August’s mortgage payment and rejiggering the emergency fund

Last month (July):
Years left: 0.666666666667
P =$1,175.46, I =$38.94, Escrow =$812.79

This month (August):
Years left: 0.5833333333333333
P =$1,180.12, I =$34.29, Escrow =$812.79

This is the first time in a long while that we’re not saving up for something big.  DH may lose his job, because jobs aren’t guaranteed, but he’s not planning on leaving his job any time soon.  I’m not eligible for leave for another 5+ years.  There’s not really any reason to hold onto large amounts of cash.  Certainly not the 84K that we ended up having in savings before we left for Paradise.

DH’s salary is also substantive enough and year round enough that we don’t really have a long unpaid summer like we used to.  I think we will be spending more than his take-home pay in the summer, especially since that’s when a bunch of our big annual bills come due (mostly insurance), but there’s a big difference between being a little short and having literally no summer income.  We don’t have to have quite as big a chunk come May as we used to.

On top of that, we were paying a year’s tuition of daycare and/or salary in September, about a month before we got paid so we needed money for that as well.  We’re no longer doing that because DC1 is going to public school and we no longer trust daycares to not go out of business.

Previously I mentally partitioned our savings account into “summer expenses” for the 3 summer months without income, “DC1 tuition”, “DC1 summer camp”, “DC2 daycare”, and “emergency fund”.

This year I’m going to try something different.  I’m going to try to maintain 21K in savings all year round and call it the “emergency fund”.  I won’t save extra from each paycheck for summer expenses leading to a gradually increasing savings amount.  I’m just going to have 21K in there.  I will allow it to dip below that during the summer, but I’ll try to keep it above, say 14K.  If DH loses his job or something, then we’ll sell some stocks, but otherwise 21K should get us through until the next paycheck(s).

It occurs to me that if I weren’t lazy and if rates weren’t so low, it would make a lot of sense to put that 21K into a 9mo CD or into a three month ladder of CDs that come due.

Where did I get the number 21K?  Well, mostly I just pulled it out of my posterior region, but IIRC, it’s about 3 months of expenses (when we’re not living in Paradise) when we’re living large and then some.  It is also enough to cover pretty much any major emergency other than a car purchase.

What will we do with the rest of our income?  No idea!  Maybe we’ll figure something out next month after everything has settled down.  Right now I’m leaning towards lumps to a taxable Vanguard account, but first I will need to drive my car for a month to see if it needs to be replaced.

What are you all doing for an emergency fund these days?  Does how much cash you have in savings change over time?

36 Responses to “August’s mortgage payment and rejiggering the emergency fund”

  1. yuppiemillennial Says:

    I have a 30k emergency fund (about 9 months expenses), 5k house maintenance (which I contribute to monthly), and 5k planned spending in Amex Personal Savings subaccounts at ~0.9% interest. Occasionally I will use my emergency fund to get checking/savings account sign up bonuses.

  2. Leah Says:

    We just bought a new car (used 2016 with low miles), so our e-fund is a bit low. I just use a general savings fund and try to throw a lot into that. I’ve got a monthly minimum that auto-drafts out. We also started a brokerage fund, so now I throw anything saved above the monthly minimum into the brokerage fund. That’s a long-term house downpayment savings vehicle for whenever we leave our current jobs.

  3. Steph Says:

    I have ~10K in savings that I call my emergency fund, from undergrad awards/gifts and from saving hard my first year of grad school. In theory, it just sits there and as long as it doesn’t drop below 10K, I don’t worry about it. In practice, it’s frequently below that because it also serves as a cushion against the 3-4 month reimbursement turnaround time at my uni, and I travel a lot. I also dump a little bit of money in a Roth IRA every month, so that portion of my savings is slowly increasing. Slush funds on top of emergency and IRA funds always fluctuate. I’m a set-it-and-forget-it type of person, so just having a baseline works for me.

  4. Nanani Says:

    I’m freelance so I don’t exactly have “paychecks”, instead I have fluctuating monthly intake from invoices that get paid, but apart from that I do pretty much what you describe NOT doing: “save extra from each paycheck invoice for summer expenses leading to a gradually increasing savings amount.”

    My least busy time is May-June, so the savings cover my expenses there without needing to go super frugal for a month or two.
    Also worth noting is this is just my regular emergency fund. I have medium-term (1 year) savings used to pay the annual tax bill, and longer term savings including retirement, that are fed differently.

  5. anandar Says:

    We currently have about an $18k emergency fund in cash (the only time we’ve ever needed to take money from this was for an unexpected car purchase after an accident (an old but trusty type got in an accident, so insurance didn’t help)), and then a separate targeted savings account currently at $13k (with an online bank that allows me to divvy it up into many different goals (everything from planned new car purchases to smallish household needs/wants to vacations). That account could be repurposed in a true emergency, but thinking of it as targeted savings motivates me to save and spend better. The numbers are kind of arbitrary, especially targeted savings,which fluctuates depending on where we are in the savings process — I just reached a point where I realized that having more than a few months’ salary replacement sitting in cash didn’t make sense because my spouse’s job is v secure (by state law, he cannot be fired without huge quantities of notice), our fixed expenses are low, and our tolerance for risk with $$ ought to be high. So other non-retirement money is in Vanguard taxable investments and/or 529 accounts.

    CD ladders sound like Work. I am actually thinking about switching a portion of our e-fund from cash to a short term state/muni bond fund that has low risk/low returns (but better than cash). Easy to sell (after the first 30 days), and more set it and forget it than CDs.

    • Debbie M Says:

      I just want to warn you that I used to have a job where there were (almost) no layoffs. Job conditions got so bad that I’d wished I’d had targeted savings for unemployment.

      • anandar Says:

        On an emotional and/or abstract level, I totally agree!

        But when I look with my rational self at our specifics- I have my own steady (though not ed-code protected) job; he is chair of his dept, has many good colleagues also with tenure, a culture of autonomy at his institution– although all of those things could change, and bad things happen, sudden exit is unlikely and it makes more sense to keep most of our $$ in taxable investments where they earn more interest. In a perfect storm of bad things, we’d be ok with selling low. But it took me a long while to come to that — I’ve also been in a “Must. Get. Out. Now.” job situation myself, and I never want either of us to get trapped there for financial reasons.

    • Rosa Says:

      it’s worth looking into CD rates – last time I looked, it wasn’t worth buying CDs, but that may have changed. Federal savings bonds were higher than prevalent savings account rates in January but that might have changed too lately – they’re like 1 year CDs you don’t have to remember/decide to renew, basically.

      A CD ladder is not too much work to set up – if you habitually fund a Roth every January you can do a CD at that time or pick a different random date. The work is remembering to take the money OUT of the CD if when it renews the interest rate is terrible.

      But an index stock fund is not a really bad way to keep your savings if you have enough savings, if you have enough savings or available credit to cover an emergency if the market is down when you happen to need the money. If you put in $18k and you crashed your car and the stock market had dipped so you could only get $10k, you could probably get a loan for the difference. So that’s a really unlikely scenario in the first place and a not-ruinous worst outcome.

  6. Leigh Says:

    My cash goals have changed so much over the last few years. In 2010, I saved up $15k in an emergency fund and cash for a car. 2010-2012 was saving cash for a down payment and leaving myself with a $20-24k emergency fund after buying the condo. In 2014, I planned to leave my job, so I scurried cash and improved my emergency fund up to $47k, about one year’s expenses. That went down to $31k by the end of 2015 (relabeled a bunch of it into a grad school fund) and now my goal is to get it back up to $48k again because I’ll likely take a longer sabbatical between jobs this time around.

    My goal now is to have two years expenses across my liquid accounts (cash savings, bonds, and stock index funds) OR six months expenses plus a down payment on a new place with BF, which would be about $50,000 on top of my two year liquidity goal. I should hit this combined liquidity goal in fall 2017! If we decide to stay here instead of moving, then I’ll likely use a bunch of that cash to eliminate the mortgage on my condo and then re-build my emergency fund to one year in cash without a mortgage (~$36,000) and the rest into taxable index funds after retirement accounts. I’m not particularly worried about the cost of replacing my car – it’s still worth about $10k if insurance decided it was totaled and a new similar one would be about $20k and I’m sure I can find $10k somewhere.

  7. chacha1 Says:

    I only have $8000 in my savings account, aka emergency fund. The DH doesn’t have anything as far as I know. This is why I have stress.

    The 401(k) is in pretty good shape. There is just over $20K left on our property mortgage (monthly payment: $440). Debt-wise, I don’t know where DH is right now, am hoping to get caught up with bookkeeping over the Labor Day weekend. I have $2000 left on my car loan which I plan to pay off this month, and about $1000 on my operational credit card which I plan to pay off in Sept.

    I *could* pay that all off right now from savings, obviously, but the debt isn’t an emergency IMO. My job situation has been sufficiently unreliable for a sufficiently long time (ten years) that $8000 is pretty much the minimum savings I can tolerate. Losing another job would be an emergency and $8000 will cover my share of the fixed living expenses for six months.

    At nearly 51 I should be in better shape than this. :-( Having a non-saving spouse is kind of a killer.

    • Linda Says:

      In the past two years or so I realize how lucky I was to have a saving spouse. The marriage didn’t last, but at least neither of us was overly financially burdened in the process. My last long term relationship was with someone who had a poor relationship with money, so I’ve seen the “other side,” too. I’m now very careful in looking at a man’s relationship with money before I get involved. I want a partner who has good money values like me!

  8. SP Says:

    We have about 100k in cash right now, broken down like:
    – efund of 27k
    – 20k for possible kid-having buffer
    – 10k specific for home maintenance projects
    -15k that we’ll send to mortgage prepayment within the next month or so.
    – some that will be earmarked for december/april property tax bills in a “planned spending” fund.
    – some that is unallocated

    It is pretty much all in “high yield” savings for now. I could do something better. Throughout the year, our cash has varied from about 50k to about 100k, most of the variation in planned spending and money earmarked for mortgage prepayment

  9. Rosa Says:

    our monthly expenses are just over $4000 (mortgage, utilities, insurance, bare bones groceries, recurring medical costs – that includes things we only pay annually or once every six months, broken down into monthly amounts) so we capped the emergency savings at $25k, which is a nice round number that’s about 6 months expenses. It’s actually the same account as our house-fixing and car-replacement fund, which is sometimes quite large (we spent $30k on trees & new siding last year). It’s in a money market account which pays a tiny amount of interest.

    I have intellectually but not emotionally convinced my spouse that anything above the $25k should be in the “at risk” savings – the Vanguard index fund that’s not tax sheltered retirement savings – but having it not 100% liquid kind of panics him, so the money we’re planning on spending on the house this year provided the car doesn’t die is still sitting there in the money market. We’re working on it.

    • nicoleandmaggie Says:

      I haven’t managed to pull the trigger yet on our excess savings from being on leave so it’s all sitting there in savings waiting for us to decide if we want/have to go through the effort of spending it.

  10. Rosa Says:

    oh and I can’t really complain too hard about his liquid cash emotional needs, because I still have a “bug out” fund – $10k sitting in a savings account at my own credit union, because that’s about first/last month’s rent plus a down payment on a used car, should I suddenly be unemployed and homeless. I set the mental comfort amount about 20 years ago, achieved it at some pre-baby pre-joint-finances point, and have let it sit there ever since.

    • nicoleandmaggie Says:

      Our wells fargo account is kind of like that. It’s been a bit bigger lately than usual because that’s where our reimbursements and side-money have been going while in Paradise and unable to easily access the credit union for deposits. I haven’t been counting that even though it does actually exist and is larger than our current mortgage balance.

      • Rosa Says:

        Ha! “Haven’t been counting that” is why this one account is still in just my name – i have offered to make it joint, but he handwaves it away. It’s not real money somehow.

        Some of that cash was in a CD ladder, back in ancient days when that wasn’t just depressing.

  11. Linda Says:

    I had a big ol’ pile of cash in savings (about $170k) until very recently. A good chunk of the money was the equity from the sale of my Chicago house in November 2014, and the rest was earmarked for my e-fund and vacations.

    I just bought a house and now my cash reserves are around $60k. Some of that will go for immediate home fixing expenses (such as the amount not covered in the closing credit for replacing all the knob and tube wiring in the house), some of it is for my first tax payment (got a mortgage with no impound account for taxes or insurance), but most of it is for e-fund. I want to keep at least $35k in the e-fund, which is a bit over 6 months expenses for me at my mid-range lifestyle.

    All my money is in Ally Bank accounts. I switched over to them a few years ago and am very happy with the interest rates, service, and products.

  12. Debbie M Says:

    The amount of cash I have does change over time. I have several targeted savings categories, which I add to with each paycheck. Mostly it gets bigger (with this year being a huge exception). I haven’t done my August 1 numbers yet, so I’ll give you July 1 numbers:
    * Next (used) car – $66/mo – currently $4336
    * Car expenses – $130/mo – currently $3520
    * Property taxes/flood insurance (homeowner’s insurance now gets paid monthly) – $434/mo – currently $8402
    * House maintenance – $162/mo – currently $12,515
    * House renovations – $0/mo right now – currently $1932
    * Homeowner’s self-insurance (because I recently got high-deductible insurance) – $40/mo – currently $713
    * Medical savings – $107/mo, currently $3604
    * Long-term fun (vacations, electronics, classes) – $200/mo – currently -$13,092 (yes, negative)
    * Lending – $10/mo – currently $615
    Extra – whatever’s leftover after interest, etc. – currently $4532
    Total – 28K (a little more than 1 year’s salary)

    As you can see, having a study-abroad class and a Norway trip in one year was not really in the budget! [The (minor) surgeries and water heater replacement didn’t help!] But I have enough in the other funds to cover it.

    Where is this money?
    Local credit union – $512
    Alliant HSA – $5976
    Alliant savings – $6607 (usually more)
    Old CapitalOne360 savings – $100 (in case their interest rates surpass Alliant’s again one day)
    Scottrade (individual stocks) – $14,902
    Scottrade FRIP balance (cash from dividends to buy more stocks free) – $58

    I also have $1327 in US savings bonds (mostly old I-bonds) and $149,600 in my Roth IRA. House is paid off and I have a pension.

  13. Revanche @ A Gai Shan Life Says:

    I’m still detoxing from the job loss during the recession so still have to be talked out of needing 81K in cash in case of job loss. I know we spend that much regularly on two households and with travel annually and there’s part of me that feels like I’d struggle to get it much below that during a barebones budget period because only a small percentage is optional spending. Two households cost a lot.

    I’m keeping a large amount in a CD, a larger amount in a savings account. I’m justifying / aiming for $60K so that I can easily pick up another investment house if I spot a deal, and at the same time that assuages my feelings of needing cash on hand. The rest of the saved money is being transferred to investment accounts which is a secondary emergency fund I suppose. I guess it all is when you come right down to it.

  14. Revanche @ A Gai Shan Life Says:

    Also I forgot to mention that some big portion of the money I keep socking away is intended for a home down payment in case we do end up buying and my mental calculations suggest we need at least $400k in some sort of semi to liquid accounts should that time come. And I don’t know if I’m assuming we will or won’t sell this place when we move. Not sure I want to deal with a rental here but perhaps. Lots of uncertainty on a large scale there.

  15. Linda Says:

    After reading all the comments my thoughts are like “Yay, I can save a lot of money!” and “Whoa, I need to do something smarter with all that cash!” Now that I’ve made the leap to a house, I think I can look into investments and ways to make the money earn more than 1% interest.

    • Rosa Says:

      You probably can!

      I think, though, there’s a large overlap of people who save a significant part of their incomes, and people who value security over returns.

  16. gasstationwithoutpumps Says:

    Most of my money is in retirement savings (I’ll be retiring in 5 years, if my current plans don’t change), but I also have a California tax-free bond fund that I transfer money to automatically each month. That gets used for things like modifications to the house, though the solar panels we installed last year ended up being just cheap enough to come out of my checking account, without dipping into the tax-free bond fund. My checking account has been building up lately, because I’m no longer putting money into a 529 plan, but it may shrink for the next 4 months, as I’ll only be getting 2/3 pay during my quarter of sabbatical (my choice, to allow me to take more frequent sabbaticals).

  17. jjiraffe Says:

    Such smart comments! My husband always negotiates a severance package before joining a new company to help bolster our emergency fund (we’re lucky he’s in an industry where that’s not unusual, unlike mine). That said, we try to keep our fund at 9 months – 1 year of expenses covered without the package. It sits in savings. This year, we’re trying to save to be able to pay off more (good) debt if we need to.

  18. Susan Says:

    We have ~$50k in cash right now, and that amount has crept upwards over the years, but at this point we’ve agreed that over that amount, money gets put into our taxable investing (index funds). It’s about 10x monthly for us. We expect to spend some on a new car soon, but $10k, since VW is giving us most of the cost as a TDI buyback. There are house improvements we haven't gotten to, but intend to. I spent several K on a splurge recently.

    In general, as I've said before, our situation is close to one of yours — software engineer and academic, so the former job could vaporize in a second, and I don't (can't) plan on our income being what it is now, forever (or else I'd refi to a 10yr mtge), so I feel like we do want a pretty big cash buffer.

    I could/should be smarter about getting it into a ~1% account, but alas, inertia.

  19. First Gen American Says:

    I literally haven’t touched my e fund in 15 years. (Thank goodness we haven’t needed it). It took about 5 years to build with auto deductions from pay into savings bonds. I tried a few other methods first but kept having “emergencies” when the money was more accessible.

    The reality is we have multiple layers of buffers if needed that developed over time. I also have $10k tied up in a cd that I have in case I lose my company car again. We can live off one income if needed. We can stop saving for retirement for a while (because we are in good shape). We can stop fixing our house (and at this point most of the big ticket emergency expenses that could crop up like roof, furnace, etc, have been replaced).

    We have been very lucky to have not had any major medical issues and only one job loss in 20 years, so we’ve had it good….yet I still can’t help the feeling that at any moment chaos can spring again.

    We at least have the things under our own control in good working order which helps a lot. The job loss was not devastating because of DH’s network and reputation. He had a job offer the very next day from a former colleague. (But waited 2 months for the right one). Luck is a factor but so is your personal brand, your contingency plans and your support system. Every good deed is like insurance for when times may get tough someday. Every day you spend putting in your best work is also a type of insurance as well.

    I-bonds are probably a terrible investment but at least I have never been tempted to cash them because of the pain in the butt factor. Interest rates were okay back then so they probably aren’t half bad compared to s CD. I haven’t checked balance in forever.

  20. J Liedl Says:

    We only have about 10k in emergency funds at the moment – two kids in university now, yay, so most of the accumulation just went out the door on tuition and other fees at the same time as we paid our annual automotive insurance bill. We’ll be dialing it back up over the next nine or ten months and maybe Eldest’s starting grad school will be a bit easier on the pocketbook.

    My job is steady as a rock and I have an awesome retirement savings put aside from twenty-five years of contributions but most of our other savings are being thrown into my spouse’s retirement savings which aren’t so awesome but for which I can get a tax benefit (Canadians so spousal RRSP).

  21. Kellen Says:

    I have e-fund in Ally bank–their 1% rate is better than a 9-month CD last time I checked, and easier to access.

    I try to keep everything actually planned to be spent in an actual separate account, since otherwise it is too easy to dip into the “emergency” account. So I have separate accounts at Ally for different planned spending–like putting money away to pay the annual car insurance premium, savings specifically for home improvement, and savings specifically for car stuff.

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