Where Should I Keep My Emergency Fund?

Summary

Podcast Summary: The Ramsey Show Highlights - "Where Should I Keep My Emergency Fund?"

Release Date: December 28, 2024
Host/Author: Ramsey Network
Duration: Approximately 9 minutes

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Introduction

In the episode titled "Where Should I Keep My Emergency Fund?" from The Ramsey Show Highlights, listeners dive into an essential aspect of personal finance: the optimal placement of an emergency fund. Hosted by the Ramsey Network, the episode features insights from financial experts including Dave Ramsey and George Kamel, alongside a listener's personal journey toward financial stability.

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Listener’s Journey: Embracing the Ramsey Baby Steps

The episode opens with a listener named Eric sharing his personal experience with the Ramsey Baby Steps framework. Eric recounts his initial exposure to the Baby Steps during his senior year in 2012 but admits to struggling with commitment over the years.

• Eric (00:08): “I’ve been on and off, on and off. And I hate to say it, I haven't been really committed to the whole thing. It wasn't until this year when I almost got evicted…”

Facing an eviction served as a critical turning point for Eric, prompting him to embrace the Baby Steps wholeheartedly. By the time of the episode, Eric has successfully completed Baby Step One by saving $1,000 and has paid off his only debt—a medical bill—positioning him to embark on Baby Step Three.

• Eric (00:43): “Yeah, so I've been completed Baby Step one. I have $1,000 currently saved up as of last week. I've paid off the only debt ever had, which was my medical bill.”

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Determining the Best Place for an Emergency Fund

Eric seeks advice on where to place his emergency fund, specifically debating between a money market account and a high-yield savings account. He notes that his current bank, USAA, offers a meager 0.01% interest rate, yielding only a penny a month, which is insufficient.

• Eric (02:33): “The one I currently use is USAA, and they give this thing like 0.01%. So if I leave it there, I'm only getting a penny a month.”

Dave Ramsey's Insights:

Dave Ramsey emphasizes the importance of choosing a savings vehicle that is both safe and provides reasonable interest to keep pace with inflation. He advocates for high-yield savings accounts over money market accounts due to their simplicity and higher interest rates.

• Dave Ramsey (01:29): "The money market may have an extra benefit... but I have a high yield savings account. You're going to get some still really decent interest rates. Talking over 4% with some of the good ones out there."

Dave recommends ensuring that the chosen account is FDIC insured, has minimal to no fees, and offers easy accessibility.

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Expert Opinions and Recommendations

George Kamel’s Perspective:

George Kamel concurs with Dave Ramsey’s preference for high-yield savings accounts, highlighting the benefits of simplicity and higher returns. He suggests leveraging local credit unions as viable options for storing emergency funds.

• George Kamel (02:12): “But also it's a thousand bucks, man. So you can drop it in a local credit union. Like, I don't step over dollars to pick up nickels.”

Dave Ramsey on Overcomplicating Finances:

Dave Ramsey warns against overcomplicating financial strategies in pursuit of marginal gains. He advises sticking to one reliable savings method to maintain simplicity and effectiveness.

• Dave Ramsey (02:29): “Don’t go chasing the nickel. It's 0.1% more if I move it here. So I would just choose one and stick with it.”

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Selecting the Right Institution for Your Emergency Fund

Eric inquires about resources to evaluate the best places to park his emergency fund. Dave Ramsey points listeners to trusted partners like Fairwinds and Laurel Road, which offer tailored solutions for Ramsey listeners.

• Dave Ramsey (02:55): “You can do better. So there's a balance here... sign [e-mail] George. That's the one that I'm using.”

George reiterates the preference for online high-yield savings accounts while maintaining traditional brick-and-mortar banks for other financial needs.

• George Kamel (03:22): “And probably a good answer... online high yield savings accounts.”

Dave emphasizes the advantage of online institutions having lower overhead costs, enabling them to offer higher interest rates.

• Dave Ramsey (03:47): “They have less overhead because they're online. They don't have all the brick and mortar... higher interest rate.”

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Simplifying Financial Management

The conversation shifts to managing multiple bank accounts. Eric contemplates adding a third bank solely for his emergency fund but is advised against complicating his financial setup.

• Dave Ramsey (04:32): “You don't need to overcomplicate... keep things simple.”

George echoes this sentiment, advocating for minimalism in financial management to avoid confusion and inefficiency.

• George Kamel (04:38): “Too many... minimalist. Yes.”

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Celebrating Financial Milestones: The Debt-Free Scream

In a spirited segment, George Kamel encourages Eric to celebrate his achievement of paying off a $500 medical bill, albeit humorously noting it as a "world record" for the smallest debt paid off.

• George Kamel (05:02): “Will you do like an impromptu debt free scream for...”

Eric enthusiastically participates, reinforcing the importance of celebrating all debts, regardless of size, to foster financial freedom.

• Eric (06:05): “I'm debt free.”

Dave Ramsey highlights the significance of this milestone, emphasizing the promise to avoid future consumer debt and maintain financial discipline.

• Dave Ramsey (06:26): “You got a promise not to go into consumer debt ever again.”

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Avoiding Financial Overcomplication

The discussion broadens to address the pitfalls of overcomplicating personal finances. Dave Ramsey points out that those striving for excessive complexity often do so out of insecurity regarding their financial status.

• Dave Ramsey (07:09): “He doesn't have a crypto wallet. He doesn't have 17 offshore accounts. He doesn't make it over complicated.”

George Kamel and Dave share their disdain for unnecessary financial tactics promoted by social media finance influencers, advocating instead for straightforward and sustainable financial practices.

• Dave Ramsey (08:07): “And they use the word arbitrage... exhausting.”

George complements this by illustrating personal choices that prioritize meaningful engagements over financial flexing.

• George Kamel (08:22): “I have a wrestling mat in my living room that I just wrestle with my daughter.”

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Conclusion: Embracing Simplicity and Financial Freedom

The episode concludes with both Dave Ramsey and George Kamel reiterating the value of simplicity in financial planning. They encourage listeners to focus on straightforward, effective strategies that promote peace and financial security without unnecessary complications.

• George Kamel (08:56): “Solve for peace, people.”

• Dave Ramsey (08:57): “Keep it simple.”

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Key Takeaways

1. Choose High-Yield Savings Accounts: For emergency funds, high-yield savings accounts are recommended over money market accounts due to higher interest rates and simplicity.

2. Simplicity is Crucial: Avoid overcomplicating financial management by limiting the number of bank accounts and sticking to proven strategies.

3. Celebrate Every Debt-Free Milestone: Recognizing and celebrating all debt reductions fosters a positive financial mindset and commitment to ongoing financial health.

4. Beware of Financial Overcomplication: Steer clear of unnecessary financial complexities promoted by social media influencers to maintain financial peace and stability.

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Notable Quotes

• Eric (00:08): “It wasn't until this year when I almost got evicted that I decided, yeah, I need to change.”

• Dave Ramsey (01:29): “High yield savings... you're going to get some still really decent interest rates. Talking over 4% with some of the good ones out there.”

• George Kamel (02:12): “Don’t step over dollars to pick up nickels.”

• Dave Ramsey (07:09): “He doesn't have a crypto wallet. He doesn't have 17 offshore accounts. He doesn't make it over complicated.”

• George Kamel (08:42): “I'd rather spend my energy doing that.”

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This episode of The Ramsey Show Highlights serves as a practical guide for individuals seeking to optimize their emergency funds. By emphasizing simplicity, celebrating financial milestones, and advocating for high-yield savings accounts, the episode reinforces the foundational principles of the Ramsey Baby Steps towards achieving financial freedom.

Transcript

[Dave Ramsey]

Brought to you by the Ramsey Network app. Download today to go further with Ramsey.

[Eric]

So fun fact, I've heard about you guys back in like senior year 2012. Heard all about the baby steps. And from years on I've been on and off, on and off. And I hate to say it, I haven't been really committed to the whole thing. It wasn't until this year when I almost got evicted that I, well, evicted from my apartment that I decided, yeah, I need to change. I need to be dedicated, I need to be devoted. So I am for real this time going through the seven baby steps as we speak.

[George Kamel]

Man. Drinking the Kool Aid, finally.

[Eric]

Yeah, so I've art. I've been completed. Baby step one. I have $1,000 currently saved up as of last week. I've paid off the only debt ever had, which was my medical bill. And I'm currently ready to start baby step three. And this is where my question comes into play. So I did my own little research about where to put that thousand dollars I have. And two things keeps popping up. One is a money market account and the other is a high yield savings account.

[Dave Ramsey]

Good research.

[Eric]

So my question is, which of the two overall would be the better choice for me as well as what situation would one be better than the other?

[Dave Ramsey]

I'll tell you what I do. And most folks out there following the Ramsey plan, they're remarkably similar. The money market versus the high yield savings. The money market may have an extra benefit. Like you can write checks out of it. It might come with a debit card, but outside of that, they're a savings account. And so I, I have a high yield savings account. And you know you're going to get some still really decent interest rates. Talking over 4% with some of the good ones out there. And that'll help your emergency fund stay liquid, grow at the pace of inflation. And it's there to protect you. It is insurance. It's not an investment. So we're not trying to make money off of this thing, but we also want to keep it somewhere safe that's FDIC insured, doesn't have any minimum balance and monthly fees and all of that. So those are the boxes you want to check when it comes to a good high yield savings.

[Eric]

Okay.

[George Kamel]

But also it's a thousand bucks, man. So you can drop it in a local credit union. Like, I don't, don't step over dollars to pick up nickels. As my friend Lane Norton says, like.

[Dave Ramsey]

Don'T go chasing the neck. Well, it's 0.1% more if I move it here. So I would just choose one and stick with it.

[George Kamel]

Yeah. Over complications gonna be your enemy at this point. Let's keep things simple, man.

[Eric]

Right. So. So which comes to another thing. Is there like any places I could look at to see like which would be the most beneficial place to put the thousand dollars? Because the one I currently the bank of Korea I work with usaa, been in there for like over years or since I joined the military. And they do this thing where it's like a.01%. So if I leave it there, I'm only getting a penny a month.

[Dave Ramsey]

No. Yeah, that's terrible. You can do better. So there's a balance here. And so we've got a great partner called Fairwinds. If you go to fairwinds.org Ramsey, they've got a bundle just for our Ramsey listeners. I've got a partner on my YouTube channel called Laurel Road. You can sign up@l Laurelroad.com George. That's the one that I'm using. John and Jade and Rachel, they're probably all using different ones. But the key here is you want it to be FDIC insured with minimum to no fees and you can get that money easily.

[George Kamel]

And probably a good answer. A good question you might ask is yes. George and I both put our emergency funds into online high yield savings accounts. I'm pretty old school. I like to go to my local bank. I still like a brick and mortar bank for my house stuff, but I do have my emergency fund in a high yield savings account.

[Eric]

Okay.

[Dave Ramsey]

And the reason there is simple. They have less overhead because they're online. They don't have all the brick and mortar. They don't have to cover as many bills and hire as many people so they can pass on their savings to you in the form of a higher interest rate.

[George Kamel]

But me, as my wife says, being born in the wrong century, I still like to shake the hands of my banker. I want to see their face. So I have both.

[Dave Ramsey]

I want to bank with a local bank for my checking account and for my high yield savings. I'm fine putting that online knowing that I'll touch it, you know, once or twice a year.

[Eric]

Okay. It's interesting that you say that because I do have two banks. I have one bank for like general purpose, my second bank, where again, that's where my thousand dollars is at. And I was always been thinking of looking for a third one to take my thousand dollars and let that know.

[Dave Ramsey]

You don't need to overcomplicate you're going.

[George Kamel]

To get too complicated. Too many. Yeah, you're going to be like triple stamp and a double stamp. Minimalist. Yes.

[Dave Ramsey]

A checking account with a good credit union is a great option. And then for your emergency fund or, you know, short term savings, we'll call it one to three or four years. A high yield savings account with a great online institution is great. I mean, credit unions can sometimes have great rates.

[George Kamel]

Amazing. So, hey, can you do me a favor, Eric?

[Eric]

Yes, sir.

[George Kamel]

This is kind of impromptu in front of, I don't know, several million people. You cool?

[Eric]

Yeah, that's fine.

[George Kamel]

Will you do like an impromptu debt free scream for. We counted down.

[Eric]

Okay.

[George Kamel]

You just. You paid off all your debts, right?

[Eric]

That's correct.

[Dave Ramsey]

How much debt was it and how much was it?

[Eric]

It was around 500 bucks. It was a medical bill.

[George Kamel]

You. You owed 500 bucks.

[Eric]

It's a long. It's an emergency situation.

[George Kamel]

No, that. That's the. That's the smallest debt I've ever heard paid off. That's amazing.

[Dave Ramsey]

This could be a world record smallest debt free scream ever. How long did you have the debt for?

[Eric]

Oh, my goodness. I've had this since, I want to say December, if not January.

[George Kamel]

Wow, Dunsky. All right, so Eric making $100 million paid off his debt of 500 bucks in would take you one month.

[Eric]

It did.

[George Kamel]

Excellent. Count it down, dude. Let's hear your debt free scream, Eric.

[Eric]

All right.

[George Kamel]

I'm debt free. That's right. Way to go. Even. God.

[Dave Ramsey]

There we go.

[George Kamel]

Hey, man, we celebrate that. We celebrate the big ones. And we will celebrate the 500 debt free screen. Because here's the deal. Freedom is freedom is freedom, right?

[Dave Ramsey]

And it comes with a promise. You got a promise not to go into consumer debt ever again.

[Eric]

I promise. Promise, promise, promise.

[Dave Ramsey]

You're following this Ramsey plan now after ignoring it for 12 years, and it's about to change your life, man. I want to set you up for freedom. We're going to hook you up with my book, Breaking Free from Broke, as well as a year of every dollar premium so you can budget your way to that emergency fund and investing and everything beyond.

[George Kamel]

George, how many people do you see get to this stage and begin to try to over sophisticate things?

[Dave Ramsey]

The amount of complication we try to do because it seems too simple. We're like, no, it's got to be more complicated to be smart and efficient and great. And I'm going, no. If you look at Dave Ramsey, who has more, he has enough wealth to, you know, feed my family for 17,000 generations. He owns mutual funds in real estate.

[George Kamel]

Yeah.

[Dave Ramsey]

He doesn't have a crypto wallet. He doesn't have 17 offshore accounts. He doesn't make it over complicated. And that's what I found. It's the people that don't have wealth that want to over complicate it. The ones that do have this dirty little secret where they go, yeah, I just, I have a savings account, I have money in the bank, I invest in the stock market, I own paid for real estate.

[George Kamel]

And it's always amazing to me that when you get around those people, they have a different energy about them.

[Dave Ramsey]

You're expecting more. You're like, no, but wait, there's a secret.

[George Kamel]

No, but it's this. It's just like my give a crap. I took it apart and I ebayed all the parts. Like I like if you're around Dave, just like when we go hang out, right. When we go to his barn or we are out traveling, there's just an air of like, yeah, I don't care. And it's because I, I've just in a complicated life, right. I'm gonna, I'm gonna do the things I gotta do to make things as simple as possible. And you and I both have been hit up by the, by the Instagram finance bros that are like, you pay off your 3.2% mortgage and you could get 4.8%. It's like, bro.

[Dave Ramsey]

And they use the word arbitrage and then a puppy stops wagging its tail.

[George Kamel]

Exactly.

[Dave Ramsey]

Oh, it's exhausting.

[George Kamel]

It's like, yeah, get the whole life.

[Dave Ramsey]

Policy and then you can borrow against it and then you need 16 credit cards to maximize. And I'm going, dude, listen to yourself talk.

[George Kamel]

Exactly.

[Dave Ramsey]

Sound like a crazy person trying to maximize your freaking rewards. To get an extra 1% arbitrage to pay for that first class flight so you can take a picture of it and post it to your Instagram. It's exhausting.

[George Kamel]

Yeah. You know what I have? I have a, an Olympic wrestling mat in my living room that I just wrestle with my daughter. I'd rather spend my energy doing that.

[Dave Ramsey]

That's, that's a flex right there.

[George Kamel]

Or like, hey wife, let's go for like a two hour walk tonight. Leave the kids rather feral. Let's just go spend time.

[Dave Ramsey]

What a thought. What if you could build a life that didn't exist? Exhaust you.

[George Kamel]

Yeah. That you exhaust everyone around you excited to, to wake up and be a part of.

[Dave Ramsey]

Keep it simple. Yeah.

[George Kamel]

Solve for peace, people. We'll be right back.

[Dave Ramsey]

Brought to you by the Ramsey Network app Download today to go further with Ramsey.