dangerosity Agreed. Otherwise, you may be double-booking your emergency funds. Luckily, the chances of all the different emergencies happening at once are minimal but it's still good for peace of mind to know you're covered for almost anything.

When I was first starting out, I did the Dave Ramsey thing and just saved up $1000 in my EF before funding other known categories like House Maintenence & Repair and Car Maintenance & Repair. Then when I was comfortable about how much I had set aside for these kinds of things, I went back to my EF and worked on building it up to 6 months of salary.

At the beginning, it's hard to decide how to divide up your savings but over time, it all starts filling in and you get more comfortable. The great thing about YNAB is that with Rule 3 you can move funds from other emergency categories if necessary when still in the emergency funds accumulation phase. Eventually, your IR will be full and then you just have to keep up on your other ER funds. What I'm trying to say is that it gets easier in time. Best of luck on your journey!

Navy Blue Foal said:
I don't imagine anyone had a pandemic category

No, but hopefully people are prepared with a Income Replacement category, which is really the issue these people are facing now.

dakinemaui Indeed.  Right now most of the world is wishing they had an income replacement category...

dakinemaui If they are lucky that's all they have to deal with.

dangerosity My point is you are still out that money.

It doesn't matter if you have this:

Income Replacement: 10
Emergency Fund: 5k

or

Emergency Fund 15k

The  only difference is if you have a 6k emergency you have to move extra funds around.

Navy Blue Foal Not all "emergencies" are the same urgency, and seeing a single/combined EF balance may lead you to making a spending decision without adequately understanding the consequences.

I mean, this EXACT same issue is why we use YNAB at all.

dakinemaui 👎

Something that is not urgent by definition would not be an emergency.

I'm not going to try to convince you any more. I've found that I have perfect visibility into what is happening in my budget as is without the need to add unnecessary categories.

Navy Blue Foal Apparently you aren't familiar with the common reasonings for having separate categories in general. Part of it is knowing you are saving up for things at the correct pace, and being aware of when you might need to change the savings amount for a particular "emergency".

Of course, engaging in this practice remove the need for a generic emergency fund, because you've already CYA'd yourself in all your categories.

nolesrule Familiar, just don't agree. I prefer the KISS principle when it comes to categories and find it works perfectly well for me.

Ultimately an emergency is something that is not forseen, and therefore its not possible to precisely plan for it, if you are able to forsee it then its not an emergency its an expected expense.

I've already shared this elsewhere but as you can see I keep my categories simple. specific enough to do the job of a category while broad enough to avoid category bloat.

Navy Blue Foal your emoji game is strong! 

PhysicsGal truth!

Wiecked You could also look into putting some but not all of it in somethign semi-liquid like a CD that might do a little better. And also figure unless the market happens to be really down theres cashing out non retirement investments.

Navy Blue Foal Very good point. What sort of rates do CDs even get? I've never explored one.

Right now our Emergency fund is essentially sitting in some Restricted Stock Units that recently vested when the market was low and we are waiting for them to come back up so we can sell and diversify or put somewhere safer. So they are in a single stock which is bananas! 🍌

It's interesting to think about COVID and how nobody could predict that they would lose their job AND the market crashed all at once. So if you had your emergency fund invested, you would be freaking out. It really hammers home why that fund needs to be hidden under the mattress tucked in a safe place. 

Off to research CDs.... 🎱

Wiecked Unless it's a really large amount of money, the interest rate advantage of CDs isn't really worth the effort. I have been unwinding CD ladders for about 3 years now and still have 2 years to go.

Instead, I have found automated monthly I Bond purchases to make a better set it and forget it approach because they are indexed to inflation and tax deferred until you cash them in. The caveat is they are completely illiquid in the first year (which is why I buy monthly) and there is a 3 month EWP for the first 5 years.

nolesrule I just did a little research to educate myself on CDs. What about these 1.55-1.7% yield savings accounts I see out there too. They are online only, I can transfer out externally if needed. Do CDs and bonds do better than this? How do I get around the money being stuck in a cd? Just look for one with no penalty? If something big happened we would make one transfer out, in a large chunk to cover the current emergency. I'm looking at 25-30k to stash.

Wiecked An online high-interest savings account is a great idea. I've come to the same conclusion as nolesrule : CD laddering isn't worth the trouble, and that's especially true when the yield curve is flat, as it is now. And you're not going to find a worthwhile CD without a withdrawal penalty.

Here's how I'd think about it.

Let's say you set aside your chunk of cash for a couple of years. At the end of that time, you look at the annualized interest rate you earned on the cash.

No matter what, you'll find that there was some other choice you could have made to earn more interest than you did. There are tons of options, and you can't predict the future.

However, you will almost certainly find that there wasn't a big difference between your choice and the best choice. Not enough to kick yourself over.

To me, an online savings account that's always going to pay within a few tenths of a percent of the best rate out there is hard to beat. It's fully liquid and FDIC insured, and simple simple simple.

Wiecked These types of decisions are very personal.  I would go with the "whatever makes you both sleep well at night" answer, to be honest.  I don't have kids and my job is fairly secure, but I'm a homeowner who recently had to take a loan because I didn't have an emergency fund, so I'm aiming for $20k, which is enough for 6 months of expenses, including Cobra.

Wiecked I use Ally for my HYSA, the interest rate is currently 1.5% and I like them a lot.  I'm sure it will probably drop again, as will most online banks, now that the fed cut interest rates so much, but it's competitive rate with a bank that so far I'm happy with.

Wiecked A decent online bank will get you about 1.5% interest. the best 1 year CD rate I could find will get you about 1.75% these days. The difference is $75/year on $30k.

Seventy five dollars.

But if you need the money inside of a year, there will be an early withdrawal penalty. How much the penalty is depends on the bank policy, but at those spreads you are likely to lose that $75 and then some to the EWP if you have to pull the money.

So yeah, just stick with an online HYSA.

I still like I bonds though. There is a fixed component and an inflation component, so while the bond's rate does fluctuate due to inflation every 6 months, the fixed component guarantees you are beating inflation.