Where to put my emergency fund

[jay89]

Hi all, I need some advice on where to store my emergency fund.
I have 6 months living cost worth of emergency fund, currently stored in 2 separate bank accounts (one in jpy, one in usd).

I know the definition of emergency fund is for emergency use that you can take right away, but I feel like such a waste to store it in a normal account with no interest whatsoever.

Does anyone of you store your emergency fund in another way beside normal bank account? if yes, please do share it with me!

Thanks all!

[adamu]

I know the definition of emergency fund is for emergency use that you can take right away, but I feel like such a waste to store it in a normal account with no interest whatsoever.

Think about it as paying for insurance to allow you to focus on growing the rest of your portfolio.

If that's not a cost you're willing to pay and you have other ways to handle an emergency, you can take more risk with how you store it or decrease its size.

[runmanTX]

I agree with Adamu. It's insurance or as I call it my "stress less" fund. Just knowing it's there makes me feel relieved and I can better focus on investing.
I've got my EF in a regular post office account and don't touch it. Unfortunately, it makes peanuts but it will always be there and totally liquid when I do need it.

[mighty58]

In my mind, there are two primary ways you can define what constitutes the "emergency" that you are keeping this money around for. The most common one is as a backup in case, say, you were to suddenly lose your job or have a (very) large unexpected expense (ie. USD10,000+). It's there to give you the peace of mind that you won't suddenly be destitute if something such as that happens.

The level of liquidity required (ie. how quickly you can get cash-in-hand) is probably not too high for these types of situations. If you lose your job, you will draw it down little by little over time as you need it. As such, I believe it's perfectly fine to park the money in a fund it ETF where you can convert it to cash within a few days at most. Just ensure your investment is not in something too risky, or something correlated with your work sector, as you don't want to be in something that will go down just as you are in a position to potentially lose your job due to bad market conditions. BTW, for unexpected expenses under $10,000, it's best just to put in on the credit card, so immediate liquidity of the emergency fund is not an issue.

Now the other definition you could use for "emergency" is for major disaster situations, like if a massive earthquake hits and you need to get out of dodge asap but the power is out over a wide area. For this type of scenario, I would recommend cold hard cash stored in your home.

[EmaxisSlim Cultist]

In my mind, there are two primary ways you can define what constitutes the "emergency" that you are keeping this money around for. The most common one is as a backup in case, say, you were to suddenly lose your job or have a (very) large unexpected expense (ie. USD10,000+). It's there to give you the peace of mind that you won't suddenly be destitute if something such as that happens.

The level of liquidity required (ie. how quickly you can get cash-in-hand) is probably not too high for these types of situations. If you lose your job, you will draw it down little by little over time as you need it. As such, I believe it's perfectly fine to park the money in a fund it ETF where you can convert it to cash within a few days at most. Just ensure your investment is not in something too risky, or something correlated with your work sector, as you don't want to be in something that will go down just as you are in a position to potentially lose your job due to bad market conditions. BTW, for unexpected expenses under $10,000, it's best just to put in on the credit card, so immediate liquidity of the emergency fund is not an issue.

Now the other definition you could use for "emergency" is for major disaster situations, like if a massive earthquake hits and you need to get out of dodge asap but the power is out over a wide area. For this type of scenario, I would recommend cold hard cash stored in your home.

I would say emergencies funds have 3 floors.

A. Cash - 5-10 man in cash for emergencies. (Immediately liquid)

B. Bank Deposit - 3-6 months expenses. (1-2 days liquid)

C. Cash like - Low- volatility (Government bonds, etf/funds)

[RetireJapan]

The big 'emergencies' I see often in Japan are:

1. sudden trip abroad for funeral or similar. This can be expensive and throw your budget out (also money is often the last thing on your mind). Having a decent amount of cash in the bank or credit cards with high limits will deal with this. If you go the CC route you need to have enough slack in your monthly budget to pay it off on time, etc.

2. serious illness. This can result in loss of income, extra expenses, and huge amounts of stress. Removing money/liquidity problems allows you to reduce that stress slightly. When this happens to a family member abroad, you get the combination of one and two.

3. vehicle related. Accident or breakdown, maybe you need a new vehicle.

4. home related. Leak/flood/fire/replacing a boiler or similar.

Three and four are almost completely painless if you have enough surplus cash to deal with them, which for me is one argument in favour of having a larger emergency fund than you might 'need' (need in this case is completely subjective).

[Newseishain]

This has most certainly been a head scratcher for us as well. In the end, we have about 5 man in cash for unexpected day to day emergencies, 10 man in the disaster supplies, and currently 3 months of living expenses in one of those tsumitate savings accounts.

None of it is earning any interest of course, but we're placing more emphasis on liquidity, at least for now.

[Tony]

3. vehicle related. Accident or breakdown, maybe you need a new vehicle.

4. home related. Leak/flood/fire/replacing a boiler or similar.

3 and 4 I don't see as emergencies, as these are things that are going to happen, given time. So I keep a separate account for home/auto repairs that I put a little into each month, and just continue doing so. I don't like the idea of dipping into my emergency fund, just from a psychological perspective. I'm afraid I might get a "Well I used it for this before, so I guess I can use it for this as well" mentality about it, where as for me it is only for what you listed as emergency 2, and to a lesser extent emergency 1.

[beanhead]

This has most certainly been a head scratcher for us as well. In the end, we have about 5 man in cash for unexpected day to day emergencies, 10 man in the disaster supplies, and currently 3 months of living expenses in one of those tsumitate savings accounts.

None of it is earning any interest of course, but we're placing more emphasis on liquidity, at least for now.

Not sure if you were here when the earthquake hit Tohoku. Since then, I always try to make sure we have enough cash on hand to fly somewhere if needed. I also try to keep the car at least 75% full of petrol, as you couldn't get it at gas stations near us for a few days.

[RetireJapan]

3 and 4 I don't see as emergencies, as these are things that are going to happen, given time. So I keep a separate account for home/auto repairs that I put a little into each month, and just continue doing so. I don't like the idea of dipping into my emergency fund, just from a psychological perspective. I'm afraid I might get a "Well I used it for this before, so I guess I can use it for this as well" mentality about it, where as for me it is only for what you listed as emergency 2, and to a lesser extent emergency 1.

Fair enough! There are many approaches to achieve the goal of 'always have enough money'. Having one big pot for irregular expenses works for some people, and having lots of pots for specific things works for others