How much emergency fund and where to store it? (and other advice?)

Discussion in 'Finance and Investment' started by FlowRate, May 7, 2017.

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  1. FlowRate

    FlowRate 7+ Year Member

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    For the first year of residency, I've been saving ~1/3 of my gross (about $1000) every month because I've read that you should ideally have 6months-1year of living expenses on hand, which for me would be 12-24k. I'm now at about the middle of that range and thinking that I should probably be doing something else with the money other than letting it sit in a BoA checking account. Any advice on how much I should actually have straight liquid in checking/debit account? Where should I put the rest?

    My residency doesn't offer investment match. I'm contributing $200/mo to Vanguard retirement date MF in a Roth. I have 135k in loans pretty evenly split between perkins, direct, and institutional loans. The direct is on RePAYE, Perkins is forbearing (I recently learned that I should have consolidated it into my lowest-rate Direct for the RePAYE interest benefits, not sure if it's worth the re-capitalization now.) Institutional will stay on forbearance through residency because it requires a standard 10-year repayment plan. Would it be more worth it to start paying loans or increase my Roth contribution?

    Thanks!
     
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  3. goodoldalky

    goodoldalky Member 10+ Year Member

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    Unless your student loans are at an outrageous interest rate, it sounds like they are not, you should max your Roth.

    Regarding the emergency fund, you need it to be liquid. You can't afford to lose it in the market, so you can't take risk with it or tie it up in something illiquid in case you need it. Your only alternative to your BOA would be to put it in a "high interest" account or money market on Vanguard. Given the amount you are talking about the difference is pretty small and may or may not be worth your time.

    Regarding amount of emergency fund, 6 months of expenses is more than enough. I am assuming your residency program has a program for disability insurance for you, etc., but after maxing the Roth my next step would be to acquire high quality long term own occupation disability insurance that you can take with you without a reexamination after graduation and keep indefinitely.
     
  4. FlowRate

    FlowRate 7+ Year Member

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    Thanks for the advice. I'll likely max my Roth this year.

    I was denied for own-occ disability insurance, presumably due to a preexisting condition, so my long-term plan is to simply invest the money that would have gone to that otherwise. After about 20 years (very conservatively), that will be the same amount of money as the average disability period at my specialty's average salary. Obviously that doesn't fully protect against permanent disability. I may try to reapply in a few years with documentation of continued lack of any issues with the PEC.
     
  5. PistolPete

    PistolPete 10+ Year Member

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    It seems like 3-6 months is popular for emergency fund, and many people use Ally Bank for savings.
     
  6. G-Man82

    G-Man82 10+ Year Member

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    I currently have 6 months in liquid cash. Downsized to 5 just last month and will make it 3 months worth now that I've been at my job going on 2 years and it seems less likely that I'll leave. I have a big enough taxable account (Vgd Total stock and international indexes) that I could dip into that if needed.


    Sent from my iPhone using SDN mobile
     
  7. edmadison

    edmadison 1K Member 10+ Year Member

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    Many local banks have high interest checking -- between 2 and 3% for 10 or 15k. You have to do direct deposit and do a certain number of transactions each month. If you have the self discipline to keep your emergency fund in your checking account, it's hard to beat. I've done it in 3 different cities over the past 8 years.

    -Ed
     
  8. goodoldalky

    goodoldalky Member 10+ Year Member

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    I would continually apply for disability insurance and I would try with all of the major companies with good reputations in your field. You are much more likely to be disabled during your career than many of the other alternatives that we insure for. If you are unable to acquire this, look closely at employers than can provide good group disability. And if all of that fails you will have to save aggressively early in your career to self-insure.
     
  9. FlowRate

    FlowRate 7+ Year Member

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    The odds of being disabled for >6 months are much lower than the odds of being disabled (which are the figures put out by all the insurance companies). I agree overall that disability insurance would probably be a good thing, but I think the odds of needing/collecting disability insurance are much lower than the odds of being disabled generally.
     
  10. Promethean

    Promethean Syncretist 2+ Year Member

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    I keep 3 months of purely liquid cash on hand, if at all possible. You can solve a lot of problems in 90 days. The rest of an emergency fund doesn't need to be nearly as liquid. It just shouldn't be invested in anything risky or difficult to liquidate.
     
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  11. PistolPete

    PistolPete 10+ Year Member

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    Where do you keep your 3 months of cash, though?
     
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  12. Promethean

    Promethean Syncretist 2+ Year Member

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    In my regular old bank account with some miniscule interest rate that is too low for me to even keep track of.

    The interest that you can earn on $3-6k by putting it in a less liquid vehicle is not worth the trouble. A 90 day T-bill gets you around 1%. Let's pretend you put in $10k and kept it flipped over into a new instrument each 90s days. Cool. In a year, you will have earned $100 in interest. -$25 for taxes. Net gain of $75 maybe for the inconvenience of lacking access to your funds in a pinch.

    You can play around with higher rates of return in exchange for additional risk, etc, but the equation is never really going to get a lot more exciting. An emergency fund is not an investment asset that is supposed to bring you a return. It is an emergency fund that keeps you from needing to waste money by borrowing on credit if you run into a cash flow problem.

    Any place you put the money that keeps it readily available and FDIC insured (so, not under your mattress,) is the right place to put your emergency fund. Save investment strategies for other pools of money.
     
  13. NYCNative

    NYCNative Staten Island Dump 2+ Year Member

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    I get 4.59% on up to $20,000 with this account: Free High Interest Checking | Waukegan, IL Rewards Checking | CCU

    All you need to do is join the credit union ($5), and apply for their credit card. You have to make 15 credit transactions per month with your debit card (I purchase fifteen 50 cent Amazon gift cards -- you have to change the card setting from debit to credit from within Amazon), and spend more than $1,000 total with the credit card (I purchase two $500 dollar visa debit cards from Kroger, and then take them over to customer service and use them to buy a $1000 money order that I deposit in my own bank account).

    All said and done, about an hour of effort every month. Depending on how much is in your fund, it can definitely be worth your time (up to $918 annually).
     
    Last edited: May 13, 2017
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  14. Neurologo

    Neurologo 2+ Year Member

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    Mind sharing which banks they are? The best I could find was a savings online bank at 1.05%. Or are you talking about CDs? Or are you talking about CDs?
     
  15. PistolPete

    PistolPete 10+ Year Member

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    I'd be interested to know too what local banks have high interest checking!
     
  16. SageRad

    SageRad

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    I am in the Ally 1.05% account for the bulk of my efund.
     
  17. calvnandhobbs68

    calvnandhobbs68 I KNOW NOTHING 7+ Year Member

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    Youre right the highest ones youll find are around 1-1.05% for regular savings/money market accounts. The two that come to mind for me immediately are Ally's saving account which is at least 1% right now and Capital One's money market account at 1%. The other ones people are talking about usually have some requirements (certain numbers of transactions monthly, certain number of direct deposits monthly, etc). You can find those through both small credit unions like mentioned above or even bigger banks like Chase or Wells Fargo if you have enough money for a "jumbo" checking or savigs account. Smaller banks are probably the best bet for high interest rates if youre willing go jump through the hoops.
     
  18. PistolPete

    PistolPete 10+ Year Member

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    I looked into the smaller banks, many of which offer 2-5% nationally, but I don't think the 12 debit transactions per month and direct deposit monthly and logging into the checking account monthly are worth the trouble. Ally Bank it is.
     

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