Disclaimer: The information presented in this post is for educational purposes only. This is not a endorsement for either of the firms mentioned below.
A couple months ago, I read an article on CNBC. It stated, “most Americans cannot afford an emergency expense of $400 without having to sell or borrow from someone.” I learned along time ago not to be one of those people. The article also said roughly a third of Americans have 3-6 months salary saved in an emergency fund. Now while, I am not yet one of those people, I am 2-4 months away from becoming one.
I cannot overstate the importance of having an emergency fund in place. Should you ever lose your job, it will provide you with the peace of mind knowing that you have time to locate new employment or pursue new ventures. It is recommended that you have a least 3-6 months salary, but you can start with a goal of $1,000. Personally, I think you should save about 10% of your monthly pay into this account. If you have direct deposit, consider sending 10% percent directly to this account before you paycheck is deposited. The belief is that since you don’t see the money in your main account you don’t notice it’s “gone”. I went to the extreme of not having checks or debit cards for my emergency fund. It takes three days to transfer it, so I have to really need the money to go through the hassle.
My emergency fund began as an Ally online bank account in 2012. I chose Ally because the %1.00 return of their savings account is the highest in the country. Recently, I changed from Ally to Betterment. Betterment is a robo-advisor. For a very low fee (much lower than any human advisor), it will purchase a portfolio of Exchange-Traded Funds for me based on my style of investing. The logic behind this switch was that inflation is about 3% and that’s greater than the 1% Ally will yield.
Disclaimer: The recommend ratio of stocks to bonds for the Safety Net account is 40:60. My ratio is set to 70:30 for a number of personal factors such as age, multiple sources of income, currently held stocks and notes. I do not recommend this for anyone else
The image above is snapshot of my Betterment account. My goal of $10,000, it’s about 78% complete. I am putting $750 dollars into it each month and have allocated my funds aggressively. The graph shows the range of my investment growth if I were to follow this trend for the next 2 years.
The time-weighted turn shows how much my investments have earned, regardless of when the money was invested. I have gained 4.8% since the account was opened in May.
If I lost my job today, I would probably go to Colombia for two months or maybe to visit my friend Taj in Ibiza. Either way, I could walk home knowing I didn’t have to sell my Air Jordans, although that’s the first thing I would do!