I wanted to get everyone's opinions on this topic. I am finally in a position where I can save about 40% of my income going forward. What are some thoughts on using the PP in lieu of a traditional savings account? This money is not earmarked for anything in particular. I would only need to tap into it for a large, unforeseen emergency, which could occur in 3 months, 6 months or 10 years. Any reasons why the PP would not work?
Thanks in advance!
Jeffrey
PP as savings account
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Re: PP as savings account
From my perspective, the PP is a great thing to use for this. Actual dips in the PP are rare; in general, it keeps on doing its thing very consistently. And, even if there is a dip, the PP has cash you can tap into rather than selling low.
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Re: PP as savings account
Xan wrote:From my perspective, the PP is a great thing to use for this. Actual dips in the PP are rare; in general, it keeps on doing its thing very consistently. And, even if there is a dip, the PP has cash you can tap into rather than selling low.
I think so too. I tested it out with a tiny bit of money for a few months and watched it closely every day. The volatility was minimal although I admit that the markets in general have not been too rough over the last 6 months. I think this is a better solution than parking the funds in short term treasuries for an unknown length of time.
Re: PP as savings account
It sounds like you're describing long-term savings. That's what the PP was designed for, built-in cash management and all. Go for it!
However, you should still have enough cash to act as an emergency fund - usually something like 6-12 months expenses. The cash allocation of the PP is perfect for this, but it only works if the PP is big enough. I'd hold off starting it until you've saved at least 4x your emergency fund needs. Which shouldn't take long, if you're saving 40% of your income. Kudos to you for that, by the way.
However, you should still have enough cash to act as an emergency fund - usually something like 6-12 months expenses. The cash allocation of the PP is perfect for this, but it only works if the PP is big enough. I'd hold off starting it until you've saved at least 4x your emergency fund needs. Which shouldn't take long, if you're saving 40% of your income. Kudos to you for that, by the way.
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Re: PP as savings account
That is sort of my question I guess. With the low volatility of the PP, do I really need to have a savings account with a year's worth of expenses? If I have a month's worth of expenses in my checking account at all times, won't the PP work as a savings account? I will buy ETFS for the 4 assets so they are easily saleable if an emergency does arise.sophie wrote:It sounds like you're describing long-term savings. That's what the PP was designed for, built-in cash management and all. Go for it!
However, you should still have enough cash to act as an emergency fund - usually something like 6-12 months expenses. The cash allocation of the PP is perfect for this, but it only works if the PP is big enough. I'd hold off starting it until you've saved at least 4x your emergency fund needs. Which shouldn't take long, if you're saving 40% of your income. Kudos to you for that, by the way.
- dualstow
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Re: PP as savings account
I agree with everything said so far.
I don't know how other people do emergency funds, but I don't have one, really. I have insurance and I have relatives I can depend on if something really goes wrong. The pp cash is my only emergency fund, I guess, and I only keep enough in checking to pay the bills for about a quarter of a year.
I don't know how other people do emergency funds, but I don't have one, really. I have insurance and I have relatives I can depend on if something really goes wrong. The pp cash is my only emergency fund, I guess, and I only keep enough in checking to pay the bills for about a quarter of a year.
- buddtholomew
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Re: PP as savings account
As a conservative investor I decided to implement the PP and still maintain a sizable position in cash. I would have done better being 100% PP, but as they say the comfort of a nonvolatile asset like cash is priceless. Also Tyler has opened our eyes to the 8th wonder of the world - cash
Re: PP as savings account
My own take is...
1) Main checking has enough to float me for a couple of months
2) Savings account with another bank has enough enough to cover another 6 months. (baby checking account with same bank for easier access)
3) Max fund Roth IRA following my own twist on Golden Butterfly
4) All excess put into taxable brokerage account following the same system
Traditional savings accounts are almost as liquid as a checking account, which may come in handy during an emergency. Last time I accessed mine was to purchase a car after an accident. It was very helpful to have funds available immediately without having to wait to either let funds settle or for the completion of an interbank transfer.
In my mind, try to be as liquid as possible with your cash. It will help you sleep at night and may prove to be very important in an emergency.
1) Main checking has enough to float me for a couple of months
2) Savings account with another bank has enough enough to cover another 6 months. (baby checking account with same bank for easier access)
3) Max fund Roth IRA following my own twist on Golden Butterfly
4) All excess put into taxable brokerage account following the same system
Traditional savings accounts are almost as liquid as a checking account, which may come in handy during an emergency. Last time I accessed mine was to purchase a car after an accident. It was very helpful to have funds available immediately without having to wait to either let funds settle or for the completion of an interbank transfer.
In my mind, try to be as liquid as possible with your cash. It will help you sleep at night and may prove to be very important in an emergency.
Don't agree with me too strongly or I'm going to change my mind