Rainy day fund

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TXviking
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Rainy day fund

Postby TXviking » Thu Aug 18, 2016 2:05 am

Just curious what people do for rainy day funds? Personally, I've set a goal of being able to cover six months of expenses without a paycheck. My monthly expenses break down roughly as follows (this is simplified and does not account for some periodic bills such as car insurance, nor for unexpected expenses.)

Mortgage: $3,000 (can be reduced to $2,437 without refi; I'm overpaying so I'll own the house sooner.)
Car payment: $700
Utilities: $500 (power/internet/cell)
Restaurants: $1,200 (I eat out twice a day on average, so this is high)
Gas: $600 (long commute, trips to stepson's house 220 miles away, lots of driving in general)
Groceries: $300 (relatively low because I mostly eat out)

I'd stop paying extra principal on the mortgage in the case of unemployment. This leaves me with a target of about $35,000 for my rainy day fund. It's currently $10K short of that, but I can probably get there by the end of the year.

I currently keep the rainy day fund in a Discover savings account (.95% APY.) Even though Discover is better than my regular bank (Chase), the interest does not keep pace with inflation. To me, this is a substantial amount of money to have sitting around in a savings account; OTOH, putting a rainy day fund "at risk" through investment seems unwise. I'm curious what strategies others use.


kdm31091
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Re: Rainy day fund

Postby kdm31091 » Thu Aug 18, 2016 7:03 am

The general rule is to have about 6 months of expenses stashed away. That said, some of the things you listed would probably change if you weren't working. If I wasn't working, eating out would be the first thing to cut. It's a luxury, not a necessary item in a budget. I would definitely roll it back significantly if I had no income. Without a job you wouldn't be using as much gas, obviously. So if you adjust these items, you can see you probably wouldn't need $35k in a savings fund. Nothing wrong with your fund, just seems over inflated to me.

darkguy2
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Re: Rainy day fund

Postby darkguy2 » Thu Aug 18, 2016 8:46 am

Right now I have enough for two months ($4.6K) and am still building it up. I direct deposit $500 a month into it from my paycheck as well as $100/month into a vacation fund. Both are in online Barclays savings accounts. My e-fund is 1.05% and my vacation is 1%. Also the 1.05% will also give me 5% bonus on the interest earned if I make deposits 6 months in a row as well as not withdraw any money in that same period.

While it does suck with the low rate of return you have to remember that this money is not there to make interest. It is a safety net if the worst happens and needs to stay liquid so you can access it very quickly.
Discover IT - $5,700
Chase Freedom - $5,700
Costco Citi - $13,000
Sallie Mae - $4,000
Chase Sapphire Preferred - $6,000
Chase Sapphire Reserve - $19,500
Citi Double Cash - $6,500
Amex BCE - $13,000

FICOs: Discover (777), SallieMae (764), Amex (767), Citi (772)
FAKOs: CK- TU (760), EQ (760)

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CarefulBuilder14
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Re: Rainy day fund

Postby CarefulBuilder14 » Thu Aug 18, 2016 3:32 pm

With interest rates low, and stock market valuations relatively high, I keep my rainy day fund and most of my uninvested cash in one account at Discover for 0.95%.

Some people say that it's not smart to combine portfolio cash with emergency cash, but I like the simplicity, and it's not like I'd accidentally make some risky investment with it. Heck, it takes a day or two to even move money in or out.
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
SD: Arrival BrooksBros BCE ED IHG
Letting new accounts cool off since May
Really not sure what I'll add next or when

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InCreditWeTrust
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Re: Rainy day fund

Postby InCreditWeTrust » Thu Sep 08, 2016 7:17 pm

Good question I too was wondering this.

Seems like savings account is the recommended way to go. Although I think you could do better than what Discover is offering. There are some banks that offer at least 1% APY.

Emergency fund money should be liquid, easy access, FDIC insured account. The point of the emergency fund is to not grow you money, but to have a ready supply of safely stored cash when SHTF.

Happy saving.

If anyone has a better way to manage an emergency fund please share.

TXviking
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Re: Rainy day fund

Postby TXviking » Sat Sep 17, 2016 12:36 am

InCreditWeTrust wrote:Good question I too was wondering this.

Seems like savings account is the recommended way to go. Although I think you could do better than what Discover is offering. There are some banks that offer at least 1% APY.

Emergency fund money should be liquid, easy access, FDIC insured account. The point of the emergency fund is to not grow you money, but to have a ready supply of safely stored cash when SHTF.

Happy saving.

If anyone has a better way to manage an emergency fund please share.



I've been happy overall with my Discover credit card. The trust I have in Discover and their customer service outweighed the benefit of another .1% or so in interest over their 0.95%. Even a 1.05% or 1.10% savings account won't yield much of a return. Plus, this way I get to manage my savings through the same portal as my credit card.

There are some drawbacks. For example, the fine print on the savings account gives Discover the right to take money out of your savings account to cover other debts you have to them (e.g. unpaid credit card balances.) Not really an issue for me, but something to be aware of.

JonE
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Re: Rainy day fund

Postby JonE » Sat Sep 17, 2016 12:36 pm

I have an emergency fund and a few others in Ally bank (1.0% APY) and am rebuilding those accounts due to some emergencies. Right now not much but I hope to be at least closer to $10-15K by this time in 2017. Everything goes as planned, I should be able to double my income but won't spend dramatically more beyond rent, utilities and those types of expenses. I do eat out a lot (buying lunch at cafe at work almost daily) but could afford to cut that back.
Current Cards: Chase Freedom, Discover IT
Future: TBD

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InCreditWeTrust
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Re: Rainy day fund

Postby InCreditWeTrust » Sun Sep 18, 2016 11:16 am

TXviking wrote:
InCreditWeTrust wrote:Good question I too was wondering this.

Seems like savings account is the recommended way to go. Although I think you could do better than what Discover is offering. There are some banks that offer at least 1% APY.

Emergency fund money should be liquid, easy access, FDIC insured account. The point of the emergency fund is to not grow you money, but to have a ready supply of safely stored cash when SHTF.

Happy saving.

If anyone has a better way to manage an emergency fund please share.



I've been happy overall with my Discover credit card. The trust I have in Discover and their customer service outweighed the benefit of another .1% or so in interest over their 0.95%. Even a 1.05% or 1.10% savings account won't yield much of a return. Plus, this way I get to manage my savings through the same portal as my credit card.

There are some drawbacks. For example, the fine print on the savings account gives Discover the right to take money out of your savings account to cover other debts you have to them (e.g. unpaid credit card balances.) Not really an issue for me, but something to be aware of.



Yeah I don't disagree with you, I think Discover Savings is definitely a solid choice. Good customer service and trust also go a long way and outweighs a measly .05 difference. Not to mention Discover is a US company and is more reputable and has been around longer than some of these new banks offering 1%+. However, some people's main goal is to find the highest yield savings account, and there are some banks that offer like 1.05% some even more with stipulations.

You may want to look into investing in a mutual fund, if you feel that you have excess in your savings account. Well managed mutual funds are generally safe investments and a good ROI.

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CarefulBuilder14
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Re: Rainy day fund

Postby CarefulBuilder14 » Sun Sep 18, 2016 1:39 pm

InCreditWeTrust wrote:Yeah I don't disagree with you, I think Discover Savings is definitely a solid choice. Good customer service and trust also go a long way and outweighs a measly .05 difference. Not to mention Discover is a US company and is more reputable and has been around longer than some of these new banks offering 1%+. However, some people's main goal is to find the highest yield savings account, and there are some banks that offer like 1.05% some even more with stipulations.

You may want to look into investing in a mutual fund, if you feel that you have excess in your savings account. Well managed mutual funds are generally safe investments and a good ROI.

The stipulations can be pretty extreme. Some banks advertise 2% or more, but only pay that rate on up to maybe $10k in balances...and even then, only if you have direct deposit, a minimum balance, use their debit card 5 times a month, etc.

I favor index ETFs over traditional mutual funds as my "autopilot" investments, but be sure whatever money you put into either is truly excess to your liquid needs and that you understand the risks.

Context matters a lot if you're going to call mutual funds "generally safe investments [with] a good ROI"...even if you're diversified, if you buy at a market peak, it could potentially take 10, 20 (or more) years to break even in terms of inflation-adjusted purchasing power. I've held some investments for a decade, and most for 5+ years, but I'm very unusual in that respect. That's not typical investor behavior.
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
SD: Arrival BrooksBros BCE ED IHG
Letting new accounts cool off since May
Really not sure what I'll add next or when



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