3-6 months emergency funds

[pilar2100]

Where do you all put your 3-6 months of emergency funds? I already have a capitalone savings acct that gets me 0.75% but looking for something a bit higher. I'm an attending in private practice and husband works so we are in the higher tax brackets. Thanks!

[asmallchild]

Checking account, mine requires a 50k minimum (citigold) so that's what I keep there (roughly 6 months expenses for us)

The rest is in a taxable account at vanguard that can be liquidated in the event of an emergency

As a highly compensated employee, I do have the luxury of knowing that a large paycheck is coming every two weeks to boot

[Zaphod]

Couple months of coverage in checking.

Everything else in my taxable account. The Efund portion is in municipal bond funds, which are great if you're in a high bracket/state.

[pilar2100]

I found another thread with similar question and it seems like opinions are mixed about where to keep the money. I like the idea of keeping some in the online savings acct (since I have disability insurance if something were to happen) and I feel like I wouldn't have an issue finding another job in my field if they were downsizing or whatever.

 

I have been looking at keeping more in a muni bond - do people use VWLTX or is there a different one in vanguard to use?

[Zaphod]

pilar2100 wrote:

I found another thread with similar question and it seems like opinions are mixed about where to keep the money. I like the idea of keeping some in the online savings acct (since I have disability insurance if something were to happen) and I feel like I wouldn’t have an issue finding another job in my field if they were downsizing or whatever.

 

I have been looking at keeping more in a muni bond – do people use VWLTX or is there a different one in vanguard to use?

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Its important to remember what its for, what your other options are, HELOC, credit cards, etc...and the scenarios that might induce needing them and the time frames involved. When doctors are talking about emergency funds for the most part I assume we mean real emergencies as in loss of ability to generate normal income for a period of time. If its injury it has to last long enough until disability kicks in and enough to cover any shortfall that may be present. Otherwise, what some people normally think of as needing to be covered in an emergency fund on typical finance sites should be easily handled with monthly cash flows and the safety float in your checking account.

If you keep some in a muni bond that will be state specific, ie, if you live in a high tax state be sure to buy your specific one. Otherwise there are probably several to choose from. The whole point of those of us that put it in these vehicles instead of savings is a combination of the first paragraph and the likelihood you'll use it, meaning its probably well put to use instead. Low volatility and low risk of principal loss are key until you are above your specified values. Then you can branch out. It will most likely grow beyond its intended value in a short amount of time, and the longer you dont use it the less cash like it needs to be on an allocation basis (within the efund). For example;

Just starting out:

100% "high" interest savings until hit comfort level

Couple years after, less debt, more security; more options (heloc, etc...)

75% high interest savings, 25% munis or some other low volatility asset that has a higher return than cash

Later

120% of Efund comfort level in munis/low vol, rest in taxable.

You should basically be able to self insure with your taxable at some point.

I am investing mine from the get go (in munis and low vol things), in reality there are several options available and in all likelihood it will not be used at all so it is actually harder for me to sleep at night with a giant pile of cash that is most likely much more than is needed in reality.

Its not for everyone, Im reading all over the place about people that keep several years worth of cash as an emergency fund. That is clearly a fear based mechanism that outside of a massive performing portfolio in addition, will be a guaranteed detriment to their financial health. One of my partners has about 700k in cash and keeps telling me lately how hes happy he has been out of the market as its been dropping lately (15% drop on the heels of nearly a 300% gain mind you), I shudder to think when he got out. You need a reasonable amount and then be done with it, dont over do it.

[PhysicianOnFIRE]

I have a fairly Zaphodian approach.

I typically have 1 to 2 months expenses with Ally Bank (1% interest).  I also keep at least $1000 at a local bank a few blocks from my home.

In addition, I have access to 100+ months of expenses in my taxable account.  I could have that money in 2 business days.

 

[pilar2100]

Thanks for the responses. Such great information - this should count as CME! So much more information that I need to learn (but getting there).

[TheGipper]

Agree with most of above advice to trend towards 120% in taxable account.  A few nuances to consider:

1) If use municipal bonds funds for Efund (as I do), realize that if you sell within 6 months of buying them, your dividends will become taxable.  No biggie but just so you know.

2) If your taxable account contains a good portion of equities without too much gain (or even better with short term loss), it will be less painful to liquididate them taxwise when needed.  A longstanding taxable account that hasn't been contributed into regularly may have mostly lots with large gains, making it less ideal for Efund.

3) I bonds are also good, quite liquid, with only a small penalty for cashing in early and give some inflation protection.

If you are a BoA customer, strongly consider using a combo if BoA checking and Merrill Edge to hold your muni and stock index ETFs for your Efund.  Holding a combo of 100k between the BoA Checking and Merrill Edge will qualify you for Platinum honors status, which among other things gives you a 75% CC rewards bonus.  The BoA Travel Rewards Visa by this becomes a 2.625% unlimited cash back card.  I jam a majority of all my spending on this card giving me >$3000 cash back each year, which translates into a pretty solid "interest rate" on keeping 40k in BoA checking account, which i need for monthly cash flow anyway, and avoids having to play the game of chasing the next best high yield online savings account.  One could also transfer part of their Roth or IRA to Merrill Edge to satisfy their requirements.  They carry all Vanguard ETFs.  Even better Merrill Edge gives you cash bonuses to transfer money in.

 

[GI-TX]

Does having a high limit on your credit card/s count as emergency fund?

[Zaphod]

GI-TX wrote:

Does having a high limit on your credit card/s count as emergency fund?

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I'd call it the very last choice, and you'd better be assured of incoming cash flow to pay them down quickly and with priority or it could hurt really bad. I am in the process of a bit of a rewards churn so was messing with my credit card spreadsheet (when opened, $/reward, categories, limits, etc...) and I could hardly believe the grand total of the limits.

 

[GI-TX]

Thanks, Zaphod.

[The White Coat Investor]

Different places.

Cash in house. Pays nothing.

Cash in local credit union. Pays nothing.

Cash in online checking account. Pays nothing.

Cash in online savings account (mine is at Ally). Pays 1%.

 

Credit cards aren't an emergency fund. The point of an emergency fund is to keep you from selling long-term investments or acquiring new debt in the event of emergency. You don't want it too small. You also don't want it too large. At a certain point, your emergency fund is your entire portfolio. A retiree doesn't need an "emergency fund" for instance. He has 25 times his annual expenses socked away somewhere.