Best Place for an Emergency Fund?

[Credit_Sleuth]

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[tnhomestead]

From my point of view, in my safe. It's an emergency fund so I want it handy, 24/7. Getting a 1 or 2 % interest rate with 6% inflation is not worth it to me in case of a major emergency. If power goes out as itdid here for a few days, I don't care. If I need a tow, here's the cash, I will send it in for reimbursement

[Anonymalous]

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@tnhomestead wrote:

From my point of view, in my safe. It's an emergency fund so I want it handy, 24/7. Getting a 1 or 2 % interest rate with 6% inflation is not worth it to me in case of a major emergency. If power goes out as itdid here for a few days, I don't care. If I need a tow, here's the cash, I will send it in for reimbursement

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I think most people in the thread are using the term emergency fund to refer to the 3-6 months of income that's recommended to help smooth over longer term (but still short term) emergencies or major life transitions, like losing a job or an accident. Not relatively minor and immediate expenses like tows in the night.

But you're raising a valid point. It's probably better to think of emergency funds, plural, than a single monolithic emergency fund. They'd differ in size and accessibility. The first tier is something like your cash in a safe, to cover very short term problems when other systems are down or unavailable (middle of the night, for instance). The next and much larger tier would be funds that might not be accessible immediately, but which can be accessed in a few days. There might be some withdrawal penalties, but they shouldn't be too steep. That would include things like a money market account or year old I Bonds. It's also useful to look up hours, transfer limits and times (ACH, wire, maybe even Zelle; incoming/outgoing may be different; and they typically have per day and monthly limits), cashier's check costs, and so forth. It's also useful to diversify your emergency funds a bit -- if one bank is down or they freeze your accounts or whatever, that could lock up your emergency fund exactly when you need it.

[Kree]

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@Anonymalous wrote:

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@tnhomestead wrote:

From my point of view, in my safe. It's an emergency fund so I want it handy, 24/7. Getting a 1 or 2 % interest rate with 6% inflation is not worth it to me in case of a major emergency. If power goes out as itdid here for a few days, I don't care. If I need a tow, here's the cash, I will send it in for reimbursement

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I think most people in the thread are using the term emergency fund to refer to the 3-6 months of income that's recommended to help smooth over longer term (but still short term) emergencies or major life transitions, like losing a job or an accident. Not relatively minor and immediate expenses like tows in the night.

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Thanks. I couldn't figure out why people needed such large funds. This clarified things for me.

[iced]

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@Anonymalous wrote:

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@tnhomestead wrote:

From my point of view, in my safe. It's an emergency fund so I want it handy, 24/7. Getting a 1 or 2 % interest rate with 6% inflation is not worth it to me in case of a major emergency. If power goes out as itdid here for a few days, I don't care. If I need a tow, here's the cash, I will send it in for reimbursement

---

I think most people in the thread are using the term emergency fund to refer to the 3-6 months of income that's recommended to help smooth over longer term (but still short term) emergencies or major life transitions, like losing a job or an accident. Not relatively minor and immediate expenses like tows in the night.

But you're raising a valid point. It's probably better to think emergency funds, plural, than a single monolithic emergency fund. They'd differ in size accessibility. The first tier is something like your cash in a safe, to cover very short term problems when other systems are down or unavailable (middle of the night, for instance). The next and much larger tier would be funds that might not be accessible immediately, but which can be accessed in a few days. There might be some withdrawal penalties, but they shouldn't be too steep. That would include things like a money market account or year old I Bonds. It's also useful to look up hours, transfer limits and times (ACH, wire, maybe even Zelle; incoming/outgoing may be different; and they typically have per day and monthly limits), cashier's check costs, and so forth. It's also useful to diversify your emergency funds a bit -- if one bank is down or they freeze your accounts or whatever, that could lock up your emergency fund exactly when you need it.

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I would agree something like a tow truck isn't emergency funds, but rather petty cash. That said, I'm not even sure it should be cash as more and more things are going cashless -- and the pandemic only accelerated it. I'm already at the point that about the only people I deal with who prefer cash either don't understand or dislike technology, or looking to hide the transaction under the table (e.g., tips they would rather not report to the IRS). When the electronic systems go down, merchants aren't falling back on cash transactions typically. Too much risk, too little reward.

I don't know if I see a short-term and medium-term need for separate emergency funds though. Anything that needs immediate payment is what credit cards are for, that's 20+ days to move money from any emergency fund to cover it, so whether it's accessible in 1 day or 4 doesn't seem very relevant. If someone wants to keep them separate it's fine, but I don't really see a value-add in having something accessible in 8 hours versus 72. 

[Anonymalous]

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@iced wrote:

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I would agree something like a tow truck isn't emergency funds, but rather petty cash. That said, I'm not even sure it should be cash as more and more things are going cashless -- and the pandemic only accelerated it. I'm already at the point that about the only people I deal with who prefer cash either don't understand or dislike technology, or looking to hide the transaction under the table (e.g., tips they would rather not report to the IRS). When the electronic systems go down, merchants aren't falling back on cash transactions typically. Too much risk, too little reward.

I don't know if I see a short-term and medium-term need for separate emergency funds though. Anything that needs immediate payment is what credit cards are for, that's 20+ days to move money from any emergency fund to cover it, so whether it's accessible in 1 day or 4 doesn't seem very relevant. If someone wants to keep them separate it's fine, but I don't really see a value-add in having something accessible in 8 hours versus 72. 

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I think you might want to reconsider that a bit. If you're house catches fire, you can probably get a hotel room and fill your car with gas using a credit credit, and then you can withdraw some money with a debit card at an ATM. But that's because the fire only affected your house, and maybe a couple neighbors. It's not true for widespread emergencies, which impact infrastructure and supply chains. And the bigger the emergency, the more systems that are impacted, the broader the area suffering the outages becomes, and longer it takes for those resources to start working again.

To give an example, after Katrina, many people who stayed tried to leave the coast after the storm passed. But power was out. There were gas stations, but they didn't have operational ATM machines or card readers. So if you didn't have cash, you couldn't fill up your car, and get away from the affected area. The same applied to hotels and hotels rooms. Cell phone service was spotty and overwhelmed (email was typically the best way to communicate -- always try alternative methods of contacting family/etc.), rental cars and trucks were all taken, flights were all booked, and so on.

There's some value in being self-sufficient for a couple days. We're in a pretty safe world, and we're used to only short term outages. But emergency planning is for rare emergencies, not everyday events.

[iced]

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@Anonymalous wrote:

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I think you might want to reconsider that a bit. If you're house catches fire, you can probably get a hotel room and fill your car with gas using a credit credit, and then you can withdraw some money with a debit card at an ATM. But that's because the fire only affected your house, and maybe a couple neighbors. It's not true for widespread emergencies, which impact infrastructure and supply chains. And the bigger the emergency, the more systems that are impacted, the broader the area suffering the outages becomes, and longer it takes for those resources to start working again.

To give an example, after Katrina, many people who stayed tried to leave the coast after the storm passed. But power was out. There were gas stations, but they didn't have operational ATM machines or card readers. So if you didn't have cash, you couldn't fill up your car, and get away from the affected area. The same applied to hotels and hotels rooms. Cell phone service was spotty and overwhelmed (email was typically the best way to communicate -- always try alternative methods of contacting family/etc.), rental cars and trucks were all taken, flights were all booked, and so on.

There's some value in being self-sufficient for a couple days. We're in a pretty safe world, and we're used to only short term outages. But emergency planning is for rare emergencies, not everyday events.

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What I'm implying is that when such a situation of widespread outage does happen, many businesses aren't going back to taking cash instead. They shut down. They have many, many problems and not being able to take credit cards becomes the least of them.

Most of the country is quickly passing the point of no return to going back to the old ways of doing transactions. Some of the more rural areas may function as they didn't jump as far ahead as major cities, but if something like the above hit NYC, you're not suddenly going to see cashless places start taking cash.

When I was in the Napa/Sonoma area during a long power outage (late 2019), most places shut down. The ones that didn't fired up generators and brought their card systems online. I was still paying with cards. One or two small mom-pop shops took cash, but many others didn't want to deal with the issues associated with their employees handling cash, and I was completely able to function cashless despite widespread and prolonged outages.

[Anonymalous]

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@iced wrote:

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What I'm implying is that when such a situation of widespread outage does happen, many businesses aren't going back to taking cash instead. They shut down. They have many, many problems and not being able to take credit cards becomes the least of them.

Most of the country is quickly passing the point of no return to going back to the old ways of doing transactions. Some of the more rural areas may function as they didn't jump as far ahead as major cities, but if something like the above hit NYC, you're not suddenly going to see cashless places start taking cash.

When I was in the Napa/Sonoma area during a long power outage (late 2019), most places shut down. The ones that didn't fired up generators and brought their card systems online. I was still paying with cards. One or two small mom-pop shops took cash, but many others didn't want to deal with the issues associated with their employees handling cash, and I was completely able to function cashless despite widespread and prolonged outages.

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A power outage, even one that lasts a couple days, isn't much of an emergency. I think you're correct that there's more and more of a push toward a cashless society, but cash is still the default when a real disaster takes down significant portions of the infrastructure.

[iced]

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@Anonymalous wrote:

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@iced wrote:

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What I'm implying is that when such a situation of widespread outage does happen, many businesses aren't going back to taking cash instead. They shut down. They have many, many problems and not being able to take credit cards becomes the least of them.

Most of the country is quickly passing the point of no return to going back to the old ways of doing transactions. Some of the more rural areas may function as they didn't jump as far ahead as major cities, but if something like the above hit NYC, you're not suddenly going to see cashless places start taking cash.

When I was in the Napa/Sonoma area during a long power outage (late 2019), most places shut down. The ones that didn't fired up generators and brought their card systems online. I was still paying with cards. One or two small mom-pop shops took cash, but many others didn't want to deal with the issues associated with their employees handling cash, and I was completely able to function cashless despite widespread and prolonged outages.

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A power outage, even one that lasts a couple days, isn't much of an emergency. I think you're correct that there's more and more of a push toward a cashless society, but cash is still the default when a real disaster takes down significant portions of the infrastructure.

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Power outage, hurricane, meteor strike, etc - none of it is going to make modern society go backwards to taking cash (or gold as I've heard more than one doomsdayer hope for) in a few years time. Even today, some merchants lack the infrastructure to even take cash (register-less) or deem it too great a risk (no secure way to store large sums, employees can't be trusted to not skim, etc).

[Anonymalous]

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@iced wrote:

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Power outage, hurricane, meteor strike, etc - none of it is going to make modern society go backwards to taking cash (or gold as I've heard more than one doomsdayer hope for) in a few years time. Even today, some merchants lack the infrastructure to even take cash (register-less) or deem it too great a risk (no secure way to store large sums, employees can't be trusted to not skim, etc).

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None of that has any real relevance to what I've been discussing, which is the real disasters that occur on a regular basis, and the practicalities of emergency management and response.

Cash is a good fallback for a few days after a major disaster that affects a widespread area and knocks out much of the infrastructure.