, along with the usual expenses of kids, grandkids, and for some, parents, then thinking critically about all this becomes very important.
You sound like a poor person.
Don't get me wrong, there is nothing wrong with being poor, I do it well myself too. But the reality is you are taking an approach that leans upon others to support you in times of need. The others here being credit lines, and doing so has inherent risk. Just as chasing a few bucks on a higher APR for the checking account brings in the risk that the operation you are saving with is flaky, your proposed back up is another 'flaky' thing.
That said, with enough moving pieces you can certainly make it work. And i'd go further to say that if you want to stop being poor and start being rich you need to do exactly what you are saying, but it is important to tip the hat towards the risks out there.
Ultimately, there will come a time (hopefully soon) where you are financially independent. When you are you will have a net worth of X and a percentage of that will be in cash, The EF may be used to acquire a product, cover income, take advantage of an investment opportunity etc, but ultimately it is different to hold cash than to hold the promise of credit when it was offered to you in times where you needed it not.
I do agree that such cash holdings come with an opportunity cost, and I frequently do not have an EF as I make opportunity choices.
BuddyFunJet
Level 2 Member
To me, EF is a layered concept. The first layer is true cash (folding green) since there are times when banks are closed and ATM has limits. Next is checking accounts, then credit cards and then investments.
Depending on your situation, the numbers for each level may change but there are times when each level is the best answer and I like to approach any problem with a full toolbox.
Depending on your situation, the numbers for each level may change but there are times when each level is the best answer and I like to approach any problem with a full toolbox.
cocobird
Level 2 Member
This discussion is very much part of the overall financial planning process. It will vary considerably based on your individual circumstances. So the initial question is where do you keep your EF is really looking at a list of alternatives that the initiator can consider.
I am in the camp that true EF should be actual assets and liquid. The use of credit products (credit cards, home equity lines) may provide temporary funding, but it is a liability and not an asset. This ultimately needs to be repaid or it can be quite costly in terms of interest and stress. It may also affect your ability to recover from an emergency (bankruptcy, inability to obtain future credit, job opportunities). For the last item, many people do not realize that employers often check your credit reports before hiring.
Most people do not have an adequate emergency fund. Various studies indicate that most people don't even have a couple of thousand dollars available, much less the three to six months of living expenses recommended. So it would not surprise me that most people do not touch their emergency funds because by the simple act of having one shows these are probably prudent people in the first place. Beyond that, some people do not characterize their liquid assets as an EF.
I know that I rarely think of the liquid portion of my assets as EF, although they would certainly meet that definition. If I were asked, I would probably say that I have not touched my EF, although I probably do so on an ad hoc basis. The fact that I use them for large expenses (such as paying cash for a car) doesn't occur to me that I am using EF because I don't think of that as an emergency.
The point that there is a lost opportunity cost (interest, investments) is certainly valid; however, I sleep just fine knowing that I can handle just about any emergency. I should add that I have faced an emergency situation when my parents were involved in a severe car accident that nearly depleted their resources, and my husband and I were prepared to use our assets to cover them. Fortunately, they reached a settlement such that we did not have to do so. To know that we had the ability to cover with our EF was a blessing.
I also believe that having an adequate EF can allow one to engage in greater risk taking with the rest of one's assets in terms of investments. This can help offset the "loss" incurred by keeping money in low yielding accounts.
I am in the camp that true EF should be actual assets and liquid. The use of credit products (credit cards, home equity lines) may provide temporary funding, but it is a liability and not an asset. This ultimately needs to be repaid or it can be quite costly in terms of interest and stress. It may also affect your ability to recover from an emergency (bankruptcy, inability to obtain future credit, job opportunities). For the last item, many people do not realize that employers often check your credit reports before hiring.
Most people do not have an adequate emergency fund. Various studies indicate that most people don't even have a couple of thousand dollars available, much less the three to six months of living expenses recommended. So it would not surprise me that most people do not touch their emergency funds because by the simple act of having one shows these are probably prudent people in the first place. Beyond that, some people do not characterize their liquid assets as an EF.
I know that I rarely think of the liquid portion of my assets as EF, although they would certainly meet that definition. If I were asked, I would probably say that I have not touched my EF, although I probably do so on an ad hoc basis. The fact that I use them for large expenses (such as paying cash for a car) doesn't occur to me that I am using EF because I don't think of that as an emergency.
The point that there is a lost opportunity cost (interest, investments) is certainly valid; however, I sleep just fine knowing that I can handle just about any emergency. I should add that I have faced an emergency situation when my parents were involved in a severe car accident that nearly depleted their resources, and my husband and I were prepared to use our assets to cover them. Fortunately, they reached a settlement such that we did not have to do so. To know that we had the ability to cover with our EF was a blessing.
I also believe that having an adequate EF can allow one to engage in greater risk taking with the rest of one's assets in terms of investments. This can help offset the "loss" incurred by keeping money in low yielding accounts.
BuddyFunJet
Level 2 Member
While the credit products are a debt, they allow provide a bridge to allow time to access/liquidate other assets so can be part of an emergency plan. For example, I keep a very high credit limit on one of my cards rather than spreading the credit lines evenly for easier MS so that if things get weird, a card that I ALWAYS carry can provide a large financial guaranty. As a teenager (45 years ago), I was in a car accident overseas. My mother was able to deal with the hospital and other expenses since she carried the American Express card and they provided any funds needed. Currently, when you go to a hospital, especially foreign, having a credit card with a high limit makes everything easier.
Some emergencies (bail) require a known amount of cash right now. Other require an unknown amount (hospitals) but you have to prove the ability to pay a large amount. When my brother was in the hospital in Thailand for a month, the billing department would come to the room when his bill reached about $1k to get a credit card payment (sometimes daily). Without the ability to make the payments, treatment would have stopped and he would have been put out to fend for himself.
Credit cards do have limitations but are a valuable tool in the emergency chest.
Some emergencies (bail) require a known amount of cash right now. Other require an unknown amount (hospitals) but you have to prove the ability to pay a large amount. When my brother was in the hospital in Thailand for a month, the billing department would come to the room when his bill reached about $1k to get a credit card payment (sometimes daily). Without the ability to make the payments, treatment would have stopped and he would have been put out to fend for himself.
Credit cards do have limitations but are a valuable tool in the emergency chest.
Good thread. I use 1 month-worth of expenses in Checking, 1 month in Schwab Muni-bond ETF tied to investor checking. I have never touched these, and sometimes do question their necessity. However, my remaining portfolio is 100% equities, so they do allow me a little added security to hold the equities.
Great forum you have created Matt
Great forum you have created Matt
Julian Brennan
Level 2 Member
Dunno where most ppl keep it but ours is parked in the 5% APR savings account that is attached to the Paypal prepaid mastercard. In emergency you could pay bills with the debit card within minutes. That can't be beat in terms of liquidity.
Other than that I'd use any of my $10k+ CC lines and by the time the statement rolls around and the payment becomes due I'd have transferred all the money out of the Paypal account and into the checking account or already back into the Visa or Amex accounts. Too bad you can only have one of those so you're limited to 10 grands for yourself and SO.
Hanaleiradio
Level 2 Member
Interesting thread. I'd second the comment made by MickiSue and a few others that the starting point is to think about what would truly define an emergency for you at this point in your life's journey, and then to reassess every 5 years or so. I'm older, with grown kids and more assets, and have found that my list of emergencies that I need to plan for has narrowed significantly from what it was when I was between 30-60 yr. I'll note that until last year, loss of a job with resultant loss of health insurance would have constituted a major emergency, as health insurance premiums would have been astronomical, if attainable at all, for someone with our histories. Obamacare has helped remove that from the list.
Ag Schools used to teach how to mitigate the 5 D's that could suddenly impact any farm family: death, dismemberment, disability, divorce, and disagreement. It always involved having the right kinds of insurance (including financial hedges) having some assets that are fairly liquid, understanding the government safety net programs and how to access them, having "side hustles" or other sources of income (MS anyone?), and having good lawyers! I've always thought emergency planning should focus on the 5 D's, and that merely having 3-6 months of emergency cash saved up, as preached by so many so-called financial advisors, provided a false sense of security.
Prior to having been in disaster zones twice where power was out for several days, I never appreciated the value of mattress money. When all the ATM's are down and the banks are closed, cash is king. Those situations are relatively rare in the US, and emergency response is usually stellar (aside from post Katrina NOLA), so I believe a few hundred $ in a fireproof safe is sufficient.
Ag Schools used to teach how to mitigate the 5 D's that could suddenly impact any farm family: death, dismemberment, disability, divorce, and disagreement. It always involved having the right kinds of insurance (including financial hedges) having some assets that are fairly liquid, understanding the government safety net programs and how to access them, having "side hustles" or other sources of income (MS anyone?), and having good lawyers! I've always thought emergency planning should focus on the 5 D's, and that merely having 3-6 months of emergency cash saved up, as preached by so many so-called financial advisors, provided a false sense of security.
Prior to having been in disaster zones twice where power was out for several days, I never appreciated the value of mattress money. When all the ATM's are down and the banks are closed, cash is king. Those situations are relatively rare in the US, and emergency response is usually stellar (aside from post Katrina NOLA), so I believe a few hundred $ in a fireproof safe is sufficient.
Like a lot of others here, I use Mango, Momentum, etc for the interest and liquidity if needed. I also try for 3% or higher checking accounts from smaller banks (usually kasasa checking types). It can become a cumbersome process depending on how many different accounts you have because of the limits (5k Mango, Momentum, PPP, etc), but I'm still earning 3 to 6% for money just sitting there for an EF. I've also found a couple smaller credit unions that offer 4% plus have the added benefit of allowing me to do some ms in my pjs. I figure it works out for them as I'm signing up for their checking account, and I get to do ms and get 4% for parking some money there.
thorax
Level 90 ( ͡° ͜ʖ ͡°) Warlock
I am poor, but mostly just in morality. I do have an EF, but sometimes really wonder if it necessary. This is really just a big thought experiment, right? Only a fool would take investment advice and strategies from strangers on the internet!
Sure, we are just spitballing. My point on thinking poor is that I would imagine you wouldn't worry about the opportunity cost of the EF once you have 'enough' money. I think it's worth pointing out as it shows that we take more risk, which we then attempt to justify when we are still 'poor' vs financially independent.
It shouldn't be a negative thing, but I can see it may be taken that way.
thorax
Level 90 ( ͡° ͜ʖ ͡°) Warlock
I'll never be rich enough to just urinate away money. Every dollar I have is an employee. It bothers me when my employees aren't working as hard as possible. If that doesn't bother you, well then, I've got a great investment opportunity for you with this one weird trick...
I think you are missing the point - when you are financially independent you will have a cash position. When you are trying to 'make it' you will be worried about losing out. Cash does work too, just because you don't see a short term interest payment doesn't mean it isn't doing something.
I'm not saying you should or shouldn't have an EF, simply that if you decide to drop it then it is important to acknowledge why so risk is understood.
thorax
Level 90 ( ͡° ͜ʖ ͡°) Warlock
I'm really not worried either way, personally. I have an EF, but I can see there are situations where you don't need it, or at least don't need it in cash. Additionally, I will disagree with you about gaining FI. There is no rule or requirement to have a EF regardless of your financial ability. In fact, I posit that its even LESS necessary once you are FI.
I'm not worried either, we are just chatting right?
I don't think there are times you never need it, but I think there are times when you can get away with not having it. Regarding the FI point, I didn't say that you would have an EF, I said you would have a portion of your asset allocation in Cash. We must remember that EF is just fancy word, if you have cash you have an EF. If you have FI then you have cash, then you have an EF. If you are 100% in equities and claim you have FI then you are kidding yourself, as you still are chasing upside to create FI, which is unnecessary if you really have FI. Instead, true FI will be a scale, I'd imagine at least 5% of it being in cash but I wouldn't argue against someone telling me that having enough cash to be 100% in that asset class and earn nothing more than checking account interest is true freedom.
cocobird
Level 2 Member
Oddly enough people who are FI often have very large cash positions. I recall an article regarding the average cash position of people with $5 million or more in assets was $1 million. That threw me for a loop. I don't have the link, but it was probably CNBC, a brokerage firm, or one of those well known poll companies.
DebentureBoy
Level 2 Member
That stash of money might be more for the next buying opportunity than for the next emergency.