I recently learned (past posts on Reddit) that a person should have a fund for daily savings, emergency fund, and a HYSA for a house down payment. Regarding the daily savings and emergency fund, would you essentially have one paycheck or one month worth for daily savings and then a year of rent+ bills in an emergency fund separate in a HYSA than the house down payment? I heard a year is excessive but great bc if you’re out of a job you have a year before you’re homeless or in debt. It gets confusing fast and I just want to know how others are doing it.
So for example if daily expenses + rent is 2k you’d have 5k in your daily expenses savings, you’d have 24K in your emergency fund in a HYSA, then in a different HYSA you’d have a house down payment min of 50K?
Learning about the difference of savings
byu/lildrewdownthestreet inpersonalfinance
Posted by lildrewdownthestreet
4 Comments
You don’t need to keep all of this money “physically” separated in different accounts. You can put everything in a HYSA and track the portions outside of the actual balance.
At least for myself, I use one account for my emergency funds and short-term savings (ex: saving for a specific purchase). I never felt the need to have different accounts for different needs. I do view my HYSA account differently than my checking (daily / monthly bills). Since most (all?) of HYSA allow you to access your account several times a month, I do not see it as an issue to have all of your emergency funds in such an account. As to how much you should have in an emergency fund, 3-6 months is the standard. However, if you require a larger fund to feel secure then that is what you should have. The same holds true for having different HYSA accounts for emergencies and one for a down payment. While I would probably combine them, if you feel more comfortable having them separate then do so.
Bills I need to pay in the current month – in my checking account.
Emergency fund (‘x’ months or years in cash) – in my high yield savings account (money market actually but same difference) at my brokerage.
Everything else – invested in taxable or retirement accounts per my desired asset allocation, also at my brokerage.
I’m not buying a house, but if I were I’d just keep it in the same account as my emergency fund and maintain the separation mentally.
My emergency fund is 2 years of expenses, but I’m early retired and want a big cash buffer to use to cover one-time costs (like replacing a car) without increasing my MAGI for the year. 6 months is the commonly recommended amount for most people.
yeah those are all good ideas. but there are no rules, it comes down to personal choice and seeing what works for you. start with saving, any saving, and build from there.