Do YOU have an account that’s ready in case of an emergency? On this week’s episode, Josh and Austin discuss emergency funds. They answer questions pertaining to how much to put in one, what it looks like at different life stages, and when to draw from your saved up money. They also talk through different options for saving into an emergency fund. All of this and a dad joke on another episode of the Invested Dads Podcast. Listen now!
Main Talking Points
[1:50] – Financial Emergencies
[3:49] – What is an Emergency Fund?
[5:22] – How Much to Put in Emergency Fund?
[9:27] – Different Life Stages
[10:54] – Dad Joke of the Week
[11:24] – Options for Emergency Funds
[18:51] – How to Start an Emergency Fund
[21:40] – When to Draw from Emergency Fund
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. Today, we are going to talk about being prepared for emergencies.
Josh Robb:
That’s right. Survival tip number one, how to store and drink your own sweat. You ready?
Austin Wilson:
Or is it that stuff you drink so you don’t get colds? Emergen-C?
Josh Robb:
Emergen-C.
Austin Wilson:
Yeah. That orange nasty… Oh, it’s powder.
Josh Robb:
Whoever come up with that branding was really boring.
Austin Wilson:
Really smart. Really, really smart. But no, not zombie survival tips-
Josh Robb:
No.
Austin Wilson:
… but financial emergencies and how we can best prepare for them. Because you know what? Sometimes they happen.
Josh Robb:
Life happens. That’s right. All right. So, what am I going to do now? I brought in all these freeze-dried meals, freeze-dried meals, ready to go. We’re going to sample them all live on the air.
Austin Wilson:
Okay. But actually, so, survival emergency preparedness, whatever, some people take that really seriously. But when I was a kid, so my grandpa, he was in the military way back when. Then he was in the National Guard through most of my dad growing up. So he had some MREs, Meals Ready-to-Eat that he had stashed away.
Josh Robb:
Exactly.
Austin Wilson:
And when they were like, I don’t know if they were moving or going through a garage, he handed me and my brother an MRE one time.
Josh Robb:
Eat these.
Austin Wilson:
And he’s like, “Eat this.” And we’re like, “Okay.”
Josh Robb:
Pour a little water in it. Shake it up.
Austin Wilson:
No, it was graham crackers and peanut butter or crackers and peanut butter. So I didn’t eat it. Oh my goodness, it was not that good.
Josh Robb:
It was great.
Austin Wilson:
But it would keep you alive.
Josh Robb:
It keeps you going.
[1:50] – Financial Emergencies
Austin Wilson:
So, emergency preparedness, that’s what I’m talking about. But anyway, Josh, as you were saying.
Josh Robb:
Yes. So really what we’re talking about, like he says, financial emergencies. So, it’s really the first step when I sit down with a client and we’re talking through financial planning. Before we get to the long-term financial goal planning, we want to make sure that they are covered for an emergency if it was to happen now.
Austin Wilson:
Right.
Josh Robb:
Why? Because if I start saving for retirement, and I start putting all my money in that direction and all of a sudden something happens and I need cash and I don’t have easy access to it, I can then be forced to make decisions or find cash in ways that will cost me long term.
Austin Wilson:
Oh, yeah. High interest works. Yeah. Yeah.
Josh Robb:
So like pulling it out of your credit cards, penalties for pulling it out of retirement plans. There’s a lot of options.
Austin Wilson:
Or those nasty short-term loan places that are like loan sharks, 23%.
Josh Robb:
Yeah, don’t do that. 23%. Yeah.
Austin Wilson:
That’ll break your leg if you don’t pay.
Josh Robb:
Yeah. And just from a psychological standpoint, if I think I’m making progress and then I got to go and scoop that all out and I’m back to zero again, it could just be very frustrating.
Austin Wilson:
Right.
Josh Robb:
So, what is huge is that before you start moving beyond like today, you got to make sure that those things are covered.
Austin Wilson:
Right.
Josh Robb:
And we’ve talked about some of the past episodes when we had Joe Sangl. He talked about that. I mean, to be able to think beyond today, you got to be confident in where you’re at. You got to have those things taken care of.
Austin Wilson:
Yeah. It’s crazy. So, sometimes life throws you a curveball. If you’re not prepared for it, then boom, you’re in a hole and it’s not a happy place. Just as soon as you just got on track with your spending, maybe you got your budgeting together, which we just talked about in one of our recent episodes. And then boom, flat tire goes. What happens? You need to get a new tire. You need to get a new whatever. And sometimes it’s a lot bigger than a tire.
Josh Robb:
100 bucks.
Austin Wilson:
But if you have, as we talked about in that budgeting episode, if you have a budget where you’ve already allocated where all your money’s going and something that you weren’t prepared for happens, what do you do?
Josh Robb:
Yep.
[3:49] – What is an Emergency Fund?
Austin Wilson:
So Josh, I guess let’s start out, 50,000 feet, like we often do. What is an emergency fund?
Josh Robb:
Yeah. So, emergency fund is a fund or just money that’s earmarked, set aside for an emergency.
Austin Wilson:
What kind of money? Funny money?
Josh Robb:
Funny money. Yep. No it’s-
Austin Wilson:
Monopoly money?
Josh Robb:
Monopoly money, anything that’s colored green and rectangle.
Austin Wilson:
Bitcoin?
Josh Robb:
Not Bitcoin.
Austin Wilson:
No.
Josh Robb:
Don’t do Bitcoin. But emergency fund is, and we’ll talk about this, it could be in a lot of different places, but it’s cash that’s set aside for emergencies. So high level, emergency fund is there for things that don’t fit in your budget.
Austin Wilson:
Right.
Josh Robb:
And so your roof starts leaking. Well, I do probably have a budget item for housing costs, but I may not have planned for a huge roof repair.
Austin Wilson:
Right.
Josh Robb:
So it’s emergency. I don’t want to keep leaking on my stuff and causing more damage and more costs. So I need money there to do that. The fun too, is there, because again, when we talk about budgeting, zero budgeting is kind of the goal, is like when I’m done, my income and my expenses match.
Austin Wilson:
Right.
Josh Robb:
Every dollar is being spent on something, whether it’s being put somewhere-
Austin Wilson:
Spent or saved.
Josh Robb:
Yeah. Being moved somewhere. It has a goal, has a purpose, has a meaning for each dollar has somewhere to go. So if that’s the case, if something comes up I didn’t budget for, guess what? I either have to pull it out of something I already was planning on, or if I have this thing, I can grab it for those emergencies.
Austin Wilson:
This all sounding very Dave Ramsey.
Josh Robb:
He’s a big promoter of this. And if you go look at any kind of budgeting platform, this is huge.
Austin Wilson:
Right. Step one. Yeah, it’s the beginning.
[5:22] – How Much to Put in Emergency Fund?
Josh Robb:
And really, and which comes to our next one is how much should be in there?
Austin Wilson:
Yeah.
Josh Robb:
And so Dave Ramsey, he talks about, you need to get a $1,000 cut into starting point.
Austin Wilson:
That’s step one.
Josh Robb:
Yeah, $1,000 because that’ll cover a lot of the normal emergencies you run into flat tire, those types of things.
Austin Wilson:
That’s not your fully-funded emergency fund.
Josh Robb:
No, but that’s like your starting beginning.
Austin Wilson:
That’s the beginning.
Josh Robb:
I was reading a couple of articles, but some were saying 500. You just start somewhere.
Austin Wilson:
Right.
Josh Robb:
Start with some money beyond just your normal day to day. You get out of living paycheck to paycheck, have some money there available.
Austin Wilson:
But when you extend that further, so you worked past that, you got your $1,000, then you were able to get some other financial priorities situated. And then you’re just like, okay, I want to get this sucker fully funded.
Josh Robb:
Where am I heading to?
Austin Wilson:
Where are you headed, well, the typical rule of thumb that people are talking about, and we’ll talk about what that looks like, but three to six months is kind of the rule of thumb.
Josh Robb:
Not 36.
Austin Wilson:
Well, you could have 36, but then you’re tying up a lot of cash.
Josh Robb:
Yeah, that’s a lot of years.
Austin Wilson:
So it’s not doing anything for you.
Josh Robb:
It’s three years.
Austin Wilson:
So three to six months of your living expenses, how do you determine what’s right for you?
Josh Robb:
Yeah. So let’s first talk about that. So when we say living expenses, what we’re talking about is in a month, what do you actually need to spend money on?
Austin Wilson:
It’s essentials planning.
Josh Robb:
It’s not your gross pay. It’s not, here’s how much I get in my paycheck because that’s your gross pay. Taxes come out of that. If you lose your job, you don’t pay any more taxes because you don’t have that income coming in.
Austin Wilson:
Right.
Josh Robb:
So, that’s not included in any kind of savings pieces or not included in this number. It’s just if I just needed to pay out of this one account, everything I do in a month, that’s my living expense.
Austin Wilson:
Right.
Josh Robb:
So healthcare costs, food, utilities, mortgage, the things that have to happen.
Austin Wilson:
Right.
Josh Robb:
All right? So then we say three to six months, well, that’s…
Austin Wilson:
It’s a big gap.
Josh Robb:
A big range.
Austin Wilson:
Right.
Josh Robb:
Right? And so if I’m earning $2,000, a paycheck, $4,000 for a month, three to six months, that adds up.
Austin Wilson:
True.
Josh Robb:
And so what does that mean? And so three months is for people who have other sources of income. So for instance, if you’re a married couple and you both have a job or some sort of income, if one of you two were to use your job, you wouldn’t need everything you budget to be covered.
Austin Wilson:
Right.
Josh Robb:
Because someone else, hopefully… The other partner is still working.
Austin Wilson:
You could only dip into it a little bit each month. Yeah.
Josh Robb:
Right. And so that’s where that three month comes in. Also, let’s say you are highly employable. So you’re in some sort of career industry where if I lost my job at X company within a couple days or a week or so I could be working again because there’s other companies out there looking for the exact same thing. So then you don’t have to worry about needing six months.
Austin Wilson:
Right.
Josh Robb:
So those are the people that use the three month window.
Austin Wilson:
Pro tip, if you put that you listened to The Invested Dads Podcast on your resume, instantly hired pretty much everywhere.
Josh Robb:
That’s probably like, “He knows everything.”
Austin Wilson:
Yeah.
Josh Robb:
Or she. It’s there.
Austin Wilson:
So anyway, sidebar.
Josh Robb:
That’s three months. Six months is for if I’m the sole income provider for my family. And so if I lose my job, it’ll be zero income coming in, that would be a reason. Or if I’m in an industry there where I may have to relocate or it’ll be a while before something opens up, a very specialized one.
Austin Wilson:
Or like self-employed.
Josh Robb:
Self-employed.
Austin Wilson:
That’s probably you’d want a little bit longer timeframe as well.
Josh Robb:
And then the other piece is what type of income do I have? So is my income seasonal. I may want to cushion my emergency fund a little more because if I have a couple emergencies while it’s in my off season, that could be painful.
Austin Wilson:
Right.
Josh Robb:
And so those are the reasons why you fluctuate between three to six months.
Austin Wilson:
Yeah.
Josh Robb:
Now that’s kind of the standard. Everybody’s different and that’s where you got to apply this to your life and say, how does this look like in my life? So for instance, let’s say I’m living in a really old house-
Austin Wilson:
I’m living in a really old house.
Josh Robb:
… that may need repairs or issues. I may tip forward, maybe I’m in the three-month bucket-
Austin Wilson:
Right.
Josh Robb:
But I may go four or five months just so I have that extra little bit. So just apply to your life and say what makes sense? What if I’m driving two 20-year-old cars, chances that something happens to that maybe it’s a little higher than a brand new car. So I may have a little extra cushion in there. So there may be times or situations where you say, I know I kind of qualify for this amount, but I feel more comfortable with X amount.
[9:27] – Different Life Stages
Austin Wilson:
So how does this have to relate with maybe where you’re at in your overall retirement plan, your overall financial life? Is it different for younger people, middle-aged people or people in retirement? What’s that look like?
Josh Robb:
Yeah. When you’re really young, before you have maybe kids and other people depending on you, you could probably justify, if I lose my job, I’m moving in with my parents and everybody’s still okay with it type of thing.
Austin Wilson:
$20 emergency fund.
Josh Robb:
Yeah. And so again, you apply it to your situation, but you’re right. While I’m in my working career, I probably don’t have a lot of assets saved that I can tap into.
Austin Wilson:
Right.
Josh Robb:
In retirement, if I’m in that retirement age where either I have full access to my 401(k), rollover IRAs, those type of accounts, I’m 59 and a half or older, then needing access to my money, it’s pretty much all accessible.
Austin Wilson:
Exactly.
Josh Robb:
So you don’t need as much emergency fund. At that point, and we would probably have another episode about retirement spending kind of how you do buckets in there, but in that sense you probably just want more cash so that you avoid market issues.
Austin Wilson:
Right.
Josh Robb:
So I need cash now, but the markets-
Austin Wilson:
Don’t need to dip into your-
Josh Robb:
It’s a whole different emergency type of situation than it is here, where, man, I don’t have income and I need some money. Once you’re in retirement, most of your money’s probably accessible within a reasonable time period.
Austin Wilson:
Yeah.
Josh Robb:
So yeah, you’d probably move down that cushion a little bit in retirement.
[10:54] – Dad Joke of the Week
Austin Wilson:
So Josh, emergencies are not fun to think about.
Josh Robb:
No.
Austin Wilson:
But you know what is fun to think about?
Josh Robb:
What is that?
Austin Wilson:
Dad jokes.
Josh Robb:
It is, always.
Austin Wilson:
So I got a good one for you and you just took a drink of your tea-
Josh Robb:
I will try to not spit it out.
Austin Wilson:
So this is really poor timing.
Josh Robb:
All right.
Austin Wilson:
How do you call someone in prison?
Josh Robb:
On the cell phone.
Austin Wilson:
Ding it. Josh, nailed it.
Josh Robb:
It’s been a while since I’ve used one.
Austin Wilson:
Use a cellphone.
Josh Robb:
That’s good. I like it.
Austin Wilson:
But true.
Josh Robb:
It is. I like it.
Austin Wilson:
Okay. So, that’s funny. That’s a good joke.
Josh Robb:
It’s a good joke.
[11:24] – Options for Emergency Funds
Austin Wilson:
Okay. So when you think about emergency funds, one way and maybe ways that our grandparents did this was they had a coffee can and wads of cash just hanging out in their house.
Josh Robb:
Yeah. Just sitting in there.
Austin Wilson:
It sounds like a terrible idea to me, but that’s real.
Josh Robb:
Yep.
Austin Wilson:
Or a cookie jar or under the mattress.
Josh Robb:
Honestly, I think having some cash physically available is a good idea.
Austin Wilson:
And you’re a conspiracy theorist. You have gold in your wall.
Josh Robb:
No, I just think in general, if… For me, a lot of times, it’s I have kind of this philosophy that if kids, they always go door to door selling those things for school. Right?
Austin Wilson:
Yeah.
Josh Robb:
And I just always, a lot of times I, if you work up the effort to come do it, ring my the doorbell, I’ll probably do something. And most of the time they need cash for that. Like, okay, girl scout cookies is a good example. COVID made it a little harder to get girl scout cookies, but in general, a girl scout comes to my house, selling cookies. If I have a box sitting right there at the door, when I open it, I’m buying another box. It doesn’t matter. So I need some cash for that. So in general though, having some cash available, I’m not talking thousands and thousands of dollars, but in general, if I can’t get to an ATM, but I need to do whatever it’s there.
Austin Wilson:
That’s so funny.
Josh Robb:
It is. You won’t have any cash. You save zero cash.
Austin Wilson:
So I’m saying if you come to my door and you only require cash, that’s my owe.
Josh Robb:
You say… You do? Swear?
Austin Wilson:
“Sorry, little girl, I’ll PayPal you.”
Josh Robb:
Yeah. Can I tap my iWatch on your forehead and see what happens.
Austin Wilson:
Yeah. That’s funny though. So yes, I mean, that was kind of, but that was the way that-
Josh Robb:
It was there.
Austin Wilson:
And especially, think about the ’30s, the ’40s, even the ’50s and ’60s, a lot of people had been scarred by banking in the ’20s. Right?
Josh Robb:
Mm-hmm (affirmative).
Austin Wilson:
Or their parents had, so they were just really fearful of banking and it was not as secure as it is. Things were not insured. You did not know if people-
Josh Robb:
What if the bank closed? My money’s gone.
Austin Wilson:
Yeah. They could lose their money. But nowadays that’s not the case.
Josh Robb:
No.
Austin Wilson:
Money’s insured. It’s safe. It’s going to be there.
Josh Robb:
Yes, okay.
Austin Wilson:
So maybe what are some alternatives to not keeping-
Josh Robb:
That’s not even emergency fund money.
Austin Wilson:
Right, that’s just-
Josh Robb:
That’s just money around, so when my kid says, “Hey, I need lunch money at school,” I can hand him a $5 bill and say-
Austin Wilson:
Exactly.
Josh Robb:
“Here, you can buy some lunch for the next couple days.”
Austin Wilson:
So yes, let’s say in 2021-
Josh Robb:
Yes.
Austin Wilson:
… we may have better alternatives, which may be more secure in case your house burns down or whatever, than keeping a box of cash in your closet.
Josh Robb:
Yes.
Austin Wilson:
What are some of those options?
Josh Robb:
Buried in the backyard?
Austin Wilson:
That is an option.
Josh Robb:
It can’t catch on fire where it’s underground.
Austin Wilson:
Can’t catch on fire if it’s underground.
Josh Robb:
No. So when we say options, these are things available, but when it comes to… And we’re going to talk about this, but there’s not a lot of good options out there-
Austin Wilson:
Right.
Josh Robb:
… for preservation of your emergency fund, but in general, for safety, savings accounts. So they’re FDIC insured. They cover in case something does happen. The government says, “We will cover up to $250,000 if something happens to the bank.” So your money’s there. It’s safe. It’s got to be there.
Austin Wilson:
It’s unlikely anything over $250,000 is an emergency fund.
Josh Robb:
Yes. Yeah. Yeah. That’s my dream on.
Austin Wilson:
Exactly.
Josh Robb:
Yeah. That’s crazy.
Austin Wilson:
Take the jet.
Josh Robb:
So savings accounts, they’re accessible.
Austin Wilson:
True.
Josh Robb:
Right? Especially now, right? With today’s technology, phone apps, all that stuff, get it. I can transfer money. So if emergency happens, I can move money from my emergency savings account, into my checking account, take care of that emergency.
Austin Wilson:
Yeah. Generally speaking, affordable too, usually free.
Josh Robb:
Yes. Most banks now that should be free, especially if you have a checking account with them or whatever. What do they pay, 0.01 or whatever.
Austin Wilson:
Really nothing.
Josh Robb:
Yes.
Austin Wilson:
You’re going to get pennies a year.
Josh Robb:
Yes. So it’s there, again, safekeeping, preservation, easy access.
Austin Wilson:
True.
Josh Robb:
That’s what it’s there for. Next step up, online.
Austin Wilson:
Oh yeah. This is kind of new.
Josh Robb:
This is newer. And so bank said, “Hey, you know what, what’s our cost.” It’s those physical brick and mortar buildings-
Austin Wilson:
It’s dragging me down.
Josh Robb:
… where there’s going to be a teller and people are there. We got to pay everybody utilities, blah, blah, blah. What if we had banks that had no physical locations, they were just online. Could we offer something that people would like? And what they offered was higher interest rates-
Austin Wilson:
True.
Josh Robb:
… because they didn’t have the overhead.
Austin Wilson:
Relatively.
Josh Robb:
So again, FDIC insured. These banks, and they’re out there tied to large institutions that it’s just not some person said, “Hey, I’m going to hold everybody’s money here online.” They’re trustworthy banks, but they offer a little bit more. So you can get right now, beginning of 2021, about half a percent.
Austin Wilson:
Which it was even at the end of last year, or not last year, the end of 2019, 1.5. It was really-
Josh Robb:
Between one and a half to two.
Austin Wilson:
But now with fed rates at zero, everything’s kind of extrapolated on that.
Josh Robb:
But half a percent better than 0.01.
Austin Wilson:
Yeah.
Josh Robb:
So that’s the appeal, is I’m at least getting something. So again, what’s the access? Well, with the app and online, I can move money from there to a bank account. Maybe it takes a day or two, but I still can get that relatively quick.
Austin Wilson:
True.
Josh Robb:
It’s safe. It’s secure. It’s insured, all that stuff.
Austin Wilson:
What are some other options?
Josh Robb:
So if you have investment accounts, possibly you can open up what we call a brokerage account, which is just a taxable investment account. It can hold whatever you want in there. But then they have what they call money market funds, which again is pretty much cash. It’s some sort of government security that holds cash.
Austin Wilson:
Really short term.
Josh Robb:
I mean, it really does not fluctuate.
Austin Wilson:
Right.
Josh Robb:
There’s some rules that they placed in after ’08, ’09. But for the most part, it trades at a dollar. It’s a dollar. There’s very little fluctuation volatility there. Interest rate, again, it’s somewhere between a savings account and an online bank. You’re not getting much.
Austin Wilson:
Yep.
Josh Robb:
That’s about as far as I say you’re going, when we’re talking cash money. At this point, there’s really zero risk involved in any of those up to the money market. From there, you could take a little risk, but every risk you take means that if you need to access the money, there’s a chance less is in there than you had put in.
Austin Wilson:
True.
Josh Robb:
And so you got to keep that in mind. So the next step up would be some sort of fixed income that looks for ultra short-term bonds. They’re just in a sense offering… It’s kind of like a CD is really what it is. And CDs are one I haven’t talked about. They do have new CDs that are penalty free. So they offer a little more yield than a savings account. There is no penalty, but it does take, I would say three to five days to get your money out of there and it just extends it a little farther out. And then short-term bond funds offer bonds that mature within a year, a little volatility. Like this last year, I think it dropped one to 2%. So there’s volatility there.
Austin Wilson:
Right. But the interest rate’s a lot higher.
Josh Robb:
Interest rates are probably-
Austin Wilson:
Not a lot higher. It’s higher.
Josh Robb:
… pushing one or just over one right now.
Austin Wilson:
Right.
Josh Robb:
But you’re right. You could get two, two and a half last year. So again, you’ll notice the trend. You don’t get a lot for this because you’re paying for that security, that peace of mind it’ll be there when I need it.
Austin Wilson:
And that’s not what it’s there for.
Josh Robb:
It’s not.
Austin Wilson:
You’re not putting this money aside to earn anything.
Josh Robb:
No.
Austin Wilson:
Like you just said, this is about peace of mind.
Josh Robb:
Yeah.
Austin Wilson:
And if you can go to sleep at night, knowing that if something were to happen, you’re covered for a little while. That is huge.
Josh Robb:
Yeah. So I would strongly suggest the brokerage account money market is as far as you go with an emergency fund. That gives you some sort of growth between the online banking there, enough so that something’s happening to your money, but you’re still falling behind inflation, but it’s not there for anything besides protecting for the unknown.
Austin Wilson:
We don’t know what inflation is anymore.
Josh Robb:
We don’t.
Austin Wilson:
So it doesn’t really matter.
Josh Robb:
Inflation doesn’t even…
[18:51] – How to Start an Emergency Fund
Austin Wilson:
So Josh, I guess let’s bank it really practical.
Josh Robb:
Yes.
Austin Wilson:
How do you save into your emergency fund? How do you start that process?
Josh Robb:
Yes. So you get the can that’s in your kitchen-
Austin Wilson:
That’s right.
Josh Robb:
… drop some coins in it.
Austin Wilson:
Put a hole in the top and just…
Josh Robb:
Listen to the clink.
Austin Wilson:
Good to go.
Josh Robb:
So we said, start with, if you can get a little bit of cash together, put that aside and say, be disciplined, I’m not touching this unless it’s an absolute emergency. And then from there you say, how much access do I have in my monthly spending that I can push over there each paycheck. Each time I get paid, I need to automatically move the money over. And that’s the key, automating it. Because if you leave it up to yourself, you’re going to spend that money before you get around to pushing it over.
Austin Wilson:
It’s way more fun.
Josh Robb:
It’s just how we are.
Austin Wilson:
Yeah.
Josh Robb:
But in general, so let’s say, I’m looking at my budget. I think I can do 50 bucks each pay period and get it over there. All right. So then I automate that, make it automatically happen, push it over there. And then I have to be disciplined that if, or when I get an increase in pay, I maybe take a portion of that and increase. Maybe I can get up to $60 a pay period. And then over time that three to six month bucket will fill up.
Austin Wilson:
Right.
Josh Robb:
And then once you get there, you can turn that off and say, okay, I had $60-
Austin Wilson:
Don’t touch it. Just leave it.
Josh Robb:
Yeah. But I had $60. Now I’m going to move that to a different spending.
Austin Wilson:
Yep.
Josh Robb:
Or different savings. I’m not going to spend it. It’s going to go somewhere else for savings. But then if I spend my emergency fund, because emergency happened, I’ll then turn that back on to 60 bucks again, move back to numbers. I got to fill that back up. I’ll pause with everything else I was doing, go back to my emergency fund.
Austin Wilson:
Because three to six months of living expenses can sound daunting.
Josh Robb:
Yes. It will take a while.
Austin Wilson:
Yeah.
Josh Robb:
It will take a while. If you’re starting from zero, if you think about it, if I have to get, let’s just start at the low end, three months of my living expense and I’m getting paid each month, I can’t take the whole amount over to it because I need to live.
Austin Wilson:
No.
Josh Robb:
So it’s going to take me a couple years to get that there.
Austin Wilson:
Right. Right.
Josh Robb:
It’s not an overnight thing.
Austin Wilson:
Right.
Josh Robb:
Now if you get refunds, if you get any kind of birthday money, graduation money-
Austin Wilson:
Bonus. Yeah.
Josh Robb:
Anything that comes in, bonus shows up, take the whole amount, throw it over there. It’ll get you there faster.
Austin Wilson:
Exactly.
Josh Robb:
But the key is do something. Start now. Even if it’s just $10, even it’s just something, move it over and get that habit started.
Austin Wilson:
Yeah. And if you don’t have any of those account types that we just talked about open, you can do it from your bank online. You can do it from these online banks online. And it takes about five minutes.
Josh Robb:
Yeah. It’s super easy.
Austin Wilson:
It’s super easy and free most of the time. So try to find a free one.
Josh Robb:
Yes.
Austin Wilson:
If it’s not free, you’re doing it wrong.
Josh Robb:
Yeah.
Austin Wilson:
But yeah, just do it. It takes five minutes to set it up. And then from that point you can determine… you can automatically say, pull $50 or whatever from my checking account, once every two weeks or something like that.
Josh Robb:
Yeah. However you want.
Austin Wilson:
No problem at all.
[21:40] – When to Draw from Emergency Fund
Josh Robb:
Yep. All right. So finally, the last thing is we build up our emergency fund. When do we know we should actually be drawing from it?
Austin Wilson:
Never.
Josh Robb:
How do I know it’s an emergency.
Austin Wilson:
Yeah.
Josh Robb:
Right? And that’s a lot of people’s habit is you work so hard to get it, you never want to touch it.
Austin Wilson:
No.
Josh Robb:
I don’t want to touch this money, which is a fine mindset-
Austin Wilson:
Right.
Josh Robb:
… but you got to know like, because if you’re forced to then scramble around, you don’t want to be pausing your retirement contributions.
Austin Wilson:
No.
Josh Robb:
You don’t want to be withdrawing from your retirement, especially.
Austin Wilson:
Definitely, no.
Josh Robb:
So there’s times when you’re going to just say, you know what, as much as I want to keep it where it’s at, I do need to pull some money out of that.
Austin Wilson:
So I guess, is there like a mathematical point? Like when it’s somewhere when you can’t afford to take it out of your normal monthly budget, if there’s no buffer, no room for it that month, that’s when it comes out.
Josh Robb:
Yeah. Like me, personally-
Austin Wilson:
If you can absorb it, great.
Josh Robb:
Yeah.
Austin Wilson:
Pay for it out of your monthly budget and live with it and then keep your emergency fund. But if you can’t, that’s okay. That’s what it’s there for.
Josh Robb:
For me, personally, kind of my rationale reasoning is like, we’ve talked about this. We use credit cards, right? We pay it off every month.
Austin Wilson:
True.
Josh Robb:
If I can’t float it from whatever time the emergent shows up till when I have to pay that credit card off and I can find a way to get the cash between there, so like flat tire, I need to get a new tire and that wasn’t in my budget between now and when I’m going to pay my credit card, can I find $100 to get that tire? So like eat out less. If I can just overt between now and the end of the time, just get that $100 to show back up-
Austin Wilson:
Right.
Josh Robb:
… then I’m not going to touch my emergency fund. I’ll put it on the credit card. And then at the end of the month, did I get enough back in, if not, I’ll want to have to go to that emergency fund.
Austin Wilson:
Exactly.
Josh Robb:
That’s kind of my reasoning. But like, if my water heater blows, that’s a little more than $100. And I’m probably not going to find that in my monthly budget, I’m probably going to have to get over to that emergency fund.
Austin Wilson:
Yeah.
Josh Robb:
So it’s kind of that justification of, okay, could I reasonably find a way to cut some discretionary stuff to make up for it, then I’m not going to go to my emergency fund.
Austin Wilson:
Or sell some junk. Sell some junk. Have a garage sale.
Josh Robb:
Yeah.
Austin Wilson:
Hey, I don’t know.
Josh Robb:
It’s the only thing that broke.
Austin Wilson:
Exactly. It’s a broken water heater. Take it.
Josh Robb:
It’s great. Just don’t mind the hole in it.
Austin Wilson:
So yes, there are certainly times when it is okay. And it’s not going to be the most fun thing that you worked so hard to build that thing up. But that’s what it’s for.
Josh Robb:
Yes.
Austin Wilson:
It should be a peaceful feeling to know that you put that money aside and it’s okay to use it when you need it.
Josh Robb:
Yep.
Austin Wilson:
Don’t use it when you don’t need it because that only causes bigger issues.
Josh Robb:
Yeah. A vacation is not an emergency.
Austin Wilson:
But after COVID that might be an emergency.
Josh Robb:
It’s a splurge. It’s not an emergency.
Austin Wilson:
No, it’s not an emergency.
Josh Robb:
It’s not just there for like, this thing’s on sale. I should get it right now.
Austin Wilson:
Yeah.
Josh Robb:
It’s not an emergency. You just got to be disciplined in telling yourself that.
Austin Wilson:
Don’t get me started on people who buy things, but just because they’re on sale. That’s how they get you.
Josh Robb:
I saved 20%.
Austin Wilson:
No, you spent 80%.
Josh Robb:
80% of what was going to be spent.
Austin Wilson:
Yeah. Okay. So, that’s it. So, that’s emergency funds. I think it’s super important and that yeah, follow it up to the budgeting. If you have questions about what that zero-based budget that we’ve referenced a couple of times, check out a couple episodes ago or whatever we talked about budgeting and what that looks like.
Josh Robb:
Yeah.
Austin Wilson:
Kind of a handful of episodes here at the beginning of the year, just to make sure that you’re setting yourselves up in this new year, just to succeed with your money and anything that we can do to help you out with that, we are happy to do. And as always check out our free gift to you. It’s a brief list of eight principles of timeless investing. These are overarching investment themes meant to keep you on track to meet your long term goals. It’s free. It’s on our website. It’s a pretty PDF. Hopefully you dig it. Josh, how can people help us grow this podcast?
Josh Robb:
Yeah. So the first one is subscribe. If you listen to Apple Podcasts, hit that subscribe button, leave us a review on Apple Podcasts as well. And then if you have any topics or themes, suggestions, ideas, reach out to us at hello@theinvesteddads. Which reminds me, I had a friend of mine from Colorado who listens. He sent me a message and just was saying how much he likes it, but wanted a shout out. So Jason, this is for you.
Austin Wilson:
Jason.
Josh Robb:
I got your message. Glad you’re listening. So again, we read them all. We love hearing from you. So shoot us a message. And then if you know somebody who was talking about emergency fund or you think they might need some kind of ideas on emergency fund, share this episode with them.
Austin Wilson:
Yeah. Sounds good. Well, until next Thursday, have a good week.
Josh Robb:
Catch you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe, and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
