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after hurricane sandy , a tornado and 9/11 taking out our bank and atm networks in ny we learned to keep some cash handy . but by cash in the buckets i mean cash instruments like cd. savings ,bank accounts
I assume when you use the term "cash", you are talking about liquid bank accounts, not paper currency. Do you keep any of that around----any need for it?
So for the simple-minded, like me, one year's worth of living expenses in a liquid account is prudent?
can't say what is right for you .we don't know your investments or financial picture .
I think it changes with age. As a dependent you don't need any. When you're first starting out and have no dependents of your own, you really only need to cover your set bills by the number of months you will take to get a new jobs.
When you get a car - add money for emergency repairs/replacement
When you get a home - add 6 months of mortgage payments
When you get a kid - Add 12 months of those costs
If you get married, you may be able to reduce your emergency fund if your partner is taking on half the burden.
Then it stays static for awhile until retirement, where you need to build it up to 2 years of cash available to avoid forced selling of your assets in downturns....more if your assets could be potentially affected longer. (Be smart and keep them in an interest bearing ladder though)***
***huge carve out for those that have pensions that are indexed for inflation. Unless that goes, you're fine. Enjoy.
This is kind of like asking how much money should be saved for retirement. I'm not sure there's really a maximum.
Most people will get a lot of advice against keeping too much money in an emergency fund, considering the pitifully low interest rates typically paid by highly liquid accounts. But let's be frank: having too much money in any type of account is a problem that will only ever apply to a very small percentage of the population. In other words, I think having the ability to easily build an emergency fund is a more pressing and daunting matter for most people than are any concerns about losing a few percentage points of interest on money that's usually not even saved yet.
Now let's say a person does have an emergency fund of one year or more set aside in liquid accounts, and is anxious for their money to begin to "work for them", so to speak. If a person thinks slightly outside the box, they'd realize there are many ways to get guaranteed high returns without making any drastic changes to their savings tools and strategies.
Mark Cuban explains a concept he calls the "Transactional Value of Cash":
In short, since there are so many easy ways to use liquid funds to get guaranteed returns well above inflation, the low interest rates on most liquid accounts is rendered a non-issue. So there's really no drawback to keeping both short-term and medium-to-long term savings in the same highly liquid accounts/investment vehicles. It's a variation of the Cash is King concept.
I'm not saying I'm opposed to all high-yield, non-liquid investments. Quite the contrary in fact. I'm just saying I would not jump into an investment I'm not 100% comfortable with just because I've reached an arbitrary maximum amount of short-term savings. I would recommend people first get into a position to build an emergency fund, and second to build said fund as large as they'd like.
Not many votes but so far it's 63% saying 6 months and 37% saying 12 months.
I think right now I'll aim for 6 months fully funded. I will have to turn my attention back over to retirement funds after funding the 6 month EF as I don't think I can afford the money I'd lose trying to add another 6 months to the EF fund while not contributing the max toward retirement accounts.
So right now my plan is:
1-get 6 month EF fully funded
2-max ROTH IRA, then max 401k along with it
3-with whatever is left over, slowly build the 6 month to a 9 month, then re-evaluate and see if building to a 12 month makes sense
I'm also a single renter with no dependents. I have a government job. The other thing you might think about is you can take a little bit of risk beyond 3 months worth of emergencies.
I have 4 months' worth in cash. But I have nearly another 4 months' worth in U.S. savings bonds that earn better interest (bought 15+ years ago when rates were higher...wish I'd bought more). Plus I have another 4+ months' worth in an aggressive bond mutual fund. I plan on using this fund in 10 years to get another car. But I could use it as an EF if I had to.
So you might consider using a short or intermediate term bond fund in your EF, especially for anything beyond 6 months' worth. Something like Dodge & Cox Income or Vanguard GNMA would work. Both have very modest volatility but aren't risk free. Long term returns are better than cash savings accounts, though.
One of my friend was jobless for a year and her only access is her good credit and credit cards. She used them as revolving money; take one card to pay the other, take out cash to pay her rent while still maintaining her good credit status. Yes interests accrue but she got to do what she got to do while job hunting.
She paid them off in 3 years after she got a good job and do loan consolidation. Maintaining good credit is crucial system in this country, it can bail you out.
It's better to not need that credit in the first place. The OP is trying to avoid the situation of your friend. She doesn't want to borrow money and have to pay it back with interest over 3 years.
Yea but if the OP withdraws any interest that the account accrues, then they're subject to a 10 percent penalty on that amount. So that's why i warned the op not to take out any interests that it produced, but the contributions itself.
That's not quite right. For Roth IRAs you can take out what you've contributed without a penalty, just not the growth. So if you've contributed $5000, and your account grew to $6000, you can still take out $5000 without a penalty.
I don't really need emergency funds since I live mortgage/rent free. I keep most of my emergency savings in cold, hard cash and looking to put some more in gold coins. There's also money in my 401k I can tap if things get too tight. I would suggest a year of living expenses.
I don't really need emergency funds since I live mortgage/rent free. I keep most of my emergency savings in cold, hard cash and looking to put some more in gold coins. There's also money in my 401k I can tap if things get too tight. I would suggest a year of living expenses.
My primary potential emergency I'd like to try to prepare for is the loss of my job which would make paying for house and other expenses difficult.
Would love to make it to that day where I don't have rent or a mortgage, however, emergencies don't stop there/that's not the only situation I can think of where I'd need access to what I'd consider a large sum of money.
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