Hey guys!
I’m kinda stuck! I really need advice on what to do with my Emergency Fund. Do I put it into a HYSA and let it be? Who should I use for a HYSA?
Or
Do I invest my Emergency Fund into let’s say a 3 month or less CD or even a Money Market Account?
Just kinda stuck on where to put my Emergency Fund to optimize my income long term.
For reference, I have about $8k allocated to an Emergency Fund and I am 18 and in the Army, so I don’t need a crazy big fund. I recently opened a Roth IRA with Vanguard and have $2k in that.
Dunno if I could put my emergency fund into Vanguards Money Market Fund or how to even go about that. Just looking for advice and guidance since I’m so new to this.
Thank you so much!
Need advice on what to do with my Emergency Fund
byu/Asylum36 inMilitaryFinance
Posted by Asylum36
3 Comments
HYSA. You need it liquid should you need access to it, hence the “emergency” name.
I personally use Amex, but there are a dozen good ones out there.
Vanguard’s money market fund is virtually the same as a HYSA, but it’s not FDIC insured. You’d have to open a taxable brokerage with them to do this (it’s a few clicks if you already have a Roth IRA account with them). Money transfers just as quickly as a HYSA -> checking account after a few transactions (the bank / Vanguard ‘loans’ you the transaction while the ACH takes 2-3 business days to process once you’ve established that you’re ‘good for it’).
If you do open a taxable, I’d recommend putting $3,000 into VTSAX and the other $5k keep in the MMF if you don’t want to put that $3k additional into your Roth IRA.
Biggest thing as you move forward is make sure $600 of your basic pay is going into Roth TSP to ensure you’re contributing 15% of your gross civilian equivalent income to retirement.
HYSA.
If you want to get a bit more complicated and really want to optimize, you could hold a smaller immediate emergency fund of $1-2k put some more into your Roth IRA in a money market. Only do this if you otherwise cant fully fund Roth IRA. You can tap into Roth IRA contributions with no tax or penalty as a true emergency fund. Problem is you can’t put them back so you lose future growth but if you otherwise wouldnt put more in it’s better to use Roth IRA. Once tou get regular emergency fund fully funded you have that extra in Roth and can move it from money market to a better long term investment (like index funds).
Also, note you may be able to get by w a bit smaller emergency fund starting off in military. There are relief agencies in case of a big emergency that offer grants and interest free loans. You also dont have same risk of job loss as a typical civilian reducing uncertainty. Enough to cover insurance deductibles/copay, a big vehicle repair or two, and airfare home might be plenty as opposed to fully funded 3-6 months of living expenses typically recommended for the masses.
Later when life gets more complex and/or you approach transition from military you’ll need a larger emergency fund.