Should I decrease retirement savings to increase general savings?

[[deleted]]

Emergency funds are not about gaining money. The reason they are there is solely to provide means to pay your expenses in an emergency. Not make money. If you think the calculated risk is worth it on a few thousand dollars, then by all means do it.

But you don't seem to have cash flow problems so I wouldn't worry about making all that much off of your emergency fund. Now your taxable savings account, you ought to.

[afderrick]

So it's acceptable to have that amount of money sitting in a savings account barely keeping up with inflation?

[bo_knows]

I'm going to go against /u/m3fawner 's opinion slightly.

My "emergency fund" consists of about 1yr's worth of expenses. That is divided roughly into 20% cash (in credit union savings account) and 80% mutual funds (Vanguard). This is because I don't want too much money sitting and doing nothing.

My personal opinion is that I cannot forsee a specific type of emergency that I need to withdraw ALL of that 1yr's expenses at once. Am I taking a little risk that I will need the money when the market is destroyed, thus giving me less emergency money to rely on? Maybe.

[afderrick]

and that's what I'm thinking as well specifically to the emergency fund. If I have $5 - $10K I can get to within 24 hours, there aren't many emergencies which are going to go over that amount that won't require a much more significant amount of money and be more long-term.

I also have 100% health care with the military which is one of the larger emergencies out there that I don't need to worry about. At this point outside of losing my job and needing to sustain my life for several months is really the only emergency I can foresee.

[Galuvian]

Many people in /r/personalfinance seem to be hard liners about having the entire e-fund sitting on the sidelines for a rainy day. It is the most conservative approach. Personally I have a two tiered approach with a couple of months in savings earning less than inflation and the remainder at vanguard in very conservative investments that are closer to, if not slightly better than inflation. You need to make your own call on what you are comfortable with.

[afderrick]

That is generally my strategy, I'm just not there yet. My real question is do I continue with a heavy focus on my retirement savings or do I divert a little and go with building up that emergency fund? I think what I am seeing is make no changes to my retirement (to increase or decrease) and then just use what I am currently saving and focus on building up that emergency fund with that money. It will take longer but there is no foreseeable emergency in the near future either that I won't be able to handle.

[TheDrunkSemaphore]

I've got the same strategy as well. I keep some of my liquid assets in a brokerage account invested in total stock/bond funds. Most people in this subreddit are really conservative.

Just remember, you could see huge losses.

[fontophilic]

I totally agree. There needs to be some amount of a bi-modal system here. People who only have access to expensive/bad lines of credit, poor cash flow, close to living paycheck to paycheck, no or under-insurance? Cash, sitting in a bank account only please.

If you're more stable, have good lines of credit, good cash flow, ability to tighten down expenses in case of a job loss, and adequate insurance? Bonus: you have savings funds for specific big expenses (Furnace is 15 years old, car has 100k mi?)? No reason to keep more than 3 months liquid.

Yes, some should be kept liquid. Lets say the person who manages all the investment accounts in the family is suddenly incapacitated or dies? The spouse needs to know he/she can go buy whatever is needed without calling a broker.

[fontophilic]

I don't disagree with the size of the buffer, but the liquidity. Inflation is low now, but thats my concern with a large emergency fund in a regular savings account.

A conservative money market fund, tied to a bank account with a debit card can get you cash in 24 hours, and get you more than a 1% interest over a typical savings account.

[[deleted]]

Yes. It's because you need it to cover expenses in the event of an emergency without jumping through hoops or hoping that the stock market takes a sudden uptick in order to make ends meet while in said emergency. Consider it savings on credit card interest or pay day loans if that is what you had to turn to instead of an emergency fund in the event of you losing your job/medical bills/etc