"I see the SP500 take off like crazy...am I running too lean or is there something that I'm missing?" How can I optimize my emergency fund strategy for job loss?

Hey Money Minder,

So, I’m 25 years old and making around 105k in North Texas. I’ve been thinking about how much I should keep in my emergency fund. Right now, I’ve got it set up in my Fidelity money market account, but I can’t help but wonder if I should be investing that money instead.

Originally, I was thinking of keeping a year’s worth of expenses in there, which would be about 32k. But with the stock market going crazy, I’m second-guessing myself. Now, I’m thinking of just leaving 6 months’ worth of rent in the emergency fund and getting a couple of 0% APR credit cards as backup – like the Citi Double Cash (6k) and Wells Fargo Reflect (6k) for 21 months in case I lose my job. I figure it’ll take me 6-9 months to find a new job since I work in software development and need some time to prep for interviews. I also plan to use unemployment money (around 570 a week) to make minimum payments until I’m back on my feet.

Here’s the breakdown: Emergency fund = 6 months’ rent = 1500*6 = 9k, 0% APR cards available capital = 12k, unemployment = around 15k, total = 36k available capital. I think this should cover me for a year while still keeping my brokerage account as a backup. If I can’t find a job by the time the 0% APR cards start charging interest (18-21 months), then maybe it’s time to switch career paths. Am I being too risky or is there something I’m overlooking? I don’t have any dependents and I’m in good health.

Farewell, Concerned Saver

Response from THE MONEY MINDER:

Hello There,

It’s clear that you’ve put a lot of thought into your emergency fund strategy, and it’s great that you’re thinking ahead and trying to make the most out of your financial situation. Considering your income level and expenses, leaving 6 months’ worth of rent in your emergency fund along with utilizing 0% APR credit cards and unemployment benefits seems like a practical approach. This setup should provide you with a safety net for up to a year if you were to lose your job.

However, it’s important to remember that relying on credit cards as a backup plan should be a short-term solution. While the strategy you’ve outlined can help cover your expenses while you transition to a new job, ideally, you’d want to pay off those balances as quickly as possible to avoid high-interest charges once the promotional period ends. Additionally, switching career fields is a major decision that might not be necessary if you give yourself ample time to find a suitable job in your current line of work.

As you navigate this financial planning, it might be helpful to also look into ways to increase your emergency fund over time and consider creating a more structured budget that accounts for unexpected expenses. Maintaining a balance between saving, investing, and spending is key to long-term financial stability. Remember, the goal is to be prepared for unforeseen circumstances without compromising your long-term financial goals.

While your approach to financial planning is commendable, it’s always a good idea to reassess your strategy periodically and make adjustments based on your current circumstances. It’s evident that you are proactive and thoughtful about your finances, so keep up the good work and stay focused on your financial well-being.

Farewell from THE MONEY MINDER.