Issue #41: Break glass in case of (money) emergency

plus gingerbread + Stanley Tucci
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Dollar Schollar

Hi y’all —


I feel like I hear the same pieces of advice from people all the time. “Log off Twitter already,” they tell me. “Go to bed instead of watching another episode of Outer Banks.” “Stop being so invested in Pete Davidson’s personal life.”


It happens at work, too. There’s certain guidance that gets repeated by financial experts in nearly every interview I do. I can recite these with my eyes closed: “Never touch your 401(k).” “Open a high-yield savings account.” “Make sure you have a solid emergency fund.” 


I’m hearing that last one constantly during the pandemic. But my frustration with this advice is that the person giving the so-called tip often doesn’t go into detail. Even Dollar Scholar is guilty of this. I’ve mentioned emergency funds no fewer than six times in the past 40 issues, and I’ve never covered the basics. (Oops.)


I know I should have an emergency fund, but what are the specifics? How do I actually figure out how big my emergency fund should be? And once I’ve calculated that, what do I... do with it?


I contacted Amy Richardson, a certified financial planner with Schwab Intelligent Portfolios, to get the scoop. Richardson started by explaining that an emergency fund “puts you in control of life’s unexpected twists and turns, whether you’re going through a global pandemic or other crisis.” It’s basically a safeguard against a future panic attack.


“By having an emergency savings [fund], your finances will be one less thing to stress about during an already uncertain time,” she adds.

 
Kris HOlt on Twitter
 

OK, sold. But I’m still confused about the math here. Recommendations range from three months of expenses to six months of expenses to half my salary — and that’s a BIG range for someone like me. What gives?


The reason the estimates vary so widely is that each person’s situation is different. Richardson said if I’m in a single-income household or self-employed, I probably want to sock away six months of fixed expenses. If I’m part of a double-income household and not concerned about losing my job right now, three months is fine.

 

(FWIW, the Bureau of Labor Statistics says the average duration of unemployment right now is just over 17 weeks, or about four and a half months.)


Now, about those fixed expenses. Richardson said that she’s basically referring to any crucial bill — think rent, groceries, health care, utilities and loans. Haircuts, gel manicures and Chipotle orders don’t count because those are things “you would cut from your budget in the event of a job loss or another major disturbance,” she adds.


Once I’ve determined how big my fund should be and I’ve scraped together the cash, I’ve got to figure out where to stash it. Fred Egler, a CFP with robo-advisor Betterment, said I should keep my emergency savings in a different place than from my regular spending money. 


“You don’t want it to be jumbled together with your checking account or retirement savings or saving for your kids’ education,” he says. “Make sure it’s separate so you’re not double dipping or intermingling.”


A high-yield savings account, money-market fund or CD might be a good option so I can earn interest on the funds. I just want the emergency savings when the time comes. 


According to Egler, I’ll know it’s time to tap into my fund when things take a turn for the worse. It’s a break-glass-in-case-of-emergency situation.


“If the sirens and alarms are going off in your head and [you think] ‘I don’t have many other options; I’m kind of stuck here,’ it might be time,” he says. “It’s your money. You’ve saved it, and you have the ability to use it. Be judicious and know when to pull that money out when you’re in trouble.”

Image
THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

 

My emergency fund should contain between three and six months of nondiscretionary spending. I should put it in a separate account where my money can work for me and only touch it if I feel my position is truly dire. 


If I’ve done all of that and I’m still feeling extra uneasy because of the pandemic, Egler said I should consider having a bit more cash on hand. 


“Keeping more money in your checking account right now might be a good strategy because of that uncertainty,” he adds. “It might make a little more sense to keep more than a month, maybe two months, [there] so you can cover expenses that come up — and provide you with peace of mind.”

via GIPHY

RECEIPT OF THE WEEK

check out this crazy celebrity purchase

 
JK Rowling

via Getty

Author J.K. Rowling recently bought her childhood home in England, paying about $500,000 for the cottage she lived in from age 9 to 18. The house is said to have inspired some key elements in the Harry Potter series — for example, it has a cupboard under the stairs. There’s also graffiti in one of the bedrooms where a young Rowling wrote a message on the wall. How very Chamber of Secrets of her.

INTERNET GOLD

five things I'm loving online right now

1

Forget Stanley Tucci making cocktails… I’ve moved on to Stanley Tucci reading Roald Dahl’s The Witches

2

Baseball games in Taiwan are being played in front of fans — cardboard ones, that is. To comply with government regulations around the coronavirus, the Rakuten Monkeys Taoyuan International Baseball Stadium has been filled with 500 fake fans who “watch” each game. You can pay to have your face put on a cardboard fan, but don’t expect your mannequin to get cozy with others (or any of the robot drummers also in the stands). “They are all sitting very far from each other,” commentator Richard Wang told CBC.

3

This may be my new favorite TikTok?? 

4

I love Room Rater, a Twitter account that scores how nice various pundits’ and celebrities’ rooms look in TV interviews. From dragging Pete Buttigieg’s quarantine haircut to recommending Justin Trudeau add a “well-placed succulent” to his shelves, the reviews are hilarious (and often accurate). They also make me wonder how Room Rater would react to my video chat background, which includes a Rubik’s cube tissue box, my TBR pile and an alligator-shaped stress ball.

5

Take a break from banana bread and try making Emily Dickinson’s gingerbread recipe.
401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

Duke

CREDIT: CHRISTINE A.

This is Baby Duke, a pup who lives in California. His emergency fund is mostly bones, but we’ll let it slide.

Image

I’m running low on 401(k)9 and 401(k)itty contributions. I demand you send more pet pics ASAP! (Please.)


See you next week.


Julia


P.S. Where do you keep your emergency fund? What advice are you tired of hearing? Have you finished Outer Banks yet? HMU at julia.glum@money.com or @SuperJulia on Twitter.

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