My rule is that if you continue to use the interest gained from the emergency fund. It should just stay in the emergency fund. Things aren't getting cheaper, so if you have an emergency the price of the emergency is only going to go up. Having interest is going to pretty much cover the increased costs of inflation.
Why not have the best of both worlds? If your account is earning that 5% interest and inflation is at a 3% lets say. Save that 3% so your savings now reflects a more modern 6 month picture, and put the remaining 2% elsewhere to assist you on your financial journey.
I would just leave it in the emergency fund accumulating to account for inflation. 6 months fund now might not be that level in 5 years time if you extract the interest each time.
That's a valid point. however, it's important to have a clear understanding of your risk tolerance and financial goals before making any investment decisions
I'm in a bit of a different situation, I have a significant amount of student loan debt, would it be wise to use some interests to pay it off or invest.
Remember that it is taxable interest. It might not be much income, in some cases, but it could be an extra 1 to 2k add to your income per year, also subject to state taxes. Also, if the fed cuts rates, the high yield savings rate goes down. To mitigate the impact, you might want to own a 2 to 5 year bond and sell before maturity to minimize taxes (counts as a long term capital gain after interest accrued). Another strategy, is using an in-state municipal bond fund to collect some triple tax exempt (state, federal, local) interest, however, the bond maturities are longer on muni bonds (20-30 years in some cases), appreciation might be minimal (depending on direction of interest rates.
80% equities 20% cash. I plan to take advantage of the current market situation as leading indicators predict a bullish S&P 500 by 2025, my only concern is how to properly allocate a large stock/bond portfolio for maximum potential returns.
Agreed, investing with the help of an advisor did the trick for me in barely 5 years. I worked hard everyday as a teacher for 32 years and my salary was over 100k, enough to get me invested. I'm semi-retd today with nearly $1m, and only work 7.5 hours weekly.
how to put my money to work has been my daily thought, did my research and most suggestions pointed at the stock market, the thing is i'm an absolute noob at investing... mind sharing info of this professional guiding you please?
Karen Lynne Chess is the licensed advisor I use. Just google the name and you'd find necessary deets. To be honest, I almost didn't buy the idea of letting someone handle growing my finance, but so glad I did.
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I throw it into my checking account almost as a dividend and then I continue my steps. Since I keep a certain amount in my checking at baseline, it frees up more money to be used in whatever step I’m in.
@@MRkriegs He said "making that up" because we all aren't eyeballs deep in debt. But let's be honest, a lot of the people watching their videos, do need $50k every 6 months to survive.
After taxes and inflation, the 5% only helps keep the EF up with your dollar purchasing power. At 5% after taxes and inflation, I still lose purchasing power on my EF over the past 2 years.
I was surprised that the response to this question wasn’t just “do whatever it is you do with any of your other income”. Why should emergency fund interest income be treated any differently?
In the last 4 years my budget needs have never stayed steady or gone down. I've needed to increase my grocery and insurance expenses each year. If my yearly expenses are increasing, I need to increase my EF amount. The "easiest" way to increase my EF amount is to just leave that interest in the EF HYSA. Then once a year I total up my annual expenses and find out how much more I need to add to my EF account to cover 6 months. It's much less having had a nice interest rate in the HYSA padding that amount each month.
As others have said - a 5% RoI in CD's, after regular income taxes, is more like 3.5%, which (barely) keeps up with inflation. Leave it in there so you don't have to replenish your emergency fund every couple of years.
Let your emergency fund grow 5% before you think about deploying that interest. Most people don't know how much this "emergency" will actually cost. I know someone who went in one day to having a gigantic, hundreds of thousands of dollars medical emergency. I'm not saying you need to save that much but the emergency could be bigger than expected. Go 5% up at least.
Maybe a good suggestion would be to be extra generous towards others?? Go to Costco, buy a bunch of socks, pants, shoes, granola bars, etc and make homeless care kits to hand out.
Yeah, I plan on leaving it in there when I reach the higher stages of the FOO. Only have 3 months in my E-fund and am tackling my CC debt. In 2 or 3 years, when that is gone, my per month expenses will be lower since I will no longer have the minimum payments to make and that 3 months might now be closer to the 6 month goal. And the intrest it accrues will keep bringing it closer. 10 years in the future it may even end up being a year and a half emergency fund, which isn't a bad thing.
@@Ryhm14 bond FUNDS can drop in value. Actual bonds/tbills/notes do not drop in value. You may succumb to interest rate risk, but the principle value remains intact.
Safe interest barely out performs the encroachment of inflation. Say you get 5% interest, thats 3% for inflation and 2% for lifestyle creep. 6 months of expenses, if computed honestly, will probably grow about 5% per year.
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Same here, I got to know about Abby Joseph Cohen Services on here in 2020. Since then I've paid off 160,000 USD of debt. Now I'm working on building an emergency fund. I didn't even have a savings account three years ago.
@@RamseyAlaqelWell her name is 'ABBY JOSEPH COHEN SERVICES'. Just research the name. You'd find necessary details to work with a correspondence to set up an appointment.
Something to keep in mind, that interest is taxable and should be accounted for accordingly! If you are storing it for an EF or downpayment, it could really change your tax burden significantly.
