As this website has already discussed in several prior articles, all student debt borrowers should have an emergency fund if they have the resources to build up savings. Emergency funds are important if people lose their jobs, face medical problems, or encounter other life issues. Although it might be safest to keep emergency funds in cash, investing emergency fund money is advisable in a number of circumstances.
As mentioned in prior articles, I had an emergency fund for nearly my entire student debt saga. I saved all of the money I made as a summer associate after my second year of law school, and kept this money aside in case I faced a life emergency. I initially kept this money in cash, since I did not have parents upon which I could rely, and I did not want to risk my emergency fund depreciating in value in case my investment decisions were poor. However, my more recent experiences with investing have shown me that investing emergency fund money is advisable in a number of situations.
I started my own law firm over a year ago, and before I felt comfortable starting a firm, I placed a sizable amount of cash aside in an emergency fund. I knew that it would be months before I earned a stable income from the firm, and I wanted to ensure that I could pay my bills with savings for a time. I initially kept all of this money in cash, since I wanted to be able to tap into this cash on a monthly basis and I was scared that investing the money could risk my nest egg.
However, once my firm became more stable, I started to research investment options for my emergency fund. It seemed foolish to just allow this money to sit in a savings account where it was earning almost negligible interest. In addition, because of inflation, I was effectively loosing money by not investing this cash.
A while ago, my brother told me about the investing platform Acorns, and this became the first way I took a shot at investing emergency fund money. Acorns allows individuals to set their risk preferences and the platform automatically invests available funds in a portfolio of stocks and bonds depending on a person’s level of risk. As a result, Acorns takes a lot of the thinking out of investing, since there are only five options for investing on the website.
Acorns also makes it easy to invest, since the platform will automatically deduct funds from your account depending on your spending habits or on a regular basis of your choosing. In addition, you can always make one-time investments into your Acorns account to build your emergency fund. The platform is fully accessible by phone through their app, and withdrawing funds from the platform is easy.
I definitely suggest you check out Acorns through any of the links in this article, and if you do, I’ll receive a referral incentive I can use to keep the lights on at Student Debt Diaries! When used right, Acorns can be an effective and easy way of investing emergency fund money.
I am a big proponent of placing money in several different bank accounts, so that you never really know how much cash you have, which will hopefully cut down on the urge to spend money. In addition, in the unlikely event that one account gets hacked, less of your money is exposed if you place money in multiple accounts. As a result, in addition to investing emergency fund money in an Acorns account, I also have some of this cash in a brokerage account.
I used to toy around with investing in stocks, and I have definitely had some wins and losses with this strategy. However, more recently, I have been making safer bets when investing emergency fund money. I am a big fan of ETFs, which is a fund that can be traded like a stock, but includes various stocks, bonds, and other types of assets.
I am pretty “Plain Jane” when it comes to which ETFs I use when investing emergency fund money. I have a sizable amount of my emergency fund cash in an ETF that merely tracks the market. Although there may be short-term losses with this kind of asset, the stock market is almost guaranteed to track upwards in the long-term, and so long as you don’t invest all of your emergency fund in this type of asset, this can be a solid way to make your money work for you.
More recently, I have been dabbling with ETFs that track sectors of the economy that I feel will be expanding in the future. For instance, my brother recently discussed an ETF that tracks cybersecurity companies, which may be a solid idea. Since I choose fairly conservative preferences with my Acorns account, I feel more empowered to take risks with my choice of ETFs in my brokerage account, and this is a way you can strike a balance while investing emergency fund money.
All told, it might be advisable to keep a large portion of your emergency fund in cash so that you have easy access to money when you need it. Nevertheless, if you keep some considerations in mind, investing emergency fund money can allow you to earn cash by making wise choices with your spare money.