As the title says I am trying to see where people stand on this. Obviously this is all personal preference. But that is what I am after.
After depleting our savings when buying our apartment 2 years ago, we’re about to cross 6 months liquid savings in just plain old savings account with ability to immediately withdraw money.
(To clarify that is 6 month assuming 0 income, which is very unlikely given the social system of our country - so realistically we have even more in savings.)
As you can imagine, the interest in this account is not great, so I want to set a limit as to when we stop dumping every spare penny into the savings account and begin doing other things (likely try to invest).
It depends on what alternatives I have available. Prior to this year, I was aiming for 3-6 months of liquid savings and the rest in my investment accounts.
Now that reasonable interest rates are available, I have changed my priorities. My goal now is 2 months savings in my checking account. This allows me to cover nearly any expense that comes up without the annoyance of transferring money to cover it.
I keep another 1-2 months of expenses in a MMF earning >4% interest and immediately available for withdrawal.
Then I have a decent amount (no particular target) invested in a short-term treasury ETF (TFLO) earning >5% interest, but it takes about a week to sell and transfer funds if I need it.
Altogether, I’m probably keeping 6-12 months readily available, but most of it is earning interest now. I would also likely get 3-6 months severence if I lost my job and could probably cut back on some expenses to stretch things a bit further.
Finally, I used to contribute to a Roth 401k (I’ve since switched to traditional 401k), so I should be able to access those contributions without penalty, if needed. This would only be relevant for someone in the US though.
You may be interested in switching your checking to a brokerage like Fidelity or Schwab. Some benefits:
- at least at Fidelity (haven’t checked Schwab), your checking can be invested in a money market fund - mine gets >4% interest
- access to your Treasury ETF much sooner
- Fidelity and Schwab refund intentional ATM fees (depending on account type)
Basically, you’d get better interest in your checking and fewer accounts overall.
I switched late last year and I love it. My structure is:
- Fidelity Bloom Spend - main checking, core is SPAXX, only has 2-3 weeks spending money
- Fidelity Bloom Save - main savings, core is SPAXX, and has ~1 month spending money, plus Treasury bills that make up the rest of my efund
- Fidelity Cash Management Account - usually near $0, but I’ll load it with some cash when I travel so I can use the free international ATM feature as needed, core is a basic savings at ~2.5%
SPAXX gets just under 5% right now, and it’s nuts that I’m getting that in my “checking.”
Imagine it’s 2008, your credit cards have been cancelled, and you just lost your job.
How much would you need to pay off all non-mortgage debt and then stay afloat without going into debt until you can get a new job?
That much.
3-6 months. Right now, I’m around 5 months expenses, and most of that is in Treasury bonds.
I have other money invested in stocks that I could draw from if needed.
I keep around 2 years of living expenses in a mixture of government bonds, treasury bills and high yield savings account. This gives me peace of mind to invest the rest of my money in the stock market and sleep well at night, regardless of how the market performs since I will likely never have to touch my investments in times of emergency.
Having too much savings is plain stupid, as the inflation is eating them every day. I am keeping only 3 months and the rest I invest in an ETF.
Although I agree to some point, keeping too much in ETF increases the risk of it all going down the exact moment you need it since you loose the job at the same time the market crashes in a crisis.
You forget that I have a buffer of 3 months plus I live in Europe, so the money I will receive for unemployment would help me to further extend my financial cushion. I can create a standing order with a limit and only sell some ETFs if the price is reached, in order to reduce the financial losses.
Plus if I invest my money in ETFs long enough I would most certainly always be on the plus side.
