Too much in bank accounts/too little invested?

Hello! We've been using YNAB for nearly a decade and have been fortunate to gradually build up big savings categories, which translates to big liquid savings balances, around $80k total. Our biggest YNAB category balances:

  • $40k in emergency fund (roughly 6 months of expenses)
  • $19k in new car fund (saving for minivan in the next year or two - current cars are from around 2010 and one may be on its last legs/wheels)
  • $3k in home maintenance (about to become $2k after some upcoming work)
  • $2k in auto maintenance (may need much of this soon)
  • $2k in new computer fund (may need in the next year or two)
  • $1k in phone replacement (may need in next year or two)
  • The rest of the $80k balance mainly comes from lots of categories in the $50-$200 range that we're regularly using, plus bigger ones like groceries, mortgage, daycare, taxes, utilities, home/auto/term life insurance, etc.

These big categories are all for good reasonable causes, I feel, and I know it's not smart to invest money that one may need within 5-10 years...so maybe that answers by own question 馃 ....but it still feels wrong to have all this cash sitting in savings accounts earning at most .4% interest, when it could be compounding in the stock market. Can any good arguments be made for investing some of it? If so, how does that mesh with the YNAB budget, as the value in the stock market would be fluctuating?

Or maybe I'm just looking for reassurance that it's okay to have around $80k sitting in our checking and savings accounts, barely making any interest! Other details about us:

  • We're debt free except our mortgage
  • Household income before taxes is about $135k
  • Current combined investments (almost all retirement) are around $125k
  • We're in our mid thirties with a 2-year-old and possibly one more on the way
  • Average daycare cost around us is $20-$25k/year
  • Don't have much extra money at end of the month, but are investing extra into retirement, a 529 plan, and HSA

Thanks for any input!! 馃嵒

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  • Hello SilverGuitar,

    I would reconsider the emergency fund. The goal is to weather all unexpected expenses but as a long term YNAB user, you probably have close to zero unexpected expenses. Also, the emergency fund alone is costing you on average $3200 per year, not even accounting for compound interest. 

    I would recommend watching this to get a different perspective: MMM vs. The Emergency Fund - MMM Show Episode 9

    Like 1
      • Annieland
      • I was told there would be no math.
      • Annieland
      • 7 mths ago
      • 5
      • Reported - view

      Phillip Rt No, do NOT reconsider an emergency fund.  I didn't watch the video, but like, 90%+ of us on these boards consider our emergency fund an "Income Replacement" fund.  It is different from True Expenses you fund every month.  If you have a loss of income, funding your True Expenses will be severely compromised and that $40k fund is very, very necessary.

      Like 5
      • Phillip Rt
      • Khaki_Packet.10
      • 7 mths ago
      • Reported - view

      Annieland I think this is based on a view factors:

      How stable is your career? Is it likely to be unemployed for a longer amount of time? 

      Do you have unemployment insurance? 

      How high is your "Burn rate", the bills you cannot cancel? I think most people cut there spending to the bare bones in case of unemployment. 

      Can you borrow money form other categories until you find a new job? I canse of job loss, the emergency fund would probably be more like 85k while all other goals and savings are on hold. 

      What are your financial goals and do you need to take on more risk to reach them? 

       

      Also I am not the only YNABer with this take, YNAB even produced a YouTube video talking about why experienced YNABers often have a very small or no emergency funds at all. 

      Like
      • Annieland
      • I was told there would be no math.
      • Annieland
      • 7 mths ago
      • Reported - view

      Phillip Rt I admit I don't have the attention span for most YouTube videos, so I'm ignorant of newer perspectives that aren't in written form.  But I'm guessing it's the "traditional" view of the emergency fund, to cover your butt when your car breaks down and such.  That's what experienced YNABbers have under control, or are striving to.  

      And yes, I do agree with judging the goal for your IR fund based on job stability.  Suze's goal of 9 months of expenses, or some people who can do a whole year is just waaay beyond what I can stomach.  I think I have about 3 months of inescapable expenses in my category, in all honesty.  I don't even have a clue what unemployment insurance pays either.  I've never been employed and my husband has never unintentionally been without a job, thank God.

      So I can embrace various viewpoints.  Everyone should be educated and figure out the sweet spot that keeps them sleeping peacefully at night.

      Like
    • Phillip Rt Definitely interesting to look at! I'd been a devout follow of Dave Ramsey's Baby Steps for many years, and it's helped me get out of debt and become much more financially stable over the past decade. As I've gotten more confident in my own financial management, I've bent the rules a bit more, like using credit cards for points, getting a 30-year instead of 15-year mortgage, not feeling any rush to pay off the mortgage early, not following his generic investing advice, etc. We don't have a lot of income left over after our basic needs so I may not be ready to jump into something like MMM suggests, but I appreciate hearing this idea!

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    • Annieland This is definitely the boat we're in - much more of an income replacement idea. I'm intrigued by some of the MMM ideas, but we probably ultimately need to stay more liquid.

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  • I've had this issue and made a thread about it a couple years ago (albeit when interest amounts were vastly different) https://support.youneedabudget.com/t/y7ay7a/what-do-i-do-with-all-this-cash.

    My opinion, leave your cash where it is right now.  You have a healthy income and expenses to match.  I've been YNABbing for over a decade too, and I'm very careful about what cash I subject to major market fluctuations (Hello, 2020).  Personally, I keep a certain range of cash in an Ally Savings account, and when it gets to the high end (from bonuses, lowering of expenses, etc.) I transfer money to a Schwab conservative/income based Intelligent Portfolio.  I keep it on budget, but only record the dividend transactions and ignore market fluctuations.  A year ago the actual balance dropped BELOW the YNAB balance and I needed to draw from an offset category to make up the difference.  That was a big eye-opener.

    Other experienced YNAB investors and savers can chime in.  Great job in getting to where you are though!  Another long-term YNAB success :).

    ETA: I have about $80k in checking and savings accounts on budget right now too.  And I need it there.  It gets moved around for spending, and then replenished regularly.  So there's some reassurance :).

    Like 1
    • Annieland Helpful to have some reassurance from a fellow $80k-er, thanks! 馃檪

      Like
  • I wrote a post for the YNAB Blog recently about this topic exactly:

    Is It Bad to Keep Money in a Savings Account?

    The answer is no, but also...

    Are you familiar with US series I savings bonds? There's a maximum contribution of $10,000 annually per person, but the interest rate starting next month will be 3.54%. It adjusts every six months but will never be lower than the prevailing inflation rate.

    I keep some of my I-bonds in my budget, and consider them part of my emergency fund. 

    Like 2
    • Matthew Hey Matthew I actually did read your blog post and loved hearing the perspective.

      And I had no idea about the US series I savings bonds - wow! In looking at it further, it seems like a fantastic option for the emergency fund. Easy to access if needed, no risk of taking a dive, keeps up with inflation. Seems like a great balance. And 3.54% is awesome - even better than the 2.4% or so we had in our high interest savings account before COVID. We'll likely start gradually migrating our $40k emergency fund into these.

      Do you know how the $10k annual limit works with a married couple filing jointly? Like could we both deposit $10k under each of our names, so $20k each year? We share all accounts so I'm not sure if that would work.

      Like
    • Silver Guitar It鈥檚 per SSN

      https://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eecomparison.htm

      In any one calendar year for one Social Security Number: You may buy up to $10,000 in electronic EE bonds, up to $10,000 in electronic I bonds, and, using your tax refund, up to $5,000 in paper I bonds.

      Like 1
      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 7 mths ago
      • 2
      • Reported - view

      Silver Guitar You would need two Treasury Direct accounts, because it's based on the Primary Registrant of the bond (you can add a secondary owner or beneficiary). Each account is tied to the primary registrant.

      For years we've been been buying in my account titling them nolesrule & Mrs. nolesrule. This year we opened a TD account for Mrs. nolesrule where we are buying them as Mrs. nolesrule & nolesrule.

      Like 2
    • Thanks, Tomato Tamale & nolesrule !

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    • Silver Guitar I'm not gonna lie鈥攕igning up for TreasuryDirect isn't like starting a new Gmail account. There will be paperwork. A notary may be involved. And all this so you can DEPOSIT money! But it's still worth it.

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      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 7 mths ago
      • Reported - view

      Matthew Probably depends on whether your credit is locked or not. I had no trouble opening an account for my wife in January.

      Now if you want to add/edit/remove bank accounts used for transferring money after the initial add, that is truly a pain.

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    • nolesrule Matthew Thanks for the heads-up about potential hassles! We'll be sure to plan on some extra time for getting things set up, just in case. But definitely excited to find that we can add $20k per year between us as it's based on SSN, so we could get our full emergency fund transferred over a couple years, plus maybe add even more in the future for longer-term savings like new car funds and home maintenance.

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    • nolesrule
    • Stealing From the Future fix is an improvement but is incomplete....
    • nolesrule
    • 7 mths ago
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    • Reported - view

    That's not all that much cash. 馃槈

    Matthew makes a great suggestion with I Bonds, as they are inflation protected and tax deferred.

    I also have an alternative solution involving, but to minimize budget risk it requires a taxable account that has a reasonable amount of money in it that has no purpose other than to be invested. I've written about my technique here and on r/ynab at reddit on several occasions.

    The premise is that at least 50% of invested money in high volatile investments needs to be earmarked as "invest only" money in an isolated category and not tied to a normal spending/savings category. This protects your actual budget from losses in all but the most sever downturns while still getting the exposure to the expected higher return. Beyond that you target an amount of cash you want to have and if you exceed that amount each month, sweep the excess. if you have an expensive month, don't sweep until your cash builds back up.

    My cash target is 6 months take home pay + a few categories  that I expect to be spent in the short term (we're close to getting the next car, and my daughter has a lifecycle event coming up in 18 months so we'll be spending that money soon). Thanks to the YNAB API, I pull the numbers into Google Sheets and let that crunch the numbers in real time for me.

    For example, right now it looks like about half of my last paycheck will be investable (we bought some outdoor furniture and it wasn't cheap). But at the same time we have plenty of excess this month due to a tax refund, so the amount we can add to the invest-only category is actually more than we will be able to invest based on cash flow. So this actually reduces our budget investing risk.

    The taxable account (broad market US and international stock funds) + I Bonds are invested as part of our overall asset allocation for a long-term portfolio.

    Like 6
    • nolesrule Haha glad to hear $80k doesn't sound so bad! 馃槃 Yes the I bonds sound really ideal for us. I'll poke around to check out your other posts. I think we'll need a bit more of a difference between our monthly expenses and monthly income to try some of what you outlined, but it sounds very well thought-out and like an effective strategy.

      Like
  • Phillip Rt said:
    experienced YNABers often have a very small or no emergency funds at all. 

    I think the "no emergency funds at all" is a bit of a misnomer. I don't have an "emergency fund" because that is too generic. But I do have separate categories for loss of income fund that would cover 6-8 months and that gets added to , annual medical out of pocket max funded at the beginning of the year with a goal of being able to fund "this year" and "next year", home repair fund, auto repair fund and so forth. All of that is on budget. I also invest on a regular basis, but that's addressed through funding my Investment category every month. I have enough to buy a new car in cash (well, I'll have enough tomorrow when a wire payment comes through) and since I don't plan on buying a new car until 2030 (I buy new and drive until they die on the side of the road), I might consider investing those funds because the horizon is so far in the future. That is unless I get in a car accident on my way to the grocery store that totals the car. So maybe I'll just dump it in an HM Bradley account that earns 3%.

    Like 2
      • Annieland
      • I was told there would be no math.
      • Annieland
      • 7 mths ago
      • Reported - view

      jenmas You are so crazy disciplined, Jen.  You're either really rich or you live on rice and beans 馃ぃ馃ぃ.  I love it.  I don't have a phone replacement fund, a new car fund, or a computer replacement fund (though I do have a category, but it's rarely fully funded before I can't resist something awesome).  My car is almost 6 years old and I think that's a personal record for me!  My husband has lasted about 8 years.  I ride the wave of my medical expenses with my HSA and a buffer for reimbursements.  

      I feel like such a dirty YNAB user!

      Like
      • jenmas
      • jenmas
      • 7 mths ago
      • Reported - view

      Annieland I will admit to being well compensated which in turn allows me to live comfortably but still below my means. But I also live in fear of being unable to afford my retirement years (I'm not married and don't have kids, so I'm in this on my own) so I make choices based on having "enough" for the future. I lived abroad for 3 years on a gov't contract so I didn't have to pay for housing and received additional uplifts as part of the assignment. I wasn't liable for taxes in that country and was also able to take advantage of tax breaks for Americans who stay out of America for 330+ days per year, so I saved a whole lot which provided me with a lot of cushion. Which was helpful when I got laid off not too long after moving back to the US and went 5.5 months before I picked up some consulting work (plus another month before invoicing kicked in). I also have pretty decent health insurance right now with a relatively low premiums, deductible, and out of pocket max and I haven't really needed to access too much health care either - but that could change - my company might not be able to negotiate good insurance contracts anymore plus I have family history for thyroid, colon, and breast cancer. In about 7 years I'm going to consider taking a big pay cut to spend 10 years working as a federal employee in order to get some of their retirement benefits (basically, I'd be in it for their health insurance in retirement). After 10 years, I could go back to the private sector for a few more years and then actually retire. 

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    • jenmas "Loss of income" fund does seem like a more appropriate title for us, as our other YNAB categories are built up healthily to cover "unexpected" issues for the most part. The only exceptions might be major things like our heat system breaking or the roof falling apart, for which we won't be keeping $10-$30k laying around. But in that case there are many categories (plus the emergency/income replacement fund) that can be raided.

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      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 7 mths ago
      • Reported - view

      Silver Guitar 

      Silver Guitar said:
      The only exceptions might be major things like our heat system breaking or the roof falling apart, for which we won't be keeping $10-$30k laying around.

       This is implicitly built in to my Home maintenance and Repairs category. A general rule of thumb for funding this category is just annually saving 1% of the home value (and I've recently heard to add 0.2% for each decade of the age of the house, which makes sense). The rule of thumb includes replacement cost of all appliances and systems based on their average useful lifespan.

      Of course if you move into a house that's been around awhile, you would also want to prefund this a bit. At our previous house, we moved in when it was 11 years old. A couple years later we replaced every single kitchen appliance except the range/oven because it was at end of life.

      Our current house is new construction, 20 months old, and we currently have 30 months saved to the category, thanks to some carryover from the previous house. We fund it the same amount month after month after month (until we get an updated home value from an appraisal, insurance or tax rolls). We just spend from it as needed. Everything from smoke alarm batteries and air filters, to the eventual roof replacement.

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  • Silver Guitar said:
    The only exceptions might be major things like our heat system breaking or the roof falling apart, for which we won't be keeping $10-$30k laying around

    Just a reminder that each of these items have a finite useful life and will need replacement at some point, so you should be saving up for those. In 2015 during one of my seasonal inspections, my HVAC servicer told me that I had maybe 3 years left in the system. So I saved up money and had it replaced in 2018. I had actually saved up enough to do it in spring of 2017 but I ended up on a 13 week business trip and missed the window of when I wanted to do it (in either spring or fall).

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  • This could be a totally Australian thing, and I know mortgages work a bit different in the USA, but do you have options to park your emergency fund in your mortgage to offset interest you are charged?

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      • jenmas
      • jenmas
      • 7 mths ago
      • Reported - view

      I do not believe that we have offset mortgaging the US. 

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      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 7 mths ago
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      jenmas Closest thing to an offset mortgage is a HELOC, but the problem is that they are essentially callable, which means you risk putting money in that you can't get back out.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 7 mths ago
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      nolesrule Not to mention that the rates aren鈥檛 as good as normal mortgages.

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  • What is your age of money? 

    Beyond a certain point, I wouldn't want my cash to grow too much. 

    You could consider a Bond fund for a bit more return. 

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    • crinkles Our AOM is 232 days. Bonds are exactly what we're thinking - Matthew introduced me to the world of US series I savings bonds which seem totally perfect for holding some of our on-budget emergency fund and other TE categories. My take on the perks was that it's easy to access if needed, has no risk of taking a dive, keeps up with inflation, AND looks like in May it will have a very good interest rate of 3.54% (much better than any high yield savings accounts I saw in the past few years).

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      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 7 mths ago
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      • Reported - view

      Silver Guitar and I Bonds have 3 properties that a bond fund does not.

      1. Investment principal is preserved

      2. interest is tax -deferred until you cash them in or they mature in 30 years

      3. No state taxes

      Just have to take into account the following restrictions on I Bonds
      1. They cannot be cashed in for the first year
      2. There is a 3 month interest penalty during the first 5 years (this is calculated into the displayed redemption value)

      One other helpful hint, it doesn't matter when in the month you buy them, you get the same interest since it's not based on a daily balance, so always buy toward the end of the month you plan to buy in. A side benefit of this is that you can get the 12-month non-redemption time down to 11 months and a day.

      Like 2
      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 7 mths ago
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      I used to buy I Bonds monthly, but now I buy quarterly. For monthly I set up automatic repeat purchases for the 26th of the month. If it falls on a weekend or holiday they push it to the next business day. The 26th meant that every month would always be purchased in the intended month ( eg If Feb 26 was a Saturday, the purchase would move to Feb 28. If I had used the 27th and it fell on a Saturday, the purchase would get moved to March 1).

      Like 2
    • nolesrule Good to hear your validation of the I Bonds strategy, and also thanks for the extra tips on purchase timing!!

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  • Phillip Rt said:
    How high is your "Burn rate", the bills you cannot cancel? I think most people cut there spending to the bare bones in case of unemployment. 

     This is a good point. I can drop my expenses to 1/3 and I am don't have a ton of excess... except travel :). I did this for 8 months in 2019 while taking time of to transition and first part of the pandemic. Timing was pretty good too.

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