March 24, 2007

Emergency Fund


We keep our emergency fund in a high yield (5.05% APY) Emigrant Direct savings account. We currently have a whopping $1,541 in the account; our goal is $12,000.

Most financially savvy people recommend having enough money in your emergency fund to cover 3-6 months of total expenses. I personally do not want to tie up that much money in a savings account. I’d rather pay down debt or invest the money. Our goal of a $12,000 emergency fund represents 2 months of total expenses for us. If we have an emergency that goes above that amount, our credit cards would then be used. In addition, I have 2 weeks of vacation saved up that can be cashed out for about $2,000, if needed.

Monthly deposits of our 'extra' cash will be made into the emergency fund. In addition, we will deposit $302/month for condo taxes and roughly $630/month for funding our Roth. Our condo taxes are due in December and April each year, and the Roth money will be used to open Vanguard Roth IRA accounts for my wife and me once we have $3,000 (minimum required for Vanguard 500 Index Fund). These monies are not really part of the emergency fund, but will provide some short term cash if needed, and gain some decent interest before we actually need them

We’ve got quite a ways to go, but my wife’s commission checks and our annual tax returns will help us get there.

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