This method of budgeting has really worked for me. I'm 71 and on Social Security which because I am relatively healthy I was able to delay until 70 so maxed out the amount I am eligible for which covers all my bills and sinking funds. House is paid for. Car is paid for. No credit card or other debt. My 'emergency fund' is in a HYSA but is budgeted out six months in YNAB including the major expense catagorie you mentioned: Car maintenance, home maintenance, and medical expenses. I also have an off budget account for car replacement and a joint account that I gave my son access to that I call my 'burying money' so my children don't have to wait for death certificates or anything else to do what ever they decide to do after I'm gone. I appreciate y'all and have really enjoyed following your channel over the years. Your videos have really helped me with YNAB and budgeting. Thank you.
Amazing! Thanks for sharing. Sounds like you’ve worked very hard to put yourself into a good situation. Love to hear that this has worked well for you. Thanks for watching and following along!
Thank u for sharing these details. I am going to start my “burying” fund. I have life insurance thru job but have considered getting another. I definitely don’t want my kids to have to come up with money for my Burying expenses. Starting in two weeks to fund. Thank u❤
This meant everything to me. Congratulations on getting it all figured out. Happy for you. I have some of these as goals still. I will definitely be using YNAB for the long term as well.
I have the categories: Home Maintenance, Car Maintenance, Medical, and Income Loss. However I still have one named Emergency. But it really is a “Things not budgeted for” category. Once two large car expenses came close together and there wasn’t enough in the Car Maintenance to completely cover the second one. The difference came from the Emergency category. A relative lost their job and wasn’t using YNAB and so didn’t have Income Loss fund and asked for a loan. But I don’t have a “Relative lost job and needs money” category. So I lent them money from my Emergency category. Once they got a job they paid me back, which I then returned to the Emergency category. Note once they got a job I introduced them to YNAB. So I think no matter what you call it, you need a “Emergency/Things not budgeted for” category.
This is why I like Ally. Ally accounts allow you to create buckets to save into the inside of a savings account. I'm bad about not spending if it isn't an emergency. So i set up a bucket for travel. When i reach my goal, i'm allowed to book a trip. I have buckets for property taxes, car maintenance, vet bills, home improvement/ maintenance, gifts, and general emergency.
Interesting take but will respectfully disagree on this approach for my sake; I'm usually one for the nerdy numbers games but this is way too micromanaged for my liking. I have 6 months of expenses saved in one checking account and we only pull from it whenever an unexpected event happens that we cannot fit in our monthly budget (i.e. storm takes a fence down, roof damage from a storm, replacing an engine in our son's car b/c he wasn't checking the oil, etc); we then budget the next month or two to replenish it with what our budget gives us. Other things like new tires for a vehicle we budget that in the following month or temporarily add to the emergency fund as a sinking fund to use in 1-2 months.
Sounds like you have a higher disposable income than the average person and are able to cash flow a lot of items if you’re able to replenish those examples quickly. That’s great! This advice may not be for you, but I appreciate you watching, I’m glad you’ve got things covered!
I agree. I have a budget that is highly detailed and a portfolio that is highly analyzed and planned for...but this is excessive. It is simply impossible to know in advance what any of those costs will actually end up being (especially considering supply chain shortages, inflation, random problems that cannot be foreseen, medical issues, etc.). If a person can start saving towards a traditional emergency fund (read income loss) I recommend after all other debt obligations and expenses have been satisfied investing disposable income into assets that produce income (think Rich Dad, Poor Dad). A great example might be something like SPYI ETF (or other income ETFs) Dividend Stocks, BDC's, REITS, etc. Rental Units, Bonds, Intellectual Property, etc. The ultimate goal should be to replace our current income with assets. That way you can reinvest that income to build further income or use it if needed.
I suggest that you put that savings or a large portion of it into CD's, Money Market, or other accounts that are a little harder to tap if someone hacks your identity or your account. I suggest you figure how much you want accessible via ATM versus having to go into the bank. For the instances which will hold for 3 days (ie a 3 day week-end) figure out how soon you will possibly need it versus the penalties for early withdrawl. If your checking account gets tapped, all too often it can often be 3 months for the quarterly reconciliation before the dust starts to settle. If its an account you don't refer to often, it could take a while to discover and then other nasty realities begin to hit.
I classify emergencies into 2 tiers with 2 accounts. A Level 2 emergency is more traditionally called sinking funds. I use that for unexpected car maintenance (water pump, blown tires), medical bills exceeding medical savings, etc. A Level 1 emergency fund includes things like unexpected major house maintenance, funerals, income loss.
I have been using a spreadsheet budget that has grown exponentially as I have eliminated debt and pushed $$$ to Emergency fund, fun money, running balances, investments...etc. Cannot imagine doing without it! Great video!
I think it depends on the person and if it sticks it sticks. To me it makes sense to put everything in one area so that I don't have to micromanage funds. Then I just don't touch the emergency fund if its not an emergency. I don't dilute the definition of emergency so maybe that is why it works for me. I can see why others might need to make a more definitive budget so that they can hold themselves more accountable.
Totally. It's very individual. Also, it depends on season of life and how many thing you own that require maintenance and upkeep. Typically midlife folks with 2 - 3 kids, who own a home and a couple vehicles need to plan for that separately outside of the income loss fund.
Ahhhhh I had heard this called "sinking funds" before your vid. That you would setup a "bucket" and put money in that "for a rainy day". Your explanation is much better IMHO
I have $5K in a HYS that I call my Unexpected Significant Expense Fund which would be for three of the categories you mentioned. I also have an HSA with $4K for a medical/dental expense that isn't catastrophic. I will be contributing more to this soon. I budget at least a year in advance so I have an upcoming vacation, Christmas, birthdays, regular car maintenance and a potential rent increase already accounted for. As for a loss of income, that is a different situation. I am confident of continued employment and even if the worst happened, my employer has been generous with severance in the past. It is a bit of risk not saving more for that, but I'm willing to take it.
My emergency fund is for 2 things: income replacement (i used it before for that purpose) when I get laid off, and funeral expenses for a loved one. For psychological reasons I don’t dare to have a separate category in Ynab (now transiting to Actual Budget by the way) for the second. So i just use the generic Emergency fund category
Love it all! I will be reallocating my EF into the big 3 sinking funds ( am retired and not worried about income loss). Ironically I have frequently asked myself when would I use EF money since I have MANY other sinking funds. You convinced me to make the change. Thanks
I call it a cash reserve,i am retired and have 5 years worth,to replace my investment income only for down markets.Pension income is a constant stream of income.Having said that,your cash should still be working and not under your mattress.When i was working,i had 2 years of cash,that would completely replace my income,plus term life insurance.I was self employed so those last two were important for my family.
I think a lot of the fractiousness in the comments comes down to: How do you define ‘emergency’? My emergency fund has little to do with house or car repairs because many repairs are somewhat predictable, as Nick says. You know they are coming sometime. 1) I keep an emergency fund for expenses relating to deaths, acts of God, or other unpredictable expenses. 2) I track separate Funds in a savings account for non-monthly or irregular expenses. For me, those would be House Maintenance, New Vehicle, Vehicle Repair, Insurances, Health & Dental, Property Tax, and Travel. (Tip: Most holiday expenses such as Christmas are covered by credit card points saved for this purpose.) 3) Monthly expenses such as utility bills, mortgage or rent, etc, are just covered with other monthly living expenses. I set up this structure on the advice of my financial adviser late in my working years, and I wish I had done it much earlier. I still keep the structure now in my retirement. Hope this helps someone.
It's pretty much another word for sinking funds and the envelope system. It looks complicated but actuality is very simple and empowering. By budgeting this way, you give yourself permission to spend in those categories when something comes up. Because I am still building the habit, I currently take out 30% of my paycheck to live off until my next payday, I budget that into my non discretionary expenses. And even in that 30% 1/4th of it is going towards some sort of savings. I like this approach.
I like hearing your perspective but I have a traditional emergency fund with parameters for withdrawal. I incorporate your idea into my sinking funds. Love the discussion, thank you.
Thank you for this, because I don't think people realize this. For myself, I'm currently building my emergency fund, with about two months saved so far, aiming for six. This is strictly for covering bills in case I lose my income. I also have a short-term savings fund for unexpected expenses, like when my headphones broke last night-pulling from that instead of my emergency fund. Im also working on a medical fund and future car expenses along with a tech fund (😅 the tech fund didnt have anything in it as im still working the budget out)
We are paying the bills by or at the beginning of the month, low spend during the month, then effectively budget the left overs at the end of the month. This has helped us pay for unplanned expenses. We have a checking with attached savings. Each has a spending buffer which can be tapped for an unplanned expense, an honestly great deal, and each spending buffer could get us through 2 weeks of spending (plus if bare bones). If we use either or both, the expectation is to reduce the upcoming month's spending to replentish what was used; this is an organic stop to spending it most often. Each account also has an account buffer 4 times larger than the spending buffer. The account buffer is used like many people's emergency fund. Beyond that we have some targeted sinking funds (may they not be needed), revolving funds, and fairly liquid "real" savings.
We have a separate bill payment account just for bills & the house payment. We direct deposit straight to that account and all bill payment's are automated. This is also where our emergency fund is. If it's an "emergency" that doesn't involve the bills or house payment, this money isn't used for it.
having just been laid off, and it taking over 8 months to find a new job I have started to prioritize my "Income Replacement" category I have a group called "Emergency Funds" and in there is Income Replacement, Puppy Care, Dental, Deductibles, Unexpected Replacements
In my YNAB, after so many years of using it, I’ve encountered several “emergencies “….so, over the years I have set up very specific budget line items, from cars to appliances to home to health. But I also have a nebulous “emergency fund”, too. I have a big chunk of cash in the fund…I draw out of it to populate specific sinking funds when something comes up unexpected and to cover any shortfalls.
I use SoFi for high yield savings and they have a concept called “vaults” that I love. I use one for taxes, one for emergency funds, one for house calls / car maintenance and I just depleted my new car vault to buy a new car. It was awesome. I set a goal of $25k for the down payment on a new car and once I hit that goal I diverted all excess savings to the other vaults, and went down to the dealership to get my reward for prudent savings. I also put $4000 into savings outside of retirement a month, non-negotiable, via direct deposit, pretending it just doesn’t exist for budgeting.
Hey future predictor, I’ll just leave a list of emergencies my fund got me through that you would have been helpless to predict. 1. To payoff 50k in student loan interest to prevent it capitalizing into principal after I graduated college. 2. One year later, 50k in out of pocket medical expenses to correct a serious problem with preventative treatments that were not covered. 3. Sudden 35k bill for my kids’ three ICU visits due to them inheriting said serious medical problem. 4. Getting laid off for 4 months seeking work after Covid hit (24k of living expenses). 5. Paying for a brand new 30k car to replace the last 10 year old one, which took 3k in repair expenses before giving up the ghost. 6. Sudden plumbing failure (15k). 7. Sudden mold abatement costs and new carpeting (15k). My emergency fund covered all that and I kept rebuilding it AND maxing out contributions to all retirement accounts. Anyone who says I don’t need an emergency fund can go pound sand. Oh, and I lost work with three degrees because the company failed during Covid. The answer to “how likely am I to get laid off” is YOU DON’T KNOW AND NEITHER DOES ANYONE ELSE.
I think you missed the point of this video, I don't say you don't need an emergency fund. I say you need to save for all of those things that you mentioned. I'm genuinely sorry to hear about all you've gone through, and I'm so glad your emergency fund got you through. I've worked with a couple thousand clients, and from what I've seen, most of my clients do much better when we break out and plan for as much as possible - rather than have one large emergency fund. But it sounds like you're the exception, that's great! This video isn't for you then, but I appreciate you watching. Wish you all the best.
I'd caution against shrinking that income replacement too much. Demand for skill sets is cyclical. Your skill may be in very high demand one year and in recession two years later. You might find that you ratcheted down the number of months you had saved only to find that the demand for your skill has fallen when you (and others in your field) get laid off. And the tenured university employee may be at a low risk, but the amount of time required to replace that job can be markedly longer. That, and some fields might require more liquidity than others. Decades ago, I opted to start picking up rental property to offset the cycles in my line of work. For the past fifteen years, the rental income has been more than enough to cover any earned income loss. If I do ever decide to retire, the rental income would still be enough to cover 2X of my current expenses and discretionary spending without Social Security ever being included. Sadly, that 2X becomes 0.8X if long term care becomes an issue.
Where do you keep your emergency fund and how liquid does it need to be? I move most of my emergency funds into 3-12 month CDs which in an emergency I can cash by forfeiting 2 months interest, which is still far better than the savings account rate. Generally checking account has the months pay check roll through it plus 2k for spontaneous purchases. I have a 5 figure HSA account i save into every month so medical emergency is covered.
I am 47 and am a firefighter. I have about 3 months saved and been putting more in my 457 (tax deferred). I have a lot of bonds and was wondering if I should cash them out and invest the money or put into a general fund or a CD as the bank pays nothing in interest.
Really clear thank you! What about unexpected expenses which are not emergency, for instance "your group of friends organizes a getaway next month". Do you handle that with a general "surprises" category, for leisure?
You also better have an emergency fund with no name on it, because emergencies outside of those you named will inevitably occur and you'll have to use funds designed for other things to cover them
Yes, i have about 20 sub accounts at my credit union. I put money in every account for each bill on payday, And yes, I have an emergency fund too. Another sub account!
Boiler breaks down, car needs a large repair... ya know, emergencies (unforeseen large expense items). The fund is there to stop you having to sell equities at potentially a bad time in the market cycle.. What am I missing?
@@PaulB-q3d totally agree. Did you watch the video in full? That’s exactly why I made this. The generic advice of 3-6 months emergency fund is woefully inadequate. Instead you should think about your specific scenario and the common emergencies that could arise and plan accordingly. Most emergencies are predictable and can be planned for. But most people don’t think about them, and therefore end up unprepared. Hope that makes sense!
My emergency fund is straight up for emergencies, if i lose my job or cant work for whatever reason, then i have a buffer. I have other savings accounts designated for vacation, cat bills, car stuff that are not called emergency funds
Thanks, this is essentially the way my current YNAB budget configuration has formed the past few years. $3,000 basic, undefined small emergency budget, only used when some sinking fund just wasn't enough. Otherwise, sinking funds for either expected expenses such as vehicle replacement or maintenance, or funds with a floating balance to ensure something is covered, such as medical expenses. My only concern is, since I'm now retired and able to draw upon retirement accounts, that I would have been maybe better off with the sinking funds delineated in a retirement account earning a better rate of return rather than placed in a high interest savings account (brokerage settlement account). In the end, though, it's worked well: I haven't yet drawn from the retirement account but only from the lower earning high interest settlement account.
Love this video, being specific about what you're saving for is great advice! The four emergencies you list are predictable enough to be True Expenses. If I'm permitted a word of feedback, why so many categories? No brain can balance that many priorities.
Some of us are more detailed than others. I’ve had as many as 95 categories and recently skinnied down to 75. This makes my brain happy. Do what works for you though!
Personal preference. We have about 80 categories in our current budget. But I’ve had clients with 20. And clients with 120. It all depends on the situation. Sounds like you’re good with lesser categories, but I don’t think that means it doesn’t work for anyone. It’s just not what works for you - which is great! That’s the whole point of personal finance, it’s personal :)
Provocative title, and this idea resonates with me the whole time. I like that you place importance in critically thinking the purpose and parameters of the emergency funds. First time viewer, but in a way I already follow your system. I especially appreciate the example of the stable and single 20-something having 1mo savings + invest the extras. It seems also that you are implying that for one year, I can do this; then the year after, adjust as things come into my life. Segmenting life to more than just whole decades, like a savings account has more than one segment.
Totally. The use of an emergency fund is not something that remains static. It should change with your life as the seasons of your life change. Glad you liked the video!
What happens if you need more than you had budgeted for for a certain category? which other budget head the extra amount comes out of? Should one keep on adding 1% of current market value of their house to the fund each year? When is it large enough to stop contributing?
I always thought about if the government could cover emergancies for us, the people could reinvest that emergency fund in the economy and would make for a better world.
OVER-COMPARTMENTALIZATION!!! BTW, it's 3-6 months of expenses to start with, you need to build that to 2 years and don't forget what it will cost for COBRA coverage or other insurance options. Even more so is to develop the skills to cut your expenses to the bone so you can keep your hard won savings where they belong, in your pocket. During the great recession we had a 50 week unemployment stretch during which time my wife needed emergency surgery with an 11 day hospital stay. Other things like life altering injuries and illnesses can rear their ugly head and you're going to need to have a robust emergency fund to deal with it and it happens more often than you think.
Hi Nick, I have been following you for a while and you helped me setup my YNAB budget through your videos. I noticed in the video you still have a Savings account. I do have a Savings account with just $300 in it. This is just to keep the minimum balance (or get hit with a fee). I do contribute when I have some money add to it...but are you saying we shouldn't have a Saving Account and add budget categories to the checking account. This way we would have dedicated amount of money for the these categories
Hey Jim, great question. I do use a savings account - but only for interest. And it's not actually "connected" with any specific category. I use the categories in my budget to help me determine what we have where. If you want a detailed deep dive on this, watch this video on savings accounts: ua-cam.com/video/N4SQzxTZ1uQ/v-deo.htmlsi=po8AiGS1lx_Wqz2J I personally use method #3 as it's the most flexible and helps me earn interest because I use a high interest savings account at Ally.
It takes up to six years when saving 10% of your income for 6 months of emergency fund. Usually the money end on a low yield, very liquid bank account. You loose a lot of time not investing this money
I keep 6 months of bills in a savings account, in case I’m out of work. I don’t touch it unless I’m out of work. I pay as I go on any repairs or other needs. I don’t save anything else, as soon as I have an extra $3-$5k I’ll go another trip somewhere. I’m not saving anything for a rainy day. No debt and travel as much as possible is my motto.
Sounds like you do exactly what I’m talking about! A dedicated account for income loss and manage the other items with your cash flow. That’s great. Thanks for watching!
@@bradleygraves5915 totally agree! Excel is great for some people. Others prefer an app. Either way, it’s important to break down your savings into more than just “savings”. Thanks for watching!
Well, it would definitely depend on the van. If we're talking about a $100k Mercedes sprinter, that's very different from a 10 year old Toyota Mini-van. $5k is probably a good goal as one singular thing probably won't go over that. What I do for our truck is just budget a flat amount every single month based on the data I have over the last few years of owning it.
No one ever mentions prepaying bills as a nice "buffer" against income loss or cash flow problems. Nearly all reoccurring bills can be prepaid and while not generating interest on prepaying bills it allows you to use income to pay for those pesky life uncertainties. Prepaying allows for nice peace of mind when those events inevitably occur.
That strategy also applies to life, period! I see people working like dogs, saving a bunch of $. When asked what is it all FOR...? They go blank. I'm extremely cheap in certain areas and very generous in others. Define your "rich" life.
We worked like the devil to accumulate 10 months expenses in a HYSA and called it our "emergency Fund". We are starting to view it as more of a middle bucket where we put money into it at a slower pace and have increased our contributions to our 401K as we are maxing out those and still have some money left we put some in our brokerage account, we might put it in our HYSA or maybe buy some gold or silver. But I agree sort of with you defining an emergency is often difficult and we have never had an emergency that costs 1000s of dollars. We do have sinking funds for car and home repairs. We really do not have difficulties saving and investing but that wasn't always the case. We just had 7 trees cut down it cost $5K we had the money set aside but even today 2 weeks later I'm still processing the cost.
So sorry you’ve had trouble! There’s an unsubscribe link in the bottom of every email. You can unsubscribe anytime you like :) But if you have issues, you can also just hit reply on and email and let us know. And we can unsubscribe you. Wish you all the best!
Resume of the video: Don't have an emergency savings account, but have save money for when things break. Hahahaha, so have an emergency savings account.
Of course! Did you actually listen to why? I’ve seen tons of clients raid their savings accounts and one of the ways we can combat that is to get more specific and less vague about what that savings is for. Wish you all the best!
I disagree. For some people three months is overkill, for others is way to little and doesn't near cover all of the things that could go wrong - especially if you own an older home and older vehicles, and have multiple kids with a high deductible health insurance plan. Lot's more to plan for than just 3 months! But I do appreciate you watching!
$18k air conditioner out in the south in the middle of July is an Emergency. $1,500 water heater $400 garage door repair All of these happened at once. That’s not vague
Those are all covered under “home maintenance” fund. If own a home, set aside 1% of your homes value into an account for these expenses that will happen. These aren’t “emergencies” these are all the added costs of home “ownership” So: $250,000 home, set aside at least $250 a month for maintenance of your home. $3,000 a year
Totally agree, that's why I have a home maintenance category and for larger homes, I break out each major expense (like the HVAC) into their own separate category and plan for each. Thanks for watching!
I totally disagree with this system! You only need one emergency fund! He recommends splitting it up in different categories: auto maintenance, house maintenance, and medical costs; you can do it this way, but you don't have to! Everybody's financial situation is different! This is just an option! I highly recommend starting with one emergency fund for starters! That's all you really need! Overall, the video is good but it is an alternative for budgeting.
Oh, right. This is why you do not take advice from random guy on youtube. Young lad, never lost a job, has unexpected illness in family. No kids either
Did you watch the video before commenting? I literally talk about planning for each of the items you mentioned and specifically how we have had multiple unexpected illnesses in our family.
This method of budgeting has really worked for me. I'm 71 and on Social Security which because I am relatively healthy I was able to delay until 70 so maxed out the amount I am eligible for which covers all my bills and sinking funds. House is paid for. Car is paid for. No credit card or other debt. My 'emergency fund' is in a HYSA but is budgeted out six months in YNAB including the major expense catagorie you mentioned: Car maintenance, home maintenance, and medical expenses. I also have an off budget account for car replacement and a joint account that I gave my son access to that I call my 'burying money' so my children don't have to wait for death certificates or anything else to do what ever they decide to do after I'm gone. I appreciate y'all and have really enjoyed following your channel over the years. Your videos have really helped me with YNAB and budgeting. Thank you.
Amazing! Thanks for sharing. Sounds like you’ve worked very hard to put yourself into a good situation. Love to hear that this has worked well for you.
Thanks for watching and following along!
Thank u for sharing these details. I am going to start my “burying” fund. I have life insurance thru job but have considered getting another. I definitely don’t want my kids to have to come up with money for my Burying expenses. Starting in two weeks to fund. Thank u❤
This meant everything to me. Congratulations on getting it all figured out. Happy for you. I have some of these as goals still. I will definitely be using YNAB for the long term as well.
@@libbysworld7649 So glad to hear it Libby, thanks for watching!
I have the categories: Home Maintenance, Car Maintenance, Medical, and Income Loss. However I still have one named Emergency. But it really is a “Things not budgeted for” category. Once two large car expenses came close together and there wasn’t enough in the Car Maintenance to completely cover the second one. The difference came from the Emergency category. A relative lost their job and wasn’t using YNAB and so didn’t have Income Loss fund and asked for a loan. But I don’t have a “Relative lost job and needs money” category. So I lent them money from my Emergency category. Once they got a job they paid me back, which I then returned to the Emergency category. Note once they got a job I introduced them to YNAB.
So I think no matter what you call it, you need a “Emergency/Things not budgeted for” category.
This is why I like Ally. Ally accounts allow you to create buckets to save into the inside of a savings account. I'm bad about not spending if it isn't an emergency. So i set up a bucket for travel. When i reach my goal, i'm allowed to book a trip. I have buckets for property taxes, car maintenance, vet bills, home improvement/ maintenance, gifts, and general emergency.
Totally, I've been with Ally for 10 years. Big fan.
Yes i love the bucket system
Sofi has a similar feature, but they call it Vaults. I do the same thing. Makes it easier to budget for bigger expenses.
Interesting take but will respectfully disagree on this approach for my sake; I'm usually one for the nerdy numbers games but this is way too micromanaged for my liking. I have 6 months of expenses saved in one checking account and we only pull from it whenever an unexpected event happens that we cannot fit in our monthly budget (i.e. storm takes a fence down, roof damage from a storm, replacing an engine in our son's car b/c he wasn't checking the oil, etc); we then budget the next month or two to replenish it with what our budget gives us. Other things like new tires for a vehicle we budget that in the following month or temporarily add to the emergency fund as a sinking fund to use in 1-2 months.
Sounds like you have a higher disposable income than the average person and are able to cash flow a lot of items if you’re able to replenish those examples quickly. That’s great! This advice may not be for you, but I appreciate you watching, I’m glad you’ve got things covered!
I agree. I have a budget that is highly detailed and a portfolio that is highly analyzed and planned for...but this is excessive. It is simply impossible to know in advance what any of those costs will actually end up being (especially considering supply chain shortages, inflation, random problems that cannot be foreseen, medical issues, etc.).
If a person can start saving towards a traditional emergency fund (read income loss) I recommend after all other debt obligations and expenses have been satisfied investing disposable income into assets that produce income (think Rich Dad, Poor Dad). A great example might be something like SPYI ETF (or other income ETFs) Dividend Stocks, BDC's, REITS, etc. Rental Units, Bonds, Intellectual Property, etc. The ultimate goal should be to replace our current income with assets. That way you can reinvest that income to build further income or use it if needed.
I suggest that you put that savings or a large portion of it into CD's, Money Market, or other accounts that are a little harder to tap if someone hacks your identity or your account. I suggest you figure how much you want accessible via ATM versus having to go into the bank. For the instances which will hold for 3 days (ie a 3 day week-end) figure out how soon you will possibly need it versus the penalties for early withdrawl. If your checking account gets tapped, all too often it can often be 3 months for the quarterly reconciliation before the dust starts to settle. If its an account you don't refer to often, it could take a while to discover and then other nasty realities begin to hit.
Why not use a high yeild savings account though, same idea except your getting at least 4%, hate to let inflation win
@@kevinj2334 The accounts I mentioned require an in-person appearance, Id, and the likelihood of a camera to liquidate.
I classify emergencies into 2 tiers with 2 accounts. A Level 2 emergency is more traditionally called sinking funds. I use that for unexpected car maintenance (water pump, blown tires), medical bills exceeding medical savings, etc. A Level 1 emergency fund includes things like unexpected major house maintenance, funerals, income loss.
Emergency Fund / Sink Fund == I want to quit my job for a year fund
Totally, that’s a perfect example
I have been using a spreadsheet budget that has grown exponentially as I have eliminated debt and pushed $$$ to Emergency fund, fun money, running balances, investments...etc. Cannot imagine doing without it! Great video!
Thanks Jeff!
I have my budget set up this way, and it's very stress free.
Glad to hear it. I totally agree.
I think it depends on the person and if it sticks it sticks. To me it makes sense to put everything in one area so that I don't have to micromanage funds. Then I just don't touch the emergency fund if its not an emergency. I don't dilute the definition of emergency so maybe that is why it works for me.
I can see why others might need to make a more definitive budget so that they can hold themselves more accountable.
Interesting take, but I have a 6 months emergency fund in a HYSA and never withdrew it for "flash" sales. I guess it depends on the individual
Totally. It's very individual. Also, it depends on season of life and how many thing you own that require maintenance and upkeep. Typically midlife folks with 2 - 3 kids, who own a home and a couple vehicles need to plan for that separately outside of the income loss fund.
Ahhhhh I had heard this called "sinking funds" before your vid. That you would setup a "bucket" and put money in that "for a rainy day". Your explanation is much better IMHO
Well thanks! I’m so glad this helped you.
I have $5K in a HYS that I call my Unexpected Significant Expense Fund which would be for three of the categories you mentioned. I also have an HSA with $4K for a medical/dental expense that isn't catastrophic. I will be contributing more to this soon. I budget at least a year in advance so I have an upcoming vacation, Christmas, birthdays, regular car maintenance and a potential rent increase already accounted for. As for a loss of income, that is a different situation. I am confident of continued employment and even if the worst happened, my employer has been generous with severance in the past. It is a bit of risk not saving more for that, but I'm willing to take it.
Sounds like you’ve got it covered Jay. I’m glad to hear it. Thanks for watching!
My emergency fund is for 2 things: income replacement (i used it before for that purpose) when I get laid off, and funeral expenses for a loved one. For psychological reasons I don’t dare to have a separate category in Ynab (now transiting to Actual Budget by the way) for the second. So i just use the generic Emergency fund category
Totally get that, it makes good sense to me.
Thanks for watching, and for sharing your thoughts!
I’ve saved for my own funeral expenses, but I had not thought to save for family…
Love it all! I will be reallocating my EF into the big 3 sinking funds ( am retired and not worried about income loss). Ironically I have frequently asked myself when would I use EF money since I have MANY other sinking funds. You convinced me to make the change. Thanks
So glad to hear that this was helpful for you!
I’m with you. Same scenario. Already planning the big move👍🏼💲
I call it a cash reserve,i am retired and have 5 years worth,to replace my investment income only for down markets.Pension income is a constant stream of income.Having said that,your cash should still be working and not under your mattress.When i was working,i had 2 years of cash,that would completely replace my income,plus term life insurance.I was self employed so those last two were important for my family.
Totally. It’s also a very different thing when you’re in retirement vs during your working years. Thanks for sharing, and I appreciate you watching!
Loved the suggestion about breaking things down into major subcategories and also making it a goal to save a yearly deductible for medical.
Hey thanks! So glad to hear it was helpful for you
Really helpful video and has made me reconsider how I set up my emergency fund, thank you!
Awesome, so glad to hear it was helpful for you!
I think a lot of the fractiousness in the comments comes down to: How do you define ‘emergency’? My emergency fund has little to do with house or car repairs because many repairs are somewhat predictable, as Nick says. You know they are coming sometime.
1) I keep an emergency fund for expenses relating to deaths, acts of God, or other unpredictable expenses.
2) I track separate Funds in a savings account for non-monthly or irregular expenses. For me, those would be House Maintenance, New Vehicle, Vehicle Repair, Insurances, Health & Dental, Property Tax, and Travel. (Tip: Most holiday expenses such as Christmas are covered by credit card points saved for this purpose.)
3) Monthly expenses such as utility bills, mortgage or rent, etc, are just covered with other monthly living expenses.
I set up this structure on the advice of my financial adviser late in my working years, and I wish I had done it much earlier. I still keep the structure now in my retirement.
Hope this helps someone.
That's a solid perspective to have over an "emergency fund" which has this "scary", uncontrollable, unforeseeable sentiment to it.
Glad you liked it!
It's pretty much another word for sinking funds and the envelope system. It looks complicated but actuality is very simple and empowering. By budgeting this way, you give yourself permission to spend in those categories when something comes up.
Because I am still building the habit, I currently take out 30% of my paycheck to live off until my next payday, I budget that into my non discretionary expenses. And even in that 30% 1/4th of it is going towards some sort of savings.
I like this approach.
I like hearing your perspective but I have a traditional emergency fund with parameters for withdrawal. I incorporate your idea into my sinking funds. Love the discussion, thank you.
Glad you found the discussion helpful, thanks for watching!
Thank you for this, because I don't think people realize this. For myself, I'm currently building my emergency fund, with about two months saved so far, aiming for six. This is strictly for covering bills in case I lose my income. I also have a short-term savings fund for unexpected expenses, like when my headphones broke last night-pulling from that instead of my emergency fund.
Im also working on a medical fund and future car expenses along with a tech fund (😅 the tech fund didnt have anything in it as im still working the budget out)
We are paying the bills by or at the beginning of the month, low spend during the month, then effectively budget the left overs at the end of the month. This has helped us pay for unplanned expenses. We have a checking with attached savings. Each has a spending buffer which can be tapped for an unplanned expense, an honestly great deal, and each spending buffer could get us through 2 weeks of spending (plus if bare bones). If we use either or both, the expectation is to reduce the upcoming month's spending to replentish what was used; this is an organic stop to spending it most often. Each account also has an account buffer 4 times larger than the spending buffer. The account buffer is used like many people's emergency fund. Beyond that we have some targeted sinking funds (may they not be needed), revolving funds, and fairly liquid "real" savings.
We have a separate bill payment account just for bills & the house payment. We direct deposit straight to that account and all bill payment's are automated. This is also where our emergency fund is. If it's an "emergency" that doesn't involve the bills or house payment, this money isn't used for it.
having just been laid off, and it taking over 8 months to find a new job
I have started to prioritize my "Income Replacement" category
I have a group called "Emergency Funds"
and in there is Income Replacement, Puppy Care, Dental, Deductibles, Unexpected Replacements
Sorry to hear about the layoff. I know that’s brutal. I’m glad to hear you’ve got your emergency funds setup though. That definitely helps.
Useful points. I definitely could not answer "what is my emergency fund for?" I'm going yo be restructuring that...
So glad it was helpful for you!
In my YNAB, after so many years of using it, I’ve encountered several “emergencies “….so, over the years I have set up very specific budget line items, from cars to appliances to home to health. But I also have a nebulous “emergency fund”, too. I have a big chunk of cash in the fund…I draw out of it to populate specific sinking funds when something comes up unexpected and to cover any shortfalls.
Love it. I’ve found the more specific you can get in planning for these unexpected items the better.
Thanks for watching!
I use SoFi for high yield savings and they have a concept called “vaults” that I love. I use one for taxes, one for emergency funds, one for house calls / car maintenance and I just depleted my new car vault to buy a new car. It was awesome. I set a goal of $25k for the down payment on a new car and once I hit that goal I diverted all excess savings to the other vaults, and went down to the dealership to get my reward for prudent savings. I also put $4000 into savings outside of retirement a month, non-negotiable, via direct deposit, pretending it just doesn’t exist for budgeting.
I started doing something similar. B/c I agree "emergency" is way too vague.
Glad to hear it!
Really good video. I am double saving - need to tweak my approach. Thanks Sue 😊
So glad you liked it Sue!
Ooo Nick, thank you for the breakdown!!! I like how your budget is broken down in YNAB. Do you have a video on how your YNAB is broken down?
Car repairs, roof repair, HVAC repair, medical, etc etc etc
Great to see you here. You are best.
Thanks Lisa! Appreciate you watching.
Hey future predictor, I’ll just leave a list of emergencies my fund got me through that you would have been helpless to predict.
1. To payoff 50k in student loan interest to prevent it capitalizing into principal after I graduated college.
2. One year later, 50k in out of pocket medical expenses to correct a serious problem with preventative treatments that were not covered.
3. Sudden 35k bill for my kids’ three ICU visits due to them inheriting said serious medical problem.
4. Getting laid off for 4 months seeking work after Covid hit (24k of living expenses).
5. Paying for a brand new 30k car to replace the last 10 year old one, which took 3k in repair expenses before giving up the ghost.
6. Sudden plumbing failure (15k).
7. Sudden mold abatement costs and new carpeting (15k).
My emergency fund covered all that and I kept rebuilding it AND maxing out contributions to all retirement accounts. Anyone who says I don’t need an emergency fund can go pound sand. Oh, and I lost work with three degrees because the company failed during Covid. The answer to “how likely am I to get laid off” is YOU DON’T KNOW AND NEITHER DOES ANYONE ELSE.
I think you missed the point of this video, I don't say you don't need an emergency fund. I say you need to save for all of those things that you mentioned. I'm genuinely sorry to hear about all you've gone through, and I'm so glad your emergency fund got you through.
I've worked with a couple thousand clients, and from what I've seen, most of my clients do much better when we break out and plan for as much as possible - rather than have one large emergency fund. But it sounds like you're the exception, that's great! This video isn't for you then, but I appreciate you watching. Wish you all the best.
I'd caution against shrinking that income replacement too much. Demand for skill sets is cyclical. Your skill may be in very high demand one year and in recession two years later. You might find that you ratcheted down the number of months you had saved only to find that the demand for your skill has fallen when you (and others in your field) get laid off.
And the tenured university employee may be at a low risk, but the amount of time required to replace that job can be markedly longer. That, and some fields might require more liquidity than others.
Decades ago, I opted to start picking up rental property to offset the cycles in my line of work. For the past fifteen years, the rental income has been more than enough to cover any earned income loss. If I do ever decide to retire, the rental income would still be enough to cover 2X of my current expenses and discretionary spending without Social Security ever being included. Sadly, that 2X becomes 0.8X if long term care becomes an issue.
Where do you keep your emergency fund and how liquid does it need to be? I move most of my emergency funds into 3-12 month CDs which in an emergency I can cash by forfeiting 2 months interest, which is still far better than the savings account rate. Generally checking account has the months pay check roll through it plus 2k for spontaneous purchases. I have a 5 figure HSA account i save into every month so medical emergency is covered.
You should consider setting up a CD ladder to take advantage of better rates on longer terms.
I am 47 and am a firefighter. I have about 3 months saved and been putting more in my 457 (tax deferred). I have a lot of bonds and was wondering if I should cash them out and invest the money or put into a general fund or a CD as the bank pays nothing in interest.
Really clear thank you! What about unexpected expenses which are not emergency, for instance "your group of friends organizes a getaway next month". Do you handle that with a general "surprises" category, for leisure?
You also better have an emergency fund with no name on it, because emergencies outside of those you named will inevitably occur and you'll have to use funds designed for other things to cover them
Yes, i have about 20 sub accounts at my credit union. I put money in every account for each bill on payday, And yes, I have an emergency fund too. Another sub account!
thanks for watching, glad this works for you!
Boiler breaks down, car needs a large repair... ya know, emergencies (unforeseen large expense items).
The fund is there to stop you having to sell equities at potentially a bad time in the market cycle.. What am I missing?
@@PaulB-q3d totally agree. Did you watch the video in full? That’s exactly why I made this. The generic advice of 3-6 months emergency fund is woefully inadequate. Instead you should think about your specific scenario and the common emergencies that could arise and plan accordingly. Most emergencies are predictable and can be planned for. But most people don’t think about them, and therefore end up unprepared.
Hope that makes sense!
I have been thinking about this after hearing Rachel Cruz (Ramsey's daughter) talk about it. Kinda makes sense. Big thing, be ready!
Absolutely, glad you found it helpful!
My emergency fund is straight up for emergencies, if i lose my job or cant work for whatever reason, then i have a buffer. I have other savings accounts designated for vacation, cat bills, car stuff that are not called emergency funds
Thanks, this is essentially the way my current YNAB budget configuration has formed the past few years. $3,000 basic, undefined small emergency budget, only used when some sinking fund just wasn't enough. Otherwise, sinking funds for either expected expenses such as vehicle replacement or maintenance, or funds with a floating balance to ensure something is covered, such as medical expenses. My only concern is, since I'm now retired and able to draw upon retirement accounts, that I would have been maybe better off with the sinking funds delineated in a retirement account earning a better rate of return rather than placed in a high interest savings account (brokerage settlement account). In the end, though, it's worked well: I haven't yet drawn from the retirement account but only from the lower earning high interest settlement account.
Love this video, being specific about what you're saving for is great advice! The four emergencies you list are predictable enough to be True Expenses.
If I'm permitted a word of feedback, why so many categories? No brain can balance that many priorities.
Some of us are more detailed than others. I’ve had as many as 95 categories and recently skinnied down to 75. This makes my brain happy. Do what works for you though!
Personal preference. We have about 80 categories in our current budget. But I’ve had clients with 20. And clients with 120. It all depends on the situation. Sounds like you’re good with lesser categories, but I don’t think that means it doesn’t work for anyone. It’s just not what works for you - which is great! That’s the whole point of personal finance, it’s personal :)
What are your qualifications to be able to help clients? Just curious if a CFP is necessary.
Provocative title, and this idea resonates with me the whole time. I like that you place importance in critically thinking the purpose and parameters of the emergency funds. First time viewer, but in a way I already follow your system. I especially appreciate the example of the stable and single 20-something having 1mo savings + invest the extras. It seems also that you are implying that for one year, I can do this; then the year after, adjust as things come into my life. Segmenting life to more than just whole decades, like a savings account has more than one segment.
Totally. The use of an emergency fund is not something that remains static. It should change with your life as the seasons of your life change. Glad you liked the video!
Sinking funds!!!
Yep!!! 👏
Good idea to budget for the deductible(s).
Glad you liked it!
What happens if you need more than you had budgeted for for a certain category? which other budget head the extra amount comes out of?
Should one keep on adding 1% of current market value of their house to the fund each year? When is it large enough to stop contributing?
"Is this a brand where, whenever I take it in the shop, it's going to be $1000 every time?"
So, you mean any car then. ;-)
Haha unfortunately that seems to be all of them these days! Maybe I should’ve said $2k every time ;)
THANKS very useful video !
@@abee5776 glad you liked it!
I always thought about if the government could cover emergancies for us, the people could reinvest that emergency fund in the economy and would make for a better world.
Why can't I still save my 6 months emergency fund and then after invest in the market?
Good tips. Thank you.
Thanks for watching!
you can make speicific savings vaults in SoFi
OVER-COMPARTMENTALIZATION!!! BTW, it's 3-6 months of expenses to start with, you need to build that to 2 years and don't forget what it will cost for COBRA coverage or other insurance options. Even more so is to develop the skills to cut your expenses to the bone so you can keep your hard won savings where they belong, in your pocket. During the great recession we had a 50 week unemployment stretch during which time my wife needed emergency surgery with an 11 day hospital stay. Other things like life altering injuries and illnesses can rear their ugly head and you're going to need to have a robust emergency fund to deal with it and it happens more often than you think.
There is such a thing as over-thinking the exercise. Whatever floats your boat.
Hi Nick, I have been following you for a while and you helped me setup my YNAB budget through your videos. I noticed in the video you still have a Savings account. I do have a Savings account with just $300 in it. This is just to keep the minimum balance (or get hit with a fee). I do contribute when I have some money add to it...but are you saying we shouldn't have a Saving Account and add budget categories to the checking account. This way we would have dedicated amount of money for the these categories
Hey Jim, great question. I do use a savings account - but only for interest. And it's not actually "connected" with any specific category. I use the categories in my budget to help me determine what we have where.
If you want a detailed deep dive on this, watch this video on savings accounts: ua-cam.com/video/N4SQzxTZ1uQ/v-deo.htmlsi=po8AiGS1lx_Wqz2J
I personally use method #3 as it's the most flexible and helps me earn interest because I use a high interest savings account at Ally.
It takes up to six years when saving 10% of your income for 6 months of emergency fund.
Usually the money end on a low yield, very liquid bank account.
You loose a lot of time not investing this money
I keep 6 months of bills in a savings account, in case I’m out of work. I don’t touch it unless I’m out of work. I pay as I go on any repairs or other needs. I don’t save anything else, as soon as I have an extra $3-$5k I’ll go another trip somewhere. I’m not saving anything for a rainy day. No debt and travel as much as possible is my motto.
Sounds like you do exactly what I’m talking about! A dedicated account for income loss and manage the other items with your cash flow. That’s great. Thanks for watching!
This IS an emergency fund... with tabs. You don't need an "app" to segregrate what you are saving for. An Excel spreadsheet will do the same job.
@@bradleygraves5915 totally agree! Excel is great for some people. Others prefer an app.
Either way, it’s important to break down your savings into more than just “savings”.
Thanks for watching!
My van is paid off and is 2 yrs old....what do u think a healthy van repair fund catalog shoule be in my YNAB?.... im thining 5k
Well, it would definitely depend on the van. If we're talking about a $100k Mercedes sprinter, that's very different from a 10 year old Toyota Mini-van.
$5k is probably a good goal as one singular thing probably won't go over that. What I do for our truck is just budget a flat amount every single month based on the data I have over the last few years of owning it.
No one ever mentions prepaying bills as a nice "buffer" against income loss or cash flow problems. Nearly all reoccurring bills can be prepaid and while not generating interest on prepaying bills it allows you to use income to pay for those pesky life uncertainties. Prepaying allows for nice peace of mind when those events inevitably occur.
Totally, that's absolutely another way you can do this. Thanks for sharing!
Running over the mailbox? That was oddly specific. :)
I've seen it many times :)
Iv have 8 separate cash pots. Use zopa for this.
Awesome
Thanks for watching!
Did u work in Springfield ?
Nope, I have not ever worked in Springfield.
Good video 👏
Thanks for watching!
I live in Florida. I have low income. I have an emergency fund for Hurricane season.
Totally, that's a perfect example. Having a dedicated category for hurricane season is important if you're in Florida.
That strategy also applies to life, period! I see people working like dogs, saving a bunch of $. When asked what is it all FOR...? They go blank. I'm extremely cheap in certain areas and very generous in others. Define your "rich" life.
6th year using YNAB. We will agree to Disagree on this one.
Sounds like you are talking about sinking funds
"This is better than an emergency fund"
I call it an emergency fund. It's for emergencies.
🙄
We worked like the devil to accumulate 10 months expenses in a HYSA and called it our "emergency Fund". We are starting to view it as more of a middle bucket where we put money into it at a slower pace and have increased our contributions to our 401K as we are maxing out those and still have some money left we put some in our brokerage account, we might put it in our HYSA or maybe buy some gold or silver. But I agree sort of with you defining an emergency is often difficult and we have never had an emergency that costs 1000s of dollars. We do have sinking funds for car and home repairs. We really do not have difficulties saving and investing but that wasn't always the case. We just had 7 trees cut down it cost $5K we had the money set aside but even today 2 weeks later I'm still processing the cost.
Love it. Thanks for the thoughtful comment, and for taking the time to watch.
Whatever you do, don't subscribe to his mailing list. No matter how many times you try, you cannot unsubscribe
So sorry you’ve had trouble! There’s an unsubscribe link in the bottom of every email. You can unsubscribe anytime you like :)
But if you have issues, you can also just hit reply on and email and let us know. And we can unsubscribe you.
Wish you all the best!
@@mappedoutmoney I’ll have to try the reply. I can’t swear to it but I’m pretty sure I’ve tried that. I know I’ve tried the unsubscribe many times
@@gordonb1737 just hit reply, I read every email. If you ever need to unsubscribe just let me know and I’ll take care of it no problem.
Resume of the video:
Don't have an emergency savings account, but have save money for when things break. Hahahaha, so have an emergency savings account.
Of course! Did you actually listen to why? I’ve seen tons of clients raid their savings accounts and one of the ways we can combat that is to get more specific and less vague about what that savings is for.
Wish you all the best!
no, no, no, no, noooooo
Best of luck!
So instead of 1 savings account, just have 4 😂😂😂 nothing new here
Wish you all the best!
This whole video is just semantics.
BUDDY, IT'S THE SAME AS HAVING A 3 MONTH EMERGENCY FUND, LOL
I disagree. For some people three months is overkill, for others is way to little and doesn't near cover all of the things that could go wrong - especially if you own an older home and older vehicles, and have multiple kids with a high deductible health insurance plan.
Lot's more to plan for than just 3 months! But I do appreciate you watching!
@mappedoutmoney Well I feel good with my $20k Emergency fund, I sleep like a baby 👶
$18k air conditioner out in the south in the middle of July is an Emergency.
$1,500 water heater
$400 garage door repair
All of these happened at once.
That’s not vague
Very wise video. Excellent content
Those are all covered under “home maintenance” fund. If own a home, set aside 1% of your homes value into an account for these expenses that will happen. These aren’t “emergencies” these are all the added costs of home “ownership”
So: $250,000 home, set aside at least $250 a month for maintenance of your home. $3,000 a year
Totally agree, that's why I have a home maintenance category and for larger homes, I break out each major expense (like the HVAC) into their own separate category and plan for each. Thanks for watching!
This video is UNREALISTIC for the majority!
How? Unrealistic to expect people to actually take the time to control their expenses and how they allocate their income?
I totally disagree with this system! You only need one emergency fund! He recommends splitting it up in different categories: auto maintenance, house maintenance, and medical costs; you can do it this way, but you don't have to! Everybody's financial situation is different! This is just an option! I highly recommend starting with one emergency fund for starters! That's all you really need! Overall, the video is good but it is an alternative for budgeting.
Thanks for watching!
Oh, right. This is why you do not take advice from random guy on youtube.
Young lad, never lost a job, has unexpected illness in family. No kids either
Did you watch the video before commenting? I literally talk about planning for each of the items you mentioned and specifically how we have had multiple unexpected illnesses in our family.
💙💛
Appreciate you watching!