Posted by Dave on July 29, 2014
In order to pay off our mortgage at the end of May, my wife and I had to almost zero out our entire cash savings we had. I will be the first to admit that the amount we had sitting in a 1.3% ING (or Tangerine account now) was probably too much. There were relatively safe alternatives to the interest rate we were getting that were just as liquid to access, for example iShares XBB is yielding almost 3x my Tangerine account right now, at 3.2% (previous year trailing yield).
I have what could possibly be described as an irrational angst towards running out of money. As of this April, I’ve worked for the same employer for over 10 years and have no real concerns for my prospects in long-term employment – whether I continue working where I’m at or with a different firm in the city I live in. With no mortgage payments, our monthly bills have been reduced by around 50%, leaving less of a reason to have a significant amount of money set aside.
My largest concern is a significant expense that I can’t pay – something like a furnace breaking, a major car repair or a pipe bursting somewhere in my house. Going forward I think we will still keep some cash on hand in a savings account, but we will lose a majority of the previous “buffer” we had prior to the mortgage being paid off in exchange for hopefully higher returns on our savings account.
The question comes down to how much money is a reasonable amount to keep in cash savings. Is $1,000 enough? Should we even bother keeping any savings in cash, or just invest 100%? I currently have an unsecured line of credit along with a pretty good limit on my credit card. Between the two options, I should be able to manage any significant expenses. I could turn the unsecured line of credit into a secured, reducing the interest rate and monthly insurance requirements prescribed in the agreement.
A couple of years ago, I was very comfortable having a bunch of money sitting around. With no debt, I think I am willing to be a little more risky with my finances. This type of change will initially take me out of my comfort zone, but I have to remember that I’ve kept a bunch of cash sitting around and it’s essentially been losing me money over the past decade or so.
Is there a particular expense that you keep money around for “just in case?” Are you comfortable borrowing to cover emergencies?