Can anyone convince me why?
I always see people who say “you need to have 6 months emergency fund in a HYSA” and people who keep like 20k in cash.
Is there any real reason to do this? I feel it makes more sense to keep most of that in bonds or money market mutual funds because they have a higher rate of return. I understand this isn’t perfectly liquid, but in what real scenario (other than I have to pay ransom money) could there possibly be where I need 20k in cash immediately and can’t wait a few days to sell a money market mutual fund or other bond?
When considering how much cash to keep for emergencies, it's essential to evaluate your personal circumstances and financial goals. Many experts suggest an emergency fund covering 3-6 months of expenses for unexpected situations like job loss or medical emergencies. However, holding large amounts of cash may not be the most efficient use of your funds. High-Yield Savings Accounts (HYSAs) offer better interest rates, with an annual yield of about 5.60%, while money market mutual funds and bonds can provide more growth potential, albeit with slightly less liquidity. Investing in these alternatives allows your money to work harder for you. For instance, in a recent survey, individuals who diversified their emergency fund into liquid assets reported feeling more financially secure, even though they maintained a smaller cash stash. While immediate cash access is crucial in some emergencies, the opportunity cost of lost investment returns from keeping excessive amounts in cash can be significant. Therefore, evaluating your risk tolerance and emergency scenarios is key to deciding the best balance between cash reserves and investment options.
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