Earlier this week, my wife got an email from the state dental association asking dental offices to shut down until the end of the month for non-emergency dental care. It’s technically not mandated, but like many of us going through the current Coronavirus pandemic, we’re doing our part to limit the spread of this virus via social distancing.
On a practical level, what this means is that my wife’s practice is closed for at least the next two weeks – and perhaps longer depending on how this pandemic plays out. That means she has no income coming in from her business, which means no income for her or for her employees.
It’s during times like these that you can see why a strong emergency fund has value. When things are going well, it can often feel like income and money are never-ending. You might even start to think that you don’t need any spare cash at all.
But when times are bad, you can see just how quickly income can disappear – and often in unexpected ways. With this pandemic shutting down businesses for an unknown length of time, having cash (or a way to get cash, at a minimum) is likely going to be more important than ever.
Your Emergency Fund Is Based On Your Risk Tolerance
Luckily for us, we’ve been planning for a moment like this for a long time. Over the past year or so, we’ve built our emergency fund to a point that it could likely last us a year or more. And due to some other strategies that we’ve been implementing, we have even more cash saved that could last us even longer.
To be sure, holding a significant amount in cash isn’t optimal from a pure numbers standpoint – there’s a real cost to holding cash. But it’s important to remember that money isn’t just about numbers. It’s about personal preferences and what makes you comfortable based on your own situation. A lot of people get so hung up on numbers, but the truth is, keeping money in an emergency fund is not going to be the reason you can’t reach financial independence. If you can’t reach financial independence, it’s going to be because you didn’t make enough or you didn’t save enough or because other unfortunate things held you back.
For myself, keeping all of this cash has to do with my own risk tolerance and the life circumstances my wife and I are in. We’re both business owners, which means that our income can fluctuate depending on how hard we work and how things are going in the economy.
My own experience has also taught me that income is never guaranteed and, importantly, it doesn’t always go up. If anything, your income can act a lot like how the market acts – it can go up and it can go down.
Take my own example to understand just how much income can change and why I view spare cash the way I do. When I made the switch from biglaw to state government, I ended up taking a $50,000 pay cut in order to make that move. And when I moved from my state government job to a non-profit job, I took another $20,000 pay cut. Because of how I view income – as something that doesn’t always go up – I’ve always felt more comfortable keeping a steady amount of cash on hand to ride the waves.
There’s sort of an interesting dichotomy here with my risk tolerance. On the one hand, it’s pretty low since I like keeping a lot of cash readily available. And yet, on the other hand, my risk tolerance is pretty high. All of my invested money is in 100% equities and I plan to keep it that way for a long time. And unlike most people, I took a risk and straight-up quit my job in order to try my hand at self-employment and side hustling.
With my high-risk tolerance when it comes to careers and investing, maybe it makes sense to have a lower risk tolerance when it comes to emergency fund money.
The Opportunity Cost Problem (And How I Address It)
Of course, the problem with holding too much cash is that it comes at a cost – that is, every dollar that you have saved in a bank account is a dollar that isn’t invested. Over the long run, that can cost you a lot in potential gains. To see how much it costs, simply take how much you have in your emergency fund and compare it to what it might be worth if invested in the market. The longer the time period, the higher the opportunity cost of keeping money in cash.
Cash sitting in a bank account also has the problem of losing money due to inflation. It’s one of the reasons why we have to invest our money. Because if we don’t, our money actually loses buying power. Like with any compound interest type problem, the longer the time period, the bigger the cost.
I definitely understand this opportunity cost problem, which is why I take so many steps to reduce the impact of opportunity cost, giving myself the highest rate of return I can on my cash with no risk of loss. I do this by maxing out all of the 5% interest savings accounts that I can, as well as taking advantage of bank account bonuses in order to get even higher rates of return. By doing this, my entire emergency fund is able to earn 5% or more interest per year. Most of my remaining idle cash is also able to earn effective annualized rates of return of 5% or more as well (by tying up money in bank account bonuses, for example).
It obviously takes work for me to do all of this stuff with my extra cash. The way I see it though, it basically allows me to turn my emergency fund into a sort of bond allocation to my portfolio. I get the best of all worlds, with cash on hand to match my risk tolerance and cover down periods, as well as minimizing the impact of opportunity cost from keeping so much cash on hand.
Keeping Different Levels Of Emergency Funds
A situation like we’re in now is exactly why a decent cash allocation makes sense to me. We have no idea how long this pandemic situation will last. I think many of us have this idea that it’ll probably only last a short while, but we really don’t know. It could last much longer than we think. And if you’re one of the people out there that are furloughed because of the type of job or business that you have, you’re going to need cash to hold you over – for potentially a long time.
That’s why it helps to have as many types of cash or cash equivalents to cover you in dramatic situations. Here are some of the many ways I have cash or access to cash with an emphasis on getting the most bang for my buck.
5% Interest Savings Accounts. I have a large sum of money sitting in FDIC insured bank accounts currently earning 5% or more interest per year. These are the accounts I have through Netspend, Insight, and DCU. These 5% interest accounts have been around for about a decade now, even when rates were very low, so I’m fairly confident they’ll continue to stick around, especially since not that many people take advantage of these accounts. You can read about how I set this system up in my Netspend post.
2.5% Interest Via Public. Public is a stock trading app that allows you to buy and sell stocks commission-free. More interesting to me is how Public offers 2.5% interest on any uninvested cash that you have sitting in your Public account. You’re limited to 2.5% interest on up to $10,000 per account, but that’s still an easy place to throw down $10,000 and forget about it. The cash in your Public account is SIPC insured, which means that if something happens to this company, your cash is still safe. Obviously, with fed rates dropping to 0%, there’s no guarantee that this interest rate will continue, but for now, I’m taking advantage of it while I can. (If you use my referral link for Public, you also get a free stock, so there’s another reason to open an account)
Side Hustle Emergency Fund. I’m not side hustling very much during this pandemic since I’m trying to exercise social distancing, but at the same time, it’s good to know that, if necessary, I have a lot of on-demand side hustles that I can turn to if I’m in a pinch. This is the concept of the side hustle emergency fund – a plethora of gig economy apps that I can use to generate some revenue.
Making Use Of The Assets Around My House. I recently reread The Life-Changing Magic of Tidying Up, which has put me in a bit of a cleaning frenzy. One thing it has gotten me to do is to clear out my closet of all of the clothes I don’t wear. I discovered I have hundreds of dollars worth of clothes that have just been sitting in closets and drawers (to get a sense of how little I wore some of these clothes, I found a note in one of my suit jacket pockets from four years ago, which means I haven’t worn that suit jacket in four years). I’ve listed up all of this stuff on eBay now. My guess is that if you look around your house, you might find hundreds or thousands of dollars worth of stuff that you literally do not use.
Credit Card Points. I currently have thousands of dollars worth of credit card points and miles. Some of these points and miles are limited to travel only. This still has value as part of my emergency fund, since it’s always possible that I need to travel somewhere on short notice. I also have a huge stockpile of Chase Ultimate Rewards Points that I could redeem as a statement credit. This makes these points a potential cash equivalent if I need to dip into them.
A Strategy If You’re Paying Off Debt. A final strategy I’ve implemented over the past year applies to those of you that are currently paying off student loans. My wife still has a decent chunk of dental school student loans. Because of current life circumstances, we’ve been paying minimums on her student loans and stockpiling all of the excess money that we would have paid towards her debt into a side fund. The idea is that at some point, the money we put to the side will be enough to fully pay off her student loans. We do lose a bit in terms of the interest we’re paying on her debt, but since our time period is short (only a year or two), the cost isn’t that significant. If we need to, we could dig into this cash and honestly live for years.
More Recommended Ebike/Scooters
Check out these other ebikes/scooters I've had the chance to do a review for:
- GEN3 Outcross Bike – The GEN3 Outcross is a solid, affordable fat tire ebike that does a good job of doing what I need it to do. It works great for city riding, giving me a smooth ride in all conditions. It’s works really well as a winter ebike since the fat tires give it good traction over snow and ice. Check out my GEN3 Outcross Review.
- Himiway Escape Bike – 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 Bike – 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.
- 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 ($10) – 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 $10 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- 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.
- Moomoo (5 free stocks) – Moomoo is a free investing app currently offering 5 free stocks (usually worth around $75-$100) if you open an account using a referral link and deposit $2,000. Read my Moomoo referral bonus guide for more information.
- Webull (5 free stocks) – Webull also gives you 5 free stock 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 stocks 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.
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 ($100) - 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.
- Upgrade ($100) – Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Importantly, this bonus says that it’s now scheduled to end on October 31, 2022. As long as you get your account opened before October 31st, you should be eligible. Here’s a post I wrote with more details: Upgrade $100 Referral Bonus – Step By Step Directions.
- SoFi Money ($350) – 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 $300 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.
- Fifth Third Bank ($250) – This offer is limited to customers in the following states: Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, West Virginia, and South Carolina. If you don’t live in one of those states, you won’t be able to open an account online but you can still open an account in-branch if you happen to be visiting a city that has a branch. This is a fairly easy bank bonus to earn, especially since there are plenty of data points showing what will trigger the direct deposit requirement. In addition, you can open the Fifth Third Momentum Checking bank account, which comes with no monthly fees or minimum balance requirements. Read my guide on this bonus here.
- 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.
- OnJuno ($100) – OnJuno is a fintech/neobank that is currently offering a $100 referral bonus if you open an account using a referral link and complete a direct deposit of $250 or more. The account has no fees or minimum balance requirements. Even better, the bonus posts immediately after you meet the requirements. If you can meet the direct deposit requirements, OnJuno is an easy bank bonus that’s worth snagging. Check out my OnJuno referral bonus guide here.
- Varo ($50) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $50 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.
- Fairwinds Credit Union ($100) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- 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.
- Spiral ($50) – Spiral is a fintech bank that's currently offering new customers a $50 signup bonus after opening a free checking account with them. The Spiral referral bonus is especially good because it's a free checking account and doesn't require a direct deposit to earn the bonus. Here is my step-by-step guide on how to earn your Spiral Bank bonus.
- One Finance ($50) – One Finance is a fintech bank that’s currently offering a $50 signup bonus if you open an account using a One Finance referral link and have a direct deposit of $250 or more. This is a completely free bank account with no minimum balance requirement, so if you can meet the requirements, it’s worth doing. Check out my One Finance referral bonus guide here.
- Albert ($150) – If you can manage to do a real direct deposit, Albert is an easy account you can use to earn a referral bonus. Here’s a review about Albert I wrote. And here’s a step-by-step guide on how to earn your Albert referral bonus.
- Netspend ($20 + 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 $20 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 $20 to start! Make sure to check out my in-depth guide on how to set up these accounts.
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 $300 if you complete a direct deposit.
- Upgrade Bank. Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Note that it’s now scheduled to end on October 31, 2022.
- Novo Bank. 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. It’s the business checking account I currently use for this blog.
- 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 $10 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.
Thanks FP, stay safe. Glad you are set with the emergency fund. I only have a few months worth, but have a stable income. Good luck!
Thanks Andy! One thing is I’m optimistic that things will be better in the future. There’s an interesting thing that I heard from someone – when you have big negative events like this, it tends to be followed by big things. You had non-stop warfare in the late 1700s and early 1800s, then the industrial revolution happened. The Great War and Spanish Flu was followed by the Roaring 20s. Great Depression and World War 2 was followed by the biggest boom in human history. People adapt and create after tragedy.
Hi FP! Do you have a referral link for Public for android/playstore? Your link automatically goes to the apple store. Thank you and stay safe!
That’s the only link I have.
When I click my referral, this is what it gives me:
Join me on Public and own the companies you believe in. Get started with free stock 👉 https://share.public.com/kevinjha
I thought Insight don’t give you 5% no more since 2018. How are you still getting not 1 but all 3 Insight accounts? Am I missing something this whole time?
If you had the Insight accounts before they got rid of the 5% interest rate, you got to keep it grandfathered in. I had 6 accounts opened back in the day (3 for me, 3 for my wife). I never closed them since everything was automated and I had no reason to. I told people they should do the same because we never know. About a year ago, they brought back the 5% interest for everyone who already had the account, so I’ve still been getting my 5%. Until it goes away, I’ll keep using it.
FP, your points about having a significant Emergency Fund are spot on. Most of the time, the emergency fund is to replace an appliance or the AC or a major car component or unexpected healthcare costs. However, this COVID-19 era really brings home the need for an emergency fund should also consider the occasional “black swan” event and how do you want to be positioned for that.
Separately, I’m glad you have resurfaced your earlier thoughts in regards to getting the best return out of the emergency fund asset while not taking on real risk for return of capital or liquidity issues. I’m going to be back over your thoughts on this point more carefully and take action. Thanks!
Right – when things are going well, there’s this idea that income is neverending. Even the most super efficient investor keeps bonds in their portfolio to smooth out the ride. My strategy for my emergency fund basically gives me better than bond level returns with no risk of loss on my emergency fund cash, which is why I like it so much.
For selling old clothes, I really like Poshmark. The app is easy to use (just snap a few pictures and type in a brief description), and the clothes are sold at higher prices on eBay. The social component of Poshmark can certainly help you make more sales, but I’ve been making all my sales without engaging in the social aspect at all.
Yeah I need to look at Poshmark. I never really understood how it worked and always felt like it skewed more female, so my clothes aren’t as good for it. But I really don’t know anything about how Poshmark works.
The difficult times have come … And of course it is very important to have an emergency fund. These are crazy, unprecedented times that we live in. Stay safe out there, and stay home if you can.