Where is your efund money?

Ducktale · October 2013

Do you keep it in just a savings account? We've debated on this, since it's a lot money just sitting that could be earning more interest than it probably is (we have a money market). But at the same time, we certainly not willing to put this money at risk at all and need it to be fairly liquid.

brij2006 · October 2013

We have ours in an investment account with our investor. It's an account that earns between 3-8% (last year was 8.5%, this year it's at 6%). We are able to get access to the money within 7-10 days.

We feel comfortable with this because we have savings accounts with enough money in them that we could pull from if we absolutely had to. We also consider our E-fund to ONLY be used if one of us loses our job. So we figure that we won't really have bills due that we don't have money for, for at least a few weeks after losing a job. Which will give us time to pull the money from the account.

vlagrl29 · October 2013

It's in our savings account. I didn't want to deal with too many accounts and wanted easy access to it. Now when we start saving for finishing off the basement and hard wood floors, we may need to open another account.

hoffse · October 2013

Ours is in an online savings account - it earns about 1% interest, but we can access it immediately if necessary.

R.Wilsonny · October 2013

We have ours in a savings account but I have thought about looking into how we can make some of that money work for us, rather than just sit there....so maybe take a few grand to invest somehow and keep the rest in savings so we have immediate access to it. I'm open to suggestions since I know some of you ladies know a lot about this stuff. Any ideas?

CuriousKiddosMama · October 2013

Ours is in a savings account.

Ducktale · October 2013

R.Wilsonny said:

We have ours in a savings account but I have thought about looking into how we can make some of that money work for us, rather than just sit there....so maybe take a few grand to invest somehow and keep the rest in savings so we have immediate access to it. I'm open to suggestions since I know some of you ladies know a lot about this stuff. Any ideas?

That's what I'm thinking too, but really not sure. I know when we saved for our downpayment, that money we invested in a low risk mutual fund, didn't make much but more than in a savings account. Our financial adviser recommended keeping emergency fund totally liquid (savings account), so that's what we've always done. But just seeing the money sit and not working for us is annoying, so I'm open to suggestions.

jessica490 · October 2013

We have it in Capital One 360 online. The percentage is crap right now but it's out of our reach so we can't touch it. We can have the money transferred to our checking account at our local bank within 2-3 business days.

Mom987 · October 2013

We have a $1,500 minimum each week on our checking, then $1,000 liquid savings as emergency. Then the 3-6 month emergency fund is in Charles Schwab individual mutual fund account. We also have a Janus mutual fund account. We contribute $100/month to each.

Ducktale · October 2013

Mom987 said:

We have a $1,500 minimum each week on our checking, then $1,000 liquid savings as emergency. Then the 3-6 month emergency fund is in Charles Schwab individual mutual fund account. We also have a Janus mutual fund account. We contribute $100/month to each.

I think maybe we should do this. We keep about one month of expenses in checking, I think we'll keep another month in savings, and the rest in a mutual fund? Does that make sense?

hoffse · October 2013

The only thing about keeping it in mutual funds is you will have to pay taxes on it if you need to liquidate. (Very) generally, if you hold them longer than a year you'll pay long-term capital gains rate, which is somewhat tax-advantaged at 15% (or 20% if you're in a really high marginal tax bracket). If you hold it less than a year you'll pay short-term capital gains, which is at the ordinary income tax rate. Odds are, if you can afford to put $$ aside into mutual funds your ordinary income tax will be in a tax bracket that's higher than 15%. This is why you hear people talking about Warren Buffet being taxed at a lower rate than his maid - he simply lives off his long-term investments rather than ordinary income.

Obviously the nice thing about mutual funds is they grow for you, usually at a faster rate than regular savings accounts - assuming the market is doing well. But do take the taxes into account and make sure you have enough extra to cover that. Also make sure you have enough to ride through dips in the market, and consider whether you are psychologically willing to sell at a loss if you need to liquidate for an emergency. I would be, but a lot of people can't bring themselves to do that and end up putting emergency expenses on credit cards while they wait for the market to right itself.

Side note that's slightly off-topic:

There's an interesting argument about investing the lion's share of your retirement in regular mutual funds/investment accounts rather than a regular 401(k) - because your regular 401(k) withdrawals are both mandatory at a certain age and are taxed as ordinary income rather than capital gains. You do get the deduction in the year you make the 401(k) contribution, but if your fund does well you can pay a lot more in taxes than you save upfront with the deduction.... assuming that capital gains rates remain lower than ordinary income rates. On the flip side, you may need that deduction if you're making the contributions when you're young and need more cash in your pocket during your contribution year. Or you may be right over an income threshold for a tax break, and you need to lower your AGI or MAGI to get that tax break - that's happened to H and I before, and we contribute to regular 401(k)s in those years.

The employer match thing is another consideration, though if your company offers a Roth 401(k) in addition to a regular 401(k) you are probably still eligible for the match, and then your 401(k) contributions are treated like Roth accounts - no deduction in your contribution year but they grow tax free (assuming the law doesn't change). Regular 401(k)s and Roth 401(ks) both have the same contribution cap at $17,500/person/year for 2013. H and I plan to hedge a little in regular 401(k)s in case the law changes, but then do most our retirement through Roth 401(k)s and regular investment accounts. We watch the laws on this from year to year to see if they are ever going to change, which might change our plan. FYI my employer didn't tell me they offered a Roth 401(k) - I had to go in and ask.

orangehills · October 2013

Once we get to the full amount next summer, I'll be moving it to my high interest checking account. I want it easily accessible if we ever need it in an emergency in the middle of the night or something, but also to gain interest, so that account does both.

Mom987 · October 2013

I've had my mutual funds for about 5-8 years, so I was prepared to pay for truck and house down payment. I got the money in like 2 days and the annual taxes are like $20, but we have 7-8 months emergency fund in there and continue to contribute $200/month so it'll grow instead of just stopping now.

Mom987 · October 2013

Ducktale said:

Mom987 said:

We have a $1,500 minimum each week on our checking, then $1,000 liquid savings as emergency. Then the 3-6 month emergency fund is in Charles Schwab individual mutual fund account. We also have a Janus mutual fund account. We contribute $100/month to each.

I think maybe we should do this. We keep about one month of expenses in checking, I think we'll keep another month in savings, and the rest in a mutual fund? Does that make sense?

Sorry ducktale I just saw this today.

Where is your efund money?

Re: Where is your efund money?

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