Diversification is the bedrock of good financial principles. As the saying goes, you never want to keep all of your eggs in one basket.
This all makes logical sense. The world is a complicated place full of unknowns. And since none of us can see into the future the best we can do is go into the future as prepared as we can be. Diversification, when you think about it, is basically the art of creating backup plans. We don’t know what the world will throw at us on any given day, but if one thing doesn’t work out, we can at least have other options.
I like to have a lot of backup plans in place. When I quit my job a few years ago to work for myself, I gave myself a bunch of backup options in case things didn’t work out. And just as I have backup plans for my career, I also have backup plans when it comes to my money.
One area where I like to have a lot of different backup plans is with my emergency fund. Instead of one emergency fund, I have multiple layers of emergency funds, each working on top of the other. Here are the three types of emergency funds I have and how they all work together.
The Traditional Emergency FundÂ
The first layer of my emergency fund is what you’d call your traditional emergency fund. This is simply money I keep in the bank. If something goes wrong, I have money set aside that I can easily use.Â
The most straightforward place to keep your emergency fund is in a regular high-yield savings account. Ally, Discover, or Marcus by Goldman Sachs all have excellent high-yield savings accounts with no fees or minimum balance requirements. If you don’t want any hassle, you can put your emergency fund in any of these accounts and be perfectly fine.Â
Personally, I think the traditional emergency fund advice is a bit too boring for me. Plus, I don’t like keeping a huge amount of cash earning essentially no interest. Instead, I’ve opted to get the best of all worlds by utilizing a mega-high-yield savings account strategy. These are bank accounts that offer 3-5% interest, but come with some limitations and require some initial setup work that is a bit more involved compared to your traditional savings accounts.Â
Between me and my wife, we have 17 different bank accounts earning 3-5% interest. Importantly, these are all FDIC-insured accounts, so there’s no risk of loss. In a way, my emergency fund also doubles as a sort of bond allocation in my overall portfolio.
Here’s a list of all of my different emergency fund bank accounts:Â
The things to note here:
- Netspend, Ace Elite, Western Union, H-E-B, and Brinks are all part of the Netspend family of savings accounts and are capped at $1,000 in each account earning 5% interest. I have 5 of these accounts and my wife has 5 of them.
- DCU earns 6.17% on up to $1,000. I have one for me and one for my wife.
- Service Credit Union has two good savings accounts – one that offers 5% interest on up to $500 and another that earns 3% interest on up to $3,000.Â
- HMBradley has a 3% interest savings account, but it does require a monthly direct deposit to activate the 3% interest. The key thing about HMBradley is that they give you 3% interest on up to $100,000.Â
- Porte is another potential option for 3% interest on up to $15,000, although I don’t personally use them at the moment.Â
There’s a lot that goes into these mega-high-yield savings accounts, and I’ve written a couple of long posts that detail how these accounts work. Definitely give them a read if you’re looking for a good emergency fund hack that most people don’t know about.Â
- Where To Get 5% Interest Savings Accounts Now That Insight Is Gone
- Netspend Account: The Ultimate Guide to a 5% Interest Savings Account
- DCU $20 Referral Bonus – Step By Step Guide (Plus A 6% Interest Savings Account)
- Getting More From My Emergency Fund With 3% and 5% Interest Savings Accounts
So, that’s the first layer of my emergency fund – the basic emergency fund. If you want to keep it simple, you can put your emergency fund into a traditional high-yield savings account. But if you want to supercharge it, then follow my emergency fund strategy.
The Side Hustle Emergency FundÂ
The second layer of my emergency fund is what I like to call my Side Hustle Emergency Fund. For most of us, the main purpose of our emergency fund is to serve as a buffer in the event of a job loss. A lot of other things that we think of as emergencies – cars breaking down, home repairs, etc – are really expected expenses that you probably should budget for. The time you really need an emergency fund is when you’ve lost your income and need money to hold you over until your income returns.
A side hustle emergency fund does exactly that, providing a way for you to earn income and buffer yourself against income loss. So what exactly is a side hustle emergency fund? I basically think of it as all of the income-generating activities you have outside of your day job. The key is to set up these side hustles before you need them because when things get tough, you don’t want to find yourself scrambling to find a side hustle or spend time ramping up.
What makes the side hustle emergency fund interesting is that it basically gives you a sort of income floor that you can use to stretch your traditional emergency fund a bit further. If you have a six-month emergency fund, for example, being able to bring in $1,000 or $2,000 per month could allow your traditional emergency fund to last a few extra months or even longer, depending on how much you need to spend each month.
Making an extra $1,000 in a month isn’t difficult to do either. That’s about $33 per day. In today’s world, anyone can make an extra $33 per day, especially if you’ve prepared in advance. Â
The Credit Card Emergency FundÂ
The final layer of my emergency fund includes points and miles I’ve earned from credit cards. Most people don’t think of points and miles as money, but that’s really what they are. These are currencies that have an actual cash value. Indeed, the points and miles I currently have are easily worth between $10,000 and $20,000. That’s a lot of value I have sitting in my rewards balances. Â
Not all points and miles are created equally, however. Some are easier to turn into cash or cash equivalents compared to others. Still, at worst, you can use them for flights and hotels, which are things you might need if you’re in a pinch. And in many cases, if you absolutely need to, you can turn them into cash.
Take my own example of how I’ve been converting my points to cash. My Chase Sapphire Reserve currently allows me to cash out my Chase Ultimate Rewards points at 1.5 cents per point for groceries, restaurants, and home improvement stores. This isn’t a normal benefit, but they’ve had this feature since last year. So, for nearly a year now, I haven’t had to pay for groceries or restaurants.
If you found yourself in a tight spot, having a stash of credit card points can make a big difference and allow you to stretch your traditional emergency fund longer if needed.
Final ThoughtsÂ
I like having different layers of my emergency fund. It gives me comfort to know that I have money in the bank, money coming in if I need it, and points and miles that I can turn into money as needed.
Is it necessary to “diversify” your emergency fund like this? I’d say no – it’s not necessary. If you want to keep things simple, that’s totally fine My own system sort of happened by accident. But it’s one that works out well for me.
More Recommended Ebike/Scooters
Check out these other ebikes and scooters I've reviewed:
- Urban Arrow Ebike – Last year, I made one of the largest purchases I’ve ever made – I bought a $9,000 electric cargo bike from Urban Arrow. In my Urban Arrow review, I will discuss what it is and why I decided to buy this bike, as well as discuss how impactful a bike like this can be on your journey to financial independence.
- Troxus Explorer Step-Thru Ebike – The Troxus Explorer Step-Thru is a fat-tire ebike that I’ve had the pleasure of riding for a while now. It has amazing power, great looks, and awesome range. If you’re looking for a great fat-tire ebike that offers a lot for the price, the Troxus Explorer Step-Thru is definitely one for you to consider. Check out my Troxus Explorer Step-Thru Review.
- Hovsco HovBeta Ebike – The HovBeta is a folding ebike with great specs and a lot of interesting features, and importantly, it’s sold at a good price point. I’ve had a blast commuting with it and using it to do deliveries with DoorDash, Uber Eats, and Grubhub. Check out my Hovsco HovBeta Ebike Review.
- Vanpowers Manidae Ebike – The Vanpowers Manidae is a fat tire ebike that I’ve been riding as my primary winter commuting bike and have also been using it to do food delivery with apps like DoorDash, Uber Eats, and Grubhub. After clocking in a decent number of miles with this ebike, I wanted to write a post sharing what my experience with the Vanpowers Manidae ebike has been like. Check out my Vanpowers Manidae Review.
- KBO Flip Ebike – The KBO Flip is an excellent bike. I’ve had a great time riding it and think it’s a versatile bike that can be used for a lot of purposes and can fit a variety of lifestyles. It’s worked out great for me as a general commuter bike and as a food delivery bike. Check out my KBO Flip Review.
- Hiboy P7 Commuter Ebike – The Hiboy P7 is an excellent electric commuter bike that’s offered at an affordable price point. The range and speed of this bike are both very good, so you won’t have any trouble getting anywhere you need to go with it. As a food delivery vehicle, this is also good – with how much range it offers, you’ll be able to work all day on a single charge. Check out my Hiboy P7 Commuter Electric Bike Review.
- Himiway Escape Ebike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Ebike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Varla Falcon Scooter – The Varla Falcon is an excellent scooter that offers a good amount of power at a lower price point compared to more powerful scooters. It’s not exactly an entry-level scooter, nor is it a high-powered scooter. I think it fits somewhere in-between those two categories – an intermediate scooter if I had to give it a category. Check out my Varla Falcon Review.
- Hiboy S2 Scooter – The Hiboy S2 is an excellent entry-level commuter scooter that's perfect for someone looking to save some money in transportation costs and improve their commute. Check out my Hiboy S2 Review.
- Hiboy S2R Scooter – The Hiboy S2R is one of the more interesting electric scooters I’ve been able to test out. It’s not a high-powered scooter, but for an everyday transport option, it’s very useful, especially given some of the unique features that it has. Indeed, for the price, the Hiboy S2R might be the best value scooter I’ve used. Check out my Hiboy S2R Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($100) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- Moomoo (15 free stocks and 1 stock of Tesla or Google) – Moomoo is a free investing app currently offering 3 different referral bonuses if you open an account using a referral link. Read my Moomoo referral bonus guide for more information.
- Webull (12 free stock shares) – Webull's current promotion gives you 12 free shares valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free shares using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($150) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- SoFi Money ($275) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $250 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Upgrade ($150) – Upgrade is a free checking account that’s currently offering a $150 referral bonus if you open an account and complete a direct deposit. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Here’s a post I wrote with more details: Upgrade $150 Referral Bonus – Step By Step Directions.
- US Bank Business ($800) – This is a fairly easy bank bonus to earn, since there are no direct deposit requirements. In addition, you can open the Silver Business Checking account, which comes with no monthly fees. Check out how to earn this big bonus here.
- GO2Bank ($100) - GO2Bank is an easy bank bonus that I recommend people take advantage of if they have an easy way of meeting the direct deposit requirement. I like that it’s easy to open the account and that the bonus pays out quickly. Check out my step-by-step guide on how to earn your GO2Bank $100 referral bonus.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link. Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- Netspend ($40 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $40 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $40 to start! Make sure to check out my in-depth guide on how to set up these accounts.
- Digital Federal Credit Union ($20) – Digital Federal Credit Union (DCU) is a free, nationwide credit union that I recommend to readers for two reasons. First, DCU has a $20 referral bonus if you open a free DCU checking account with a referral link. Second, DCU has a saving account that gives you 6.17% interest on your first $1,000. Check out my in-depth post on how to set this account up.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Varo ($30) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $30 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $250 if you complete a direct deposit.
- 5% Savings Accounts. I'm currently getting 5.25% interest on my savings through a company called Raisin. Opening a Raisin account takes minutes to complete, it's free, and all of your funds are FDIC-insured. I explain how it works, why I'm now using it to store my emergency fund and any other cash savings I have, and why I recommend everyone check it out in this review.
- US Bank Business. US Bank is currently offering new business customers a $800 signup bonus after opening a new account and meeting certain requirements.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
Love the article! After reading, I’m trying to get a DCU account and don’t meet their eligibility criteria (despite living and working in MA/NH). Any advice?
You can qualify by making a $10 donation to Reach Out For Schools.
Great points there! In today’s world with so many amazing options out there, it’s best to diversify your funds. Also, like you mentioned, it brings down the risk by a big margin. Thanks for sharing.
If anyone can access Canvas Credit Union, they have a decent reverse tier account option too.
Totally agree. No matter how secure any job seems, it scares the crap out of me to have all my eggs in one basket. I hadn’t thought of credit card points as an emergency fund before, but it’s a good point. And there are other resources that can be tapped too in a pinch–like home equity and retirement accounts (although these are only available to people who have already built this kind of stuff up, not those just starting out, obviously). Options equal peace of mind.