Investment vehicle for emergency savings

I'm of the opinion an e-fund should be 100% liquid. I have 6 months salary set aside in a safe, and any cash I make from side business work, gets added to it. My company's 1:1 401k match is what makes me money, buying company stock at a 25% discount...makes me money. My personal portfolio makes me money. Doubling my money on buying/selling classic NOS parts, makes me money. Maybe my definition of 'emergency' is different, but to me it means, I need it then...not an hour, not 3-5 business days, I need it then and should only be a turn of a dial and some finger prints away. If inflation is 2-4%/yr...I'm willing to lose the $1,000-2,000 on a 50k emergency fund annually...chances are, I've pissed away more than that through out the year anyway.
 
shawn said:
That's a hell of a straw man, but I can turn it around: Name one millionaire that got rich on CDs and money market accounts. No? There aren't any? That's right -- because people become millionaires by buying and selling stocks and options.

Ramsey conflates a real problem -- spending what you can't afford -- and lays responsibility at the presence of credit. He has some sound suggestions for people that are incapable of controlling their urges, but misses the opportunity to lay blame firmly and effectively where it belongs -- at personal responsibility.
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Actually, he doesn't like CD's and money market accounts either. He refers to the CD as a Certificate of Depression. For those ready to invest, he focuses on aggressive growth mutual funds and diversification. I'm still nowhere near where I want to be, but I'm a lot further than where I was. When I was working fulltime for Ecolab and my wife was working part time at a nursing home and part time at the hospital, we were working a collective 70-80 hours a week. I made good money and she made good money, but we never could seem to get anywhere swimming in an ocean of debt. When stuff broke down, we charged it on a credit card to fix it. We bought brand new cars because we were afraid of them breaking down, so we "needed" the factory warranty to protect us.

Fast forward to me getting laid off from Ecolab and us having three kids under the age of 5 at home. At that point, we had just started into Dave Ramsey's plan. I now am a stay-at-home dad and my wife works roughly 30 hours a week (full time) at the hospital. She makes good money, but without having snow-balled our credit card debt prior and cutting our lifestyle back to where we could afford ourselves, we would have been devastated. Instead, we could make a difficult decision with a plan.

Now, I haven't given a penny to Dave Ramsey, nor have I received one from him. All of the knowledge I have of his plan I have received for free. Take it for what it's worth, but it works for me.

And actually, he does focus on personal responsibility first. Even the best plan in the world will fail if you try to skirt it. You could have no credit cards at all and set up a wonderful 6 month emergency fund plan, but if you dip into it to buy a new couch set that just happened to be on sale when you walked by, you have defeated your own purpose. First things first, you have to realize what an emergency really is.
 
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ManglerYJ said:
I'm a big fan of Dave Ramsey's financial principles. Here is what he has to say on the subject:

I recommend keeping your emergency fund in a simple
money market account with a good mutual fund company.
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ManglerYJ said:
Actually, he doesn't like CD's and money market accounts either.
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So... which is it?
 
shawn said:
So... which is it?
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It's both. Again, AN EMERGENCY FUND IS NOT AN INVESTMENT ACCOUNT and vice versa. For investing, he doesn't like money markets because they aren't a high enough return. For an emergency fund, they are acceptable because they are liquid enough but are distinguishable from daily spending checking accounts.
 
UTfball68 said:
I'm of the opinion an e-fund should be 100% liquid. I have 6 months salary set aside in a safe, and any cash I make from side business work, gets added to it. My company's 1:1 401k match is what makes me money, buying company stock at a 25% discount...makes me money. My personal portfolio makes me money. Doubling my money on buying/selling classic NOS parts, makes me money. Maybe my definition of 'emergency' is different, but to me it means, I need it then...not an hour, not 3-5 business days, I need it then and should only be a turn of a dial and some finger prints away. If inflation is 2-4%/yr...I'm willing to lose the $1,000-2,000 on a 50k emergency fund annually...chances are, I've pissed away more than that through out the year anyway.
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You are not just losing $1-2k per year to inflation, you are losing potential gains on the principal if it were just invested in an index fund. I understand you have other investments and are not dumb when it comes to money, so I am confused as to why you keep that amount of cash in a safe. Are you drawing a large percentage of it out occassionally to buy something, flip it, then stick the money back in the safe? That is the only reason I can see keeping that amount of money in a safe. $50k is way beyond the normal amount that would be needed for most emergencies (At least the type of emergencies I think most people posting in this thread are talking about). In my opinion, that is preppers type amount of money which would be for another thread.
 
ManglerYJ said:
It's both. Again, AN EMERGENCY FUND IS NOT AN INVESTMENT ACCOUNT
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And yet, he's suggesting you invest it.

Make no mistake - a money market account is an investment product. It just happens to be one that has little potential upside, given the current state of monetary policy. And if there were to be a run like 2008, you could lose access to your money market -- or even lose the funds entirely.
 
drkelly said:
You are not just losing $1-2k per year to inflation, you are losing potential gains on the principal if it were just invested in an index fund. I understand you have other investments and are not dumb when it comes to money, so I am confused as to why you keep that amount of cash in a safe. Are you drawing a large percentage of it out occassionally to buy something, flip it, then stick the money back in the safe? That is the only reason I can see keeping that amount of money in a safe. $50k is way beyond the normal amount that would be needed for most emergencies (At least the type of emergencies I think most people posting in this thread are talking about). In my opinion, that is preppers type amount of money which would be for another thread.
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50k is right about base salary wages for me for 6 months, that's why I have that amount. If I need it when a bank is closed, or systems are down, or power is out...what good does it do me sitting in a bank??? (Again, I think our definitions of emergency are different). Sure there are opportunity costs. As I said, 1-2k lost in inflation, is more than acceptable to me to have that liquid cash on hand at the exact time I need, not when someone can get around to opening the doors. And to me, it's not exactly like you're not risking losing even more playing the market. Over the last 5 years, I've seen people wishing all they lost was 2-4% annually. I don't claim to know how to invest very well, but I do know exactly how much I have and where it's sitting and what it's for. I have a firm policy, only play with money you don't mind losing. If I lost my job tomorrow, I find more peace knowing I have a set sum to fall back on, than a coins flip chance I made another $7k on it over the last 2 years.
 
2010nctaco said:
^^^^^For investing, He doesn't like cd's or money market. For emergency funds he says use them.
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But according to Ramsey, doesn't putting your emergency money in an investment product that could lose value or go away completely go against the principles of an emergency fund?
 
shawn said:
He's saying the entire enterprise is corrupt and regularly engages in fraud and other illegal activities.
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Would you disagree? I wouldn't. And I use credit cards.

Again Chase shut down my card, Discover canceled me. I think we are on number 6 now. My spending is a tad higher than most because I use it as a business expense account and pay it off monthly. As such $10k/month isnt unheard of. (though not every month either)...run those type numbers and pay truly $0 interest and they will cancel you. I have the letters in the gun safe to prove it.

shawn said:
And yet, he's suggesting you invest it.
Make no mistake - a money market account is an investment product. It just happens to be one that has little potential upside, given the current state of monetary policy. And if there were to be a run like 2008, you could lose access to your money market -- or even lose the funds entirely.
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My money market is FDIC insured...
 
And again if my money market = $0 then the DJIA is $0 and I have much bigger problems. Then I get the cash and other stuff form the gun safe and head towards an island.
 
drkelly said:
You are not just losing $1-2k per year to inflation, you are losing potential gains on the principal if it were just invested in an index fund. I understand you have other investments and are not dumb when it comes to money, so I am confused as to why you keep that amount of cash in a safe. Are you drawing a large percentage of it out occassionally to buy something, flip it, then stick the money back in the safe? That is the only reason I can see keeping that amount of money in a safe. $50k is way beyond the normal amount that would be needed for most emergencies (At least the type of emergencies I think most people posting in this thread are talking about). In my opinion, that is preppers type amount of money which would be for another thread.
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3-6 months worth of expenses is the goal. If you have a $100,000 a year income as a lot of dual income families (and even some single income families do) on here, $50,000 for an emergency fund is not too far out of line. There are a LOT of scenarios that would put that person living that lifestyle into the poorhouse if not properly planned for. Granted, a lot of those scenarios are covered by various forms of insurance - long term care insurance, disability insurance, accidental death and dismemberment policies, natural disaster policies, and the like. I'd much prefer to have a nice fat chunk of cash sitting around in the event that any number of those things were to happen than to hope I picked the right kind of insurance against what life event actually happened.

Now, that being said... actual cash on hand where thieves can break in and steal might not be the best basket to put all those eggs in, but if you have it somewhere that nobody but you can get to, all the better. Ideally, I would want a combination of cash and money in an account. With a combination of both, in the event of an emergency such as Hurricane Katrina, for example - you would want to have some "walking around" money to get you through a short burst until things got back to "normal". At that point, an ATM card would have been worthless if the power is down. Having your entire stash in your pocket may not prove to be a good idea either in case you get outnumbered and jumped in the process. Again - I am NOT talking total collapse of civilization here (i.e. preppers), I'm talking temporary worst case scenario. I've seen the example given with Hurricane Katrina as well - you could have had a gold bar in your hand and it still wouldn't have been worth what the guy with a bottle of water had in his.
 
^^^My exact scenario and thought process with my e-fund. Hell, even if it's just a car accident and I need pain meds and am laid up in the hospital for a week or so, and insurance is only 90/10 or 80/20 or whatever it is. I'm not going to have to sell anything, file bankruptcy or a damn thing...just tell the lady to go get the cash. Then when I get home, cash out some stocks, replenish the e-fund when payment clears my bank, and re-assess where I stand and how I want to allocate.
 
UTfball68 said:
^^^My exact scenario and thought process with my e-fund. Hell, even if it's just a car accident and I need pain meds and am laid up in the hospital for a week or so, and insurance is only 90/10 or 80/20 or whatever it is. I'm not going to have to sell anything, file bankruptcy or a damn thing...just tell the lady to go get the cash. Then when I get home, cash out some stocks, replenish the e-fund when payment clears my bank, and re-assess where I stand and how I want to allocate.
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Couple things...
1) If your 6 months expenses are $50k and you make $100k you are going broke quick.
You better be approaching 250k if your 6months expnses are $50k.

Remember Efund doesnt have to pay taxes (already has) doesnt have to save for retirement...its an emergency. It just has to pay the bills.

2) You aint even gonna see a DR bill for 2-3 months. Bad example

I am a fan of cahsh. Always have some in the gun safe.But it wouldnt be all my efund. Just like your bank can go down, I had friend whose house burned down...slam down. Gun safe in the basement. It was over a week before he could get it open.
 
Ron said:
Couple things...
1) If your 6 months expenses are $50k and you make $100k you are going broke quick.
You better be approaching 250k if your 6months expnses are $50k.

Remember Efund doesnt have to pay taxes (already has) doesnt have to save for retirement...its an emergency. It just has to pay the bills.

2) You aint even gonna see a DR bill for 2-3 months. Bad example

I am a fan of cahsh. Always have some in the gun safe.But it wouldnt be all my efund. Just like your bank can go down, I had friend whose house burned down...slam down. Gun safe in the basement. It was over a week before he could get it open.
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Fair enough on the doctors bills. I never said I had 6 months of bills saved though...just wages. My intent was that I could live 6 months exactly as I am without changing a thing. And I'm not here trying to say its for everybody, but it's what I'm most comfortable with. I don't look at that money as revenue generating. I don't want anything to happen to that money, ie lose it in the stock market, have it tied up at the bank, etc. I feel far safer with it in my safe, at my finger tips than anything else. A good investor loses 50% of the time, and BoA, SunTrust, Regions, PNC, HSBC and Wells Fargo have been inop more times than I care to count when I didn't need the money. And even if the house did burn down, it's not like I couldn't then revert to what I have in the bank or Edward Jones or my etrade account, etc etc. That's why I said, obviously, my definition of emergency fund is different than everyone else's.
 
Falko said:
I'm Interested where this info is coming from. I've had a Chase rewards card since 2008 and only carried a month to month balance once.
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Info came from when they cancelled me for "abuse of terms of service"
 
Ron said:
Info came from when they cancelled me for "abuse of terms of service"
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Interesting...

though I may be a "deadbeat" to Chase, I would think think I am a net-positive income for them. ~2% fee paid by the seller and ~1.5% payed back out. Sure, it doesn't meet investor margin requirements, but they could at least wait to see if I get hooked on coke and start running up a balance or something.
 
Ron said:
Would you disagree? I wouldn't. And I use credit cards.

Again Chase shut down my card, Discover canceled me. I think we are on number 6 now. My spending is a tad higher than most because I use it as a business expense account and pay it off monthly. As such $10k/month isnt unheard of. (though not every month either)...run those type numbers and pay truly $0 interest and they will cancel you. I have the letters in the gun safe to prove it.



My money market is FDIC insured...
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Canceled CC, not saying they didn't, & I've heard years back some would. I've used Discover for longer than I can remember, For their rewards, & have hardly Ever paid them a penny,interest. Why should they cancel, when they charge the highest fees to the Vendors. Note, some Merchants, won't accept Discover card! I also got a Walmart Discover card, for buying the Murphy Gas, & what ever the discount is [is varies]. I pay it off in the store, when shopping. Discover is Paying me extra, if I put 1k, on my card, for the next three months, & I'm not going to pay interest! The more I use the card, I get bonus back, & Discover makes more from more sales! Win-win! Seems, they would be stupid, to cancel, a card!
 
rodney eppes said:
Canceled CC, not saying they didn't, & I've heard years back some would. I've used Discover for longer than I can remember, For their rewards, & have hardly Ever paid them a penny,interest. Why should they cancel, when they charge the highest fees to the Vendors. Note, some Merchants, won't accept Discover card! I also got a Walmart Discover card, for buying the Murphy Gas, & what ever the discount is [is varies]. I pay it off in the store, when shopping. Discover is Paying me extra, if I put 1k, on my card, for the next three months, & I'm not going to pay interest! The more I use the card, I get bonus back, & Discover makes more from more sales! Win-win! Seems, they would be stupid, to cancel, a card!
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Its not a win-win.
CC fees drive retailer costs up which drive prices up.
Plus it is a statistical fact that people who pay with plastic spend more than those who pay with cash by an average of 18%...so enjoy your 1% cash back...

BTW when you are a retailer the size of Wal Mart your cc fees are less than 1%...

Plus re-read what you said "hardly ever"
In 5 years I have never paid interest...all the experts say every 5 months to float a balance and pay $1 interest and they'll never cancel.
 
rodney eppes said:
...I also got a Walmart Discover card, for buying the Murphy Gas, & what ever the discount is [is varies]...
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A bit off topic, but it does help show that deal may not always be a deal.

A few years ago, when Murphys gas first came to town, everyone interested in saving money switched to their gas because it is always a few pennies cheaper. My dad started complaining about the fuel mileage of my moms sentra, saying it had dropped 8+ mpg's and lost power since he switched to Murphys gas. I thought (and told him) that he was crazy and that the car was just old and needed a serious tune up. Last fall I bought a civic with the average fuel economy displayed on the dash all the time. For the first few months I watched the average mpg steadily drop until it got down around 37mpg. Then I stopped buying gas at Murphys. Over the last few months it has steadily increased to 38.9mpg (39 on my week to drive in the carpool). I hope you have better luck with their fuel than I have, and I hope the discounts you are getting are enough to offset the poor economy and whatever else it may be doing to your engine.
 
strange1 said:
A bit off topic, but it does help show that deal may not always be a deal.

A few years ago, when Murphys gas first came to town, everyone interested in saving money switched to their gas because it is always a few pennies cheaper. My dad started complaining about the fuel mileage of my moms sentra, saying it had dropped 8+ mpg's and lost power since he switched to Murphys gas. I thought (and told him) that he was crazy and that the car was just old and needed a serious tune up. Last fall I bought a civic with the average fuel economy displayed on the dash all the time. For the first few months I watched the average mpg steadily drop until it got down around 37mpg. Then I stopped buying gas at Murphys. Over the last few months it has steadily increased to 38.9mpg (39 on my week to drive in the carpool). I hope you have better luck with their fuel than I have, and I hope the discounts you are getting are enough to offset the poor economy and whatever else it may be doing to your engine.
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Even further off-topic, but for this very reason, I doubt E85 will ever really take off. According to the owner's manual for my van, using E85 will reduce the range of my tank roughly 10%. Unless E85 is cheaper than 87 octane by 10% or more, I'm not going E85 (E85 is usually only about 15-20 cents cheaper, so less then 10%). Perhaps there is some other benefit to E85 that I'm missing out on, but so far I'm not feeling it. There is also only one gas station within 20 miles that carries it and supposedly you are not supposed to go back and forth between E85 and 87 octane. I had heard that E85 makes your engine run cooler, so perhaps that would be e benefit in the summertime, but I can't back that up with anything in the owner's manual or other research I've done.
 
Good topic. My 2.

I agree stale money or stale time both takes you into the negative.

But in all your situations mentioned, "emergency" means "immediately available". I don't think there's too many options besides Guaranteed Interest Savings Account that is both guaranteed slightly positive direction / and immediately available??? And another thought, I think there should be a cap somewhere for anything above the cap to get invested for better possible gain.

As for 401K, I'm a gambling man. I play my 401K like a roulette table. The 401k rep just laughs at me but I cashed out 6-7 years ago before the crash after playing since the beginning of 401k existence and bought a small house with it to use as a rental. I just started back up into 401K again this year with 27.4% gain for my first quarter with 100% invested in extreme high risk stock. I could loose it in an instant. And someone in the same program here may not loose as much as me. But I guarantee nobody here will make more either! ;) I recall making 40%+ at times my first round into 401K.
But also to mention, I lost right at 35% of the cash out in penalties to NC and the Fed 6-7 years ago too. Taxes are ONLY going to go up. Probably take a bigger hit next time if I don't ride it out for the long haul.:(
 
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