Time to Raid the Emergency Fund

I have located my first ever stock that I would like to invest in (if you don't count the time my dad let me buy one share of General Mills when I was 10 because I liked their cereal). I read the Morningstar reports, the Standard & Poors reports, and the company's 20-F (the foreign equivalent of a 10K), and even logged into the motley fool forums to get a feeling of what people thought.

I've opened up a Zecco account, but now I have to fund it.

I will probably raid the emergency fund assuming I can figure out a way to set up a Zecco to FNBO Direct transfer. Lets hope our beat-up old car holds out for a couple of months.

Maximizing Every Cent

Too many people have their money floundering around earning them no interest at all.

To maximize every cent I can, to try to break through the ceiling, I keep my cash holdings in the two best places I know.

1. Schwab Investor Checking Account
I no longer have a brick & mortar bank, instead all of my checking goes through my internet checking account with Charles Schwab. Here are the highlights:

• 4.25% interest on my money (highest I have seen- beats ING hands down)
• ATM reimbursement- unlimited reimbursement of ATM fees, I can use any ATM I want, and it will reimburse me the fees.
• No minimums, no requirements (they do force you to sign up for a brokerage account-but you don't even have to put any money in it)
• Online bill pay and also appears to have a yodlee option.
• Free paper checks- I write the slackers in my life checks for the money I owe them, they don't cash them, I earn 4.25% on their laziness.
• Direct Deposit

Downsides: You have to mail checks in to them. This kind of sucks, but I rarely get a paper check anymore, so its not awful.

2. FNBO Direct

They have a 6% interest rate through September, which makes them a great place for my short-term emergency fund. I haven't see anything better than this rate (except in shady banks) After September, I will reevaluate to see if my emergency fund should be moved elsewhere.

Wealth First . . . then Emergency Fund

So the accepted conventional wisdom is that you should have a 3-6 month emergency fund readily available, either in cash equivalents like a high-interest internet savings account, money market account, or in a rolling CD ladder. In fact, Trent, the world's most prolific personal finance blogger, reccomends you have a 12 month emergency fund.

I have a 1 1/2 month emergency fund. which I only have because 1) my beat up 15 year old car is on its last legs and 2) I may have some big medical bills coming up to pay for.

If you want to retire early, you need to focus on building wealth first, and having an emergency fund second.

Investing in a 5% money market account would cause you to double your money in 14.21 years, but investing that money in the market at the historic 10.5% return will double your money in less than 7 years or half as much time. Every little bit of money you can put into equities and higher returning investments makes a big difference (especially if you factored in the fact that emergency funds are taxed at the short term rate, while stocks are taxed at the long-term capital gains rate).

But what about having enough money to avoid using bad credit sources?

No question if it is a choice between incurring high interest credit card debt and having an emergency fund, you should go with the emergency fund, but I don't think the choice is that simple.

With less cash on hand, you are less tempted to spend extravagently, because you are literally working without a net. Additionally, there are other sources you could draw upon in the event of an actual emergency: you could sell your stocks (no reason I couldnt do this while using my 1 month emergency fund), or you could take out a HELOC (tax deductible) or a 0% credit card transfer, or borrow money from a relative.

The point is to get as much money, earning as much as possible, as soon as possible, so you can break through the ceiling.