EF too big

[cypher1]

I just realized my EF has accrued to roughly 12-14 months instead of 6. It sits in ING account, earning barely 1%. Just turns out with tax refund, and recently selling of a car and some tools that I need to re-align my priorities for savings/investments. I currently contribute 10% to 401k (w/ 6% match), but would like to hear suggestions on diversifying cash to keep up with inflation. Currently I do no have stocks, mutual funds, bonds, or CDs.

[jpg7n16]

If you need it all liquid: Put 6-8 months expenses in I-bonds. Keep 6 months in cash.

I-bonds are guaranteed to keep up with inflation. Don't worry about diversifying the 6 months in cash. Just keep it liquid. The point of an EF isn't to generate maximum returns.


If you're looking to do the most benefit for your future: Keep 6 months cash. Max out Roth IRA. Invest the rest.

[cypher1]

If you need it all liquid: Put 6-8 months expenses in I-bonds. Keep 6 months in cash.

I-bonds are guaranteed to keep up with inflation. Don't worry about diversifying the 6 months in cash. Just keep it liquid. The point of an EF isn't to generate maximum returns.

That's the direction I'm looking at with priority being liquidity at the same time.

[disneysteve]

Do you have any non-mortgage debt? If so, I'd work on paying it off.

If no debt, then start investing more. Keep 6 months for the EF and open an account with Vanguard or Fidelity or T. Rowe Price or company of your choice and start beefing up the investments. Remember, your goal should be to save 20% of income. You are currently doing 10%, which is a great start, but that isn't enough ultimately.

[StepRightUp]

Quick Question related to that 20% savings figure:

What do you include in that?

Do you include a vacation fund, car repair replacement, debt payments, etc in that figure? I take it that's not strictly retirement.

[littleroc02us]

How did your EF fun exceed your 6 months of expenses? Do you use it as a checking account or something?

[cypher1]

Do you have any non-mortgage debt? If so, I'd work on paying it off.
Remember, your goal should be to save 20% of income.

Just the mortgage for debt. Did you mean 20% of gross income for specifically retirement, or as a whole? Meaning car fund, home improvement/repairs, hobby.

[cypher1]

How did your EF fun exceed your 6 months of expenses? Do you use it as a checking account or something?

My main cash/EF is in ING with a small % being auto deposited from check, but I hardly ever check the balance (maybe 2-3times a year). Otherwise I already keep 1month EF in my reg checking/saving for additional cash resources. Due to recent taxes/additional cash from hobbies, I realized it was double the balance. So I upped my 401k to 10% and want to educate myself on where to invest without being too aggressive for risk.

[disneysteve]

I posted something similar a couple of months ago. At year end, I reviewed everything and found we had way too much in cash, so I fully funded both of our Roths for 2011 right after the first of the year. That took care of 10K of excess cash in a snap.

The 20% savings figure is generally said to be 15% for retirement and 5% for other goals, so things like your car fund, vacation fund, new furniture fund, etc. I base all figures on gross. Others do it on net. I do think extra debt payments beyond the scheduled payments count as a form of savings, too.

[tripods68]

Nothing is too big when it comes to EF. You can always moved money in or out depending your immediate goal. I would park it where you can enjoy half of it towards some higher interest rate likes CDs or Muni, or TIPS.

[littleroc02us]

My main cash/EF is in ING with a small % being auto deposited from check, but I hardly ever check the balance (maybe 2-3times a year). Otherwise I already keep 1month EF in my reg checking/saving for additional cash resources. Due to recent taxes/additional cash from hobbies, I realized it was double the balance. So I upped my 401k to 10% and want to educate myself on where to invest without being too aggressive for risk.

I'm even more confused now! An EF fund is a seperate account that you don't touch unless you have an emergency.

[disneysteve]

Nothing is too big when it comes to EF.

If by EF, you mean money held in cash accounts in case of emergency, I would disagree. Having too much in cash accounts would throw off your asset allocation, tilting it more conservative than might be appropriate for your age and goals.

[cypher1]

I'm even more confused now! An EF fund is a seperate account that you don't touch unless you have an emergency.

That is correct. My ING account initially had 6mo. But I was putting more into it over the last year, including for my car fund/hobby. So I wasn't withdrawing money out it, mainly depositing. I don't know how much more there is to be confused with besides the fact that I kept a little extra in my reg checking/savings.

[littleroc02us]

That is correct. My ING account initially had 6mo. But I was putting more into it over the last year, including for my car fund/hobby. So I wasn't withdrawing money out it, mainly depositing. I don't know how much more there is to be confused with besides the fact that I kept a little extra in my reg checking/savings.

So, you keep an ING fund that includes an EF fund, a car fund and hobby account? I can see why it would grow, IMO seperate them.

[cypher1]

So, you keep an ING fund that includes an EF fund, a car fund and hobby account? I can see why it would grow, IMO seperate them.

Separating them is an option, but still doesn't help with the already large EF sum regardless. As for car fund and hobby, the reason I included them is I really don't buy much of anything so I merged them a year ago with EF. Additional rent income is used for buying Wants (if any) IE tools, which I don't really include this list for savings.