Everyone always talks about how important it is to have some liquid cash in a savings account or some easily accessible type of account?

How much does one feel a person should have in that account?

Ideally, 90 days of expenses readily accessible.

what would that include? Would rent be included? what about food? What is on the list of 90 days of expenses. For example, I buy cases of diapers at a time, but not necessarily every 90 days, would I include that or no?

everything included

Ideally yes. Just in case. You never know. Personally I just keep trying to save rather than spend cuz even though I have more than 3 months after tax salary saved, you never know where life will bring you, and if you think of it, 3 moths flies by real quick. This was the first time I heard the three month rule though. Oh, and if you meant readily accessible as in not tied up in stocks and such, as a single person with a job, I'd keep a couple weeks salary close by to be safe.

let's say someone doesn't pay rent, either they already fully paid for their living space or their parents pay their rent, would they still include it?


Oh! When I was single, of course I saved a lot more. The more you save now, the better/easier it makes it for the future iy"h, especially when/if you want/need to make a down payment on a ridiculously priced home in a nice frum Jewish neighborhood.

Yes.
You need enough money to get you by between the time that your family income disappears and new sufficient income appears in the form of a new job, or insurance, or government help.

Then it's not an expense.

No. In that case, rent isn't a recurring expense. You need to be able to cover recurring expenses.
(Although if rent were already paid in full, it's not paid in full for eternity).

It could be if it's a home where the mortgage has been covered (cash)? well, i guess taxes would still be an issue? I don't know, all I know is that we get too many bill and I no longer like mail the way I did as a child.

Taxes would still be an issue. If it's an anticipated expense, then prudence would dictate having the funds available to cover the expense even if one lost one's income until such a time as one would reasonably anticipate replacing the income.

many people say 6 months

Then people just spend the rest if they have excess? What if they make enough to have 6 months in savings + extra once expenses are paid, what happens to the rest?

Spend and save. Life is not all about paying bills you know.

You have extra after putting money into a retirement account, college savings for your kids, paying all the bills and saving up 6 months worth??
You are doing quite well.

and must be working hard. take a vacation. It also never hurts to put even more away, say, for a rainy day.

Savings. If you have income, you pay your expenses and save the rest. But regardless of your savings, you need to have at least a certain amount of readily accessible money for an emergency.

Let's say you earn 3k a month. Your expenses are 2700 a month. So you save 300 every month. Like for retirement or towards a down payment for a boat or whatever. That goes on for a long time. But somewhere you should have 3*2700=8100 sitting readily accessible. That can even include your long term savings, but it should be accessible rather than tied up in let's say something that doesn't mature for 10 years.

The "3 month rule" is dumb. The "6 month rule" dumber still. If you have an equity line or credit cards with sufficient limits then you really don't need that. And if you have that much money around and are running balances then you are missing something. Few people actually get no money for 3 months.

Terrible advice. (may be the first time I've disagreed with one of your posts)

spend on what?
I know it's not all about paying bills, but I want to know what everyone else does or what the "system" says to do. I'm young and have a lot to learn, in case you can't tell.


Did I say that????? Where?

Also, do I need to have a college savings account for my kids (not that I won't let them go to college but isn't tuition a bit more $$$)

As long as you have access to funds to get you by, then you're probably ok. But paying rent by credit card or borrowing against your credit card to pay rent probably isn't the best financial planning.
And no, if you have that much money around, it just means you are prudent and not living to your limit. I think it's wise to save and over the course of time to accumulate 3 months of expenses isn't that onerous. People save for years of retirement - if they don't have 3 months worth of money, then there's something seriously wrong anyway.
True, few people actually get no money for 3 months, which is why I clarified above the time frame is more accurately the amount of time until you can reasonably anticipate generating enough income to cover your expenses. However, 3 months isn't totally unreasonable. Imagine a self employed person with disability insurance with a 60 days exclusion.

If you want them to have the option of going to college, then yes. And make sure you put it in to an account where any college assistance program cannot count it against you when they are deciding how much you need for financial assistance. Certain 529 plans and possibly IRAs would fit this criteria.


It's terrible financial planning - people really screw themselves having to pay back large balances acumulating high rates of interest on credit cards and HELOCs

Now for the next question, how on Earth does everyone know this stuff. I didn't even realize the imp of life insurance until recently. How do I know the questions to ask even to make sure I do the right thing. This "real life" thing is getting a bit much for me to handle

you ask us and do some research to make sure we know what we are talking about I guess.

People approach that differently. The way it works in Canada is that if you put away for post-secondary, it's after tax but the interest earned isn't taxed so it grows tax free. However, money put away for retirement isn't taxed at all (and grows tax free) until it's withdrawn. So unless you are already putting away the maximum for retirement, I don't personally think it makes a lot of sense to put away for the kids. Especially since college here is way less than tuition. On the other hand, some people put away for college in order to be regimented, to be forced to save.

What if you want to use the retirement money for tuiton? no penalty?

Well, the way it works is this:
You can put savings into two types of portfolios, an RRSP which is a retirement fund, or an RESP which is earmarked for postsecondary education. Both grow tax free. The difference is that after tax money goes into RESP's, but pre-tax money goes into RRSP's. That money in the RRSP is taxed at withdrawal - the theory is that when you're retired your income is much less so you are deferring taxes as well as paying less tax at that point.

If you withdraw money from the RRSP, you're going to be taxed on it as income at the marginal tax rate. So in theory you probably could withdraw it but it doesn't make sense tax wise. What people will do is borrow against it. Some people even borrow money to put in the RRSP.

The RESP can only be withdrawn for certain educational purposes, but it's pretty broad, and usually is transferable among the kids. The odds are one of the kids will end up doing something beyond high school.

So if you earn 30,000 a year, a put 2,000 into your retirement RRSP, and 1000 into an RESP for the kids, you pay income tax on 28,000, and the 3,000 grows tax free. When you withdraw the 2,000 at retirement, you are taxed at a much lower rate, plus you have deferred the tax for the 30 years till you retired. When you withdraw the RESP, you don't pay tax because you have already paid income tax on it.

That's how it works in Canada in a nutshell.

and some are modest about the fact that they are in the field.

So call it the "learning in E"Y account" or the "Wedding fund" (however whatever tax advantages you may get for a college fund wouldnt then apply I guess)

You're smart and I'm right. Eventually you'll agree with me.

Let's say someone spends $4000 a month, which isnt hard to do with a family. So you want to tell him to put $12,000 away in a low-paying savings account on the off chance that he will be totally without income for 3 months? Hello? Who has $12k to just sit around? No one I know. Even if you invest the money in the stock market you will still likely have 3 months for your stock to recover or whatever you need. Rather take a credit line with sufficient limits to allow you to survive the emergency. And that's what it would take. Invest the rest of the money or use it to pay off debt. A person probably needs 1 month max in reserves.

Or maybe, once you're left totally without income, he should drastically cut down on his spending... So maybe make that $4000 a month into $1000.

Let me clarify by saying that I do not mean that if you actually have 3 months of living expenses saved you can just ###### it away. We are talking about liquid, available funds. Prudent people save money and invest it in something for the long term. They dont leave it sitting in bank accounts on the off chance that they will have zero income for 90 days.

I'm not in the field. And you don't have to be in the field to plan for unfortunate scenarios.



sorry, you're wrong and you are giving people bad advice.

Like, I said. You are smart so you'll see that I am correct. Just ask Jonathan Clements.

This is true. Which is why I said above that the 90 day emergency fund can be included among other savings as long as it's easily accessible. I'm not suggesting it sit in a chequing account earning 0.01% per annum or sit in a shoe box under your bed.

Which is good because we dont have chequing accounts in this country.

What are some examples of places you could keep "liquid, available funds" that are not a shoebox under your bed?

Maybe something like a money market fund. Or investment certificates (what in Canada are called Guaranteed Investment Certificates). As long as it's easily redeemable without onerous penalties on short notice. And short notice can be staggered at let's say as long as 60 days or more. If you need a 90 emergency fund, you don't need all of it the first day, you only need a third in the first month. So you would need a certain amount more liquid to be redeemed immediately, but the bulk of the emergency fund could be in something that takes 30-60 days to redeem. But if you had to leave the city tomorrow because of a natural disaster, you should have a certain amount to get you by until you can access those money market funds. So yes, I think a certain amount of that emergency fund should be in accessible cash. Some in a shoe box, some in a bank account you can access from anywhere with a debit card. Some redeemable within a few days, some within a month, some within two months. But it should be somewhere albeit in different forms in different places.

I like keeping cash around. In case you need bail money, that sort of thing...

savings accounts such as HSBC and the like are earning a pretty nice return these days (5% +). Not much less than you can expect to earn in a good year investing in the market.

Liquid CDs, Money Market accounts...but remember for both, there may be minimum account balances. A 3 month CD may or may not be suitable. You can break a CD, but there are usually penalties.

Talking to people. There are plenty of books available even at a basic beginner level for tax planning and home finance and budgeting. (However, I can't link any because I only know about the Canadian ones which wouldn't be helpful for you. But I'm sure the American h.com members would know which ones are good starters).

Not everyone has credit.


?


Whats wrong with a regular bank account just for these liquid funds?


Why does it have to be so complicated? Whats the benefit of having the money redeemable at different times? Wouldnt an easily accessible bank account cover all of those easily?

The longer you are willing to tie the money up the better earning potential you have.

What he said. It's silly to keep that much cash in a chequing account for that amount of time. You are effectively gifting it to the bank on condition you can get it back in a crunch.
Additionally, psychologically, some people might be tempted to spend the money if it's too accessible. In the time it takes you to redeem a money market fund, you might change your mind about the necessity of the new engine for your boat. The money should be accessible, but segregated enough that it's not used for day to day expenses or too much as an internal loan to yourself on a regular basis.

Which is why I like ING, I get around 5%, but the only way I can get the money is by going online and sending the money to my checking account. It takes around 2 days for that to complete.

ING sucks for that reason (and their rates are lagging)

True.


I just cant imagine having my money in so many diffent places to get maximum benefit like you said. I have a linked savings and chequing account though only the savings gets interest (about .0028%) but it is always available to me. I want to transfer to ING or something similar to get more interest, as you can see, this interest rate is just to show they give interest though you dont see anything, but right now I cant have any money in my name. And my mom cant afford to have it in hers, so we're stuck having it split.

It's an ACH, I don't think most banks can do any better. Although the money will be available in my bank but the balance won't be reflective of that until the next day.