Right Where I Want It

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

I may be committing a significant personal finance faux pas – I am (knowingly) leaving money on the table.  Some people will argue that the opportunity cost is just too high, that there are several ways I could be earning more money….but I’m okay with what I’m doing – leaving a significant (half a year’s expenses) sitting in a savings account.

As an alternative to my current “strategy” I could be earning several percentage points more in interest per year, investing in a fairly conservative bond fund (as an example).  I prefer to keep the money earning 1.35% in an ING account and more importantly (to me anyways) close – as close as theoretical money can get.  In “olden” times, I would be the guy with too much money stuffed under my mattress, or buried in a coffee can in my backyard.

I wouldn’t call myself paranoid by nature (I’m not that crazy), I just like the security of having a bunch of money within a 2-day transfer in a secure account rather than at risk in any way.  This way of thinking is contrary to most of my financial plans, which are somewhat risky – the largest risk being my plan to leave the workforce 20 years early.

As an alternative to a largish “war-fund” I could tap into my line of credit, or use a credit card short-term that I could pay off with invested dollars once the stocks/bonds/other investment has been cashed out.  I think that psychologically, I just like having a buffer of cash.

The weird thing about this savings account is that I’m not even really sure what it would be for.  I can’t really foresee any wild economic disaster that would cause me to need this amount of money all at once.  On an annual basis, my household expenses are low enough that my wife or I could support 100% of our needs – there really just isn’t a need to have the money sitting there.

I keep it as a “get out of jail free” card.  I keep this money un-invested because it allows a certain amount of freedom…for me and my wife it is somewhat comforting to have this money here.  My job is as stable as you can get these days, while my wife’s is probably a little precarious (working in a retail business).  Even though I currently enjoy the work I am doing, I like that I could decide to quit tomorrow and really have no problem (for 6 months or so).

So, that is my story about my large emergency fund – large in comparison to my expenses, and the risk that it will need to be tapped.  How do you approach your savings?  Do you have a bank account full of money, or are you fully invested?

8 thoughts on “Right Where I Want It”

  1. I have layers of investments based on ease of access and risk/return but I would not put that much money into something with such a tiny rate of return.

    In my ER budget, I have some irregular expenses (i.e. those due every quarter, 6 months, or 12 months) so I have to carefully plan to have enough in my local bank’s checking account to cover them. I have monthly cash inflows from my bond funds so sometimes I need to build up surpluses from 1 or 2 months to cover the months which have larger expenses.

    I don’t keep a large surplus over the one I need to cover my irregular expenses, just enough to meet any minimum balance requirements along with another $500-$750 to cover anything unexpected but not very large. Anything over that I use the bond funds themselves which I can access pretty easily via paper check or electronic transfer to the checking account. That type of large, unforeseen expense happens rarely. Beyond that I have other mutual funds without checkwriting privileges whichare more volatile (i.e. stock funds).

    Bottom line is that I want pretty much all of my money earning some kind of interest (or with growth potential) and not sitting in a bank account earning next to nothing.

  2. Hi Dave;

    I never considered wanting a bunch of money in an account before, until the last year. It is counterintuitive that I’d want it now when our money worries are the least worrisome than it has been for years. Maybe it is because we’ve seen enough of what can happen?

  3. I have $1000 in a TFSA savings account, more for safety than as an emergency fund. I could invest this money but I do like having it “within reach”. It will be more likely used for a future purchase, not necessarily an emergency but just for fun.

    For emergencies I have a $10K line of credit that I have never touched and hope I never do, but it is there if I need it.

  4. If I have extra money sitting around, I buy gold when it dips and keep it as a hedge against inflation or deflation. Cash at 1.35% is actually losing money to inflation and interest is taxed at the highest mariginal rate. I always liked that old saying that in today’s economy, “Cash is trash”. There’s a reason that the Chinese government is dumping billions of USD into Alberta Oil Sands projects, they’re trying to spend depreciating dollars to invest in appreciating assets. I think I’ll follow their lead and go buy some more cashflow generating assets rather than sitting on depreciating dollars.

  5. I like to have a nice pile of cash in a savings account too – everything else is tied up in the stock market and real estate, so that’s the part of my portfolio that makes me feel like I could weather a bad emergency without having to liquidate at a bad moment.

  6. Oh my. I thought I was the only one who had this phobia. I too keep our emergency fun rig here I cn get at it with a click of a button. It scares me to death to have it locked away in investments that will take time to get at and probably have consequences whether that is tax or delay fretting it or a withdrawal fee. It makes me extremely nervous just thinking about it. Emergencies happen at all times of the day, not just during banking hours.. Best to be safe

  7. I used to have a large bubble sitting in my account for peace of mind.

    Now I keep my TFSA maxed and invested in blue chip stocks that pays me just over $1000 a year in dividends. That amount increases every year with dividend increases and it’s all tax free income.

    I have access to that money within 1 minute of a online transfer if need be and if it’s not needed I re-invest it to keep my emergency fund forever increasing.

  8. Timely post… as of a couple of days ago I had almost 200k sitting in my HISA (1.25%!!!!). Moved 150k into my trading account, ready to pounce on the recent slump in commodity related Canadian stocks… bargains to be had out there folks.

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