CJ Follini: Hello and welcome to Inheriting the Future, the Noyack Wealth Club podcast where we chat with experts to share ideas and tips about financial education and help you build wealth for the life you want. I’m your host this week CJ Follini, founder and CEO of Noyack Wealth Club, and I’m thrilled to have Nate Hoskin, the certified financial planner and the founder of Hoskin Capital here with us today. How are you Nate?

Nate Hoskin: CJ, I’m awesome. Thank you so much for having me on today.

CJ Follini: Great, and today’s topic is creating a family emergency fund just because and for Financial Security. So welcome back and let’s begin. Nate, first question and you know how this works, I’m gonna ask you a bunch of questions, you’re our expert interview. What Financial emergencies should be considered when building an emergency fund and what do people Overlook? So what do they get right and what do they get wrong?

Nate Hoskin: I think that’s really the beauty of an emergency fund is that you don’t have to plan for everything. The goal is just to turn something from “oh no” into “oh well.” You’re like “oh man that thing happened.” I’ll use an example that people very often Overlook which are little things on your vehicle like tires. So I had a harrowing experience driving back from the mountains after Christmas because I was on ice skates and my tires were super bald, and so in order to drive here in Colorado I had to go and drop a whole bunch of money on some new tires just to be able to feel safe in my own vehicle. Luckily I had an emergency fund saved up and so that wasn’t something that I had to finance, it wasn’t something that I had to make work on a credit card. I could just take that money out of my emergency fund, put it in my checking account and know that that was covered. So that’s my thought process around emergency funds is that it’s better to establish a single number, this is the amount I need to save, this is the amount I estimate, and then whatever surprises come up doesn’t really matter what they are as long as you have enough to cover them.

CJ Follini: That’s very practical. I mean listen those four tires, what’s that $1,200?

Nate Hoskin: Yeah even in the middle of the road, no pun intended, you know medium quality, $1,000 to $1,200.

CJ Follini: And you know you have a couple of those a year and boom you’re in the hole without having that emergency fund. Very smart. So what types of accounts or investment vehicles are best suited for storing These funds? Where do you keep the money?

Nate Hoskin: I think there are two big priorities when you think about storing your emergency fund. The first one is liquidity, how quickly can you get it, because if you have to deal with an emergency in that moment, you need the money now. But the next side is really having that money working for you because for most people depending on their monthly expenses or any of the emergencies that they might have, it’s a chunk of cash just sitting there. So if you have it sitting in a checking account you are missing out on a huge amount of interest and that money is literally collecting dust and going down in value because of inflation. So when we think about an emergency fund, the most important thing is putting it in an account that is easily accessible and that can work for you. Main options that come to mind are a high yield savings account so you’re going to get a good interest rate but you’re still keeping FDIC insurance, so if that bank goes out of business the government will bail you out and the moment you need that money you can withdraw it to your checking account or something of that sort. Or more commonly in today’s society you can put that emergency expense on a credit card and then pay for it out of the high yield savings account just to make sure you can swipe the card and something will work. I think that’s something not enough people think about when they consider their emergency fund is their credit card, that line of credit gives you flexibility to deal with an emergency. It essentially gives you a month to go and find the money to pay for that emergency before you have to pay off the credit card. So that gives you this amazing buffer that lets you put the money further away and what I mean by that is instead of having the money in a high yield savings account you might have it in a brokerage account invest in short-term bonds or you might have it in treasury, treasury bills or treasury notes. These short-term treasury bonds that you can actually invest in and get a good interest rate on. With those we call those 72-hour money because you have to sell it, you have to wait two days for it to settle into your account and then you can transfer it out. So having that credit card to act as a buffer allows you to get a higher yield on your emergency savings.

CJ Follini: It’s a Time Delta Bridge so that, so and at the same time, so you can’t attach a debit card to the high yield savings? I actually don’t know this.

Nate Hoskin: In general no. Some of them will function as an ATM so you could go to the ATM and pull that cash out but most times it functions as a transfer. So you have to move the money from the high yield savings account into your checking account before you can swipe that debit card and have it work.

CJ Follini: Which most banks don’t charge fees for that transfer do they?

Nate Hoskin: Correct, yeah that’s zero fee. The other thing to think about there is I don’t like to have all of my emergency funds in a high yield savings account. I’ll actually keep about one month of expenses in my checking account that way if that happens I’m not waiting on that transfer. I still have yet another buffer so I have the credit card buffer, I have the debit card buffer, and then I have the emergency fund and only when all of those are exhausted will I go whoa okay it’s time to figure something out.

CJ Follini: Okay so let’s summarize. You have three vehicles: you have checking account with one month that has a credit card and/or a debit card attached to it for buffer, you have an investment brokerage account which allows you to gain some because you’re getting no return no interest generally on that immediate liquidity checking account. You have a high yield savings and you have an investment account both of which require time to settle into your checking, but some of those brokerage account, I don’t know they really don’t have a credit card access to the investment account. Those are both the high yield savings and the investment brokerage account which might gain you equal return approximately four to five percent right now, right?

CJ Follini: I haven’t checked the high yield savings lately but I think they’re in that range. You’re getting 4-5% but you need 72 hours to get that into your checking account. So you have three vehicles plus the credit card and debit as buffer. Interesting.

Nate Hoskin: Yeah, so now we’ve created what’s called a liquidity ladder where the credit card and the debit card is money that you can get right now at the swipe of a card. The high yield savings account is money you can get in about 12 hours depending on how long it takes that transfer, and then the brokerage account is money you can get in 72 hours after the settling of the Securities and the transfer itself.

CJ Follini: Immediate, 12, 72 hours. Great, and what strategies, let’s shift to how you get the money into one of those Vehicles. How do you recommend to create a consistent, not just a strategy but a consistent methodology for contributing, placing money into your emergency fund?

Nate Hoskin: Yeah that’s always the tough part is how do I get the money in there in the first place if I’m struggling to save and feeling like I’m always catching up. So I prefer to start really small but more importantly to make the emergency fund the number one priority. So a lot of people will jump and say okay I need to save into my 401k, I need to save into my Roth IRA for the year, that sort of thing, but that money is really far away. That’s not just 72 hours away, it’s also a 10% penalty, it’s also all the taxes just to pull that money out and be able to.

CJ Follini: Theoretically it could be 30 years away.

Nate Hoskin: Exactly, it should be 30 years away. And so that should be the number one priority. If You’re Gonna Save a dollar it should go into the emergency fund first until you have at least a thousand bucks. That’s typical Dave Ramsey baby steps that kind of thing.

CJ Follini: Well hold on, I’m not a huge fan of Mr. Ramsey so I’m going, if you don’t mind I’m gonna amend your specific number. I actually think it should be a ratio of your income and I would.

Nate Hoskin: Sorry, I would actually flip that and say it should be a ratio of your expenses because if you make 200 Grand.

CJ Follini: I like that.

Nate Hoskin: But of 40 Grand you don’t need 10% of your income, you really just need a couple months of expenses.

CJ Follini: You know what, I stand corrected. That’s a much better idea. So I guess you’re recommending one month which is basically 8% of your expenses and that’s where things can get a little bit complicated and I hate to do the traditional financial advisor thing and say oh it depends.

Nate Hoskin: So we can instead talk about it.

CJ Follini: There’s no certainty in wealth advisory is there, but we can determine what it depends on and so really it’s about the priority. So once you have let’s say a month of expenses saved then you can start saving some money to get your employer match on your 401k and then any extra money can keep going into that emergency fund until you’re at three months. Three months is really the buffer I would recommend for anyone who has a single stream of income. If you’re in a household that has two streams of income you can go a little lower than that because then it’s pretty rare that two people are going to lose their jobs at the same time or two emergencies are going to occur so you can kind of bridge that Gap but.

CJ Follini: You really recommend a total goal of three months?

Nate Hoskin: Yeah it’s a chunk of cash but it is emergencies. When it rains it pours, that’s what I would say. Like I had a flood in my house back in February of 2024 and so the emergency fund was able to cover the down payment to get the people to come in here and do the mitigation. But then of course Insurance takes a while to pay you back for all of those things so we just kept accruing expenses that we knew were covered by insurance, but it took us about six months to get those reimbursed. And so it was so nice for us to be able to essentially remodel our entire house on our own dime and then sit and wait comfortably for them to give us that money back. That’s the benefit of having more saved.

CJ Follini: So if you advocate for three months total, how long do you think is prudent it should take? So you said start slowly, so you know small and often I think is the way to summarize what you describe. Small amounts but do it frequently, so every week. How long, you know because you never know when you’re going to, that’s the whole definition of an emergency fund, how long should it take you to get to the optimal amount of this emergency fund? Because then by dividing that amount of time by the percentage you’re going to put in you can figure out how many weeks it’s going to take to get to fill your emergency fund to Optimal.

Nate Hoskin: Yeah it’s very reasonable to at least hit the minimum in a year. So if you cannot save one month’s of expenses in a year you have to seriously take a look at your expenses and understand if you’re truly living within your means. And so if you can’t hit that minimum in 12 months it means you need to re-evaluate other parts of your financial structure.

CJ Follini: Interesting. You just gave me an idea. I mean there is, you know we’re going to have more discussion and education and a whole episode about living within your means, figuring out what that is might be how quickly can I get to my emergency fund. You said one month but you’ve also said three months so is it one or three months of expenses?

Nate Hoskin: It’s one month within a year and then it should be three months within three years. And so you can continue slowly but hopefully what you will do is by having an emergency fund you will smooth out your cash flows and create more space for yourself to save more money. So in those second and third years you’re not just saving into the emergency fund, now you’re getting your employer match on that 401k, now you’re setting aside money in different places.

CJ Follini: Great, so okay one month in one year, three months Max of your expenses over three years. So a month per year, now that actually is how you can figure out whether you’re living within your means. That’s one rule of thumb. I love that and we’ll keep that for that episode. How often should you re-evaluate those ratios? I mean what do you think is when you’re, you know throughout life how are you adjusting the size of the emergency fund, one month per year?

Nate Hoskin: I think there are two main times you should do it. The first one is annually because people tend to have lifestyle drift. It might not be their fault, it might be inflation that is just causing things to get more expensive. And so if you allocated $3,000 for one month of expenses it might now be 3500 simply because things are more expensive. So going back annually, using a tool to understand your annual expenses will really help you narrow down how much you should be saving. And then the second time is at any sort of life event. The big ones could be you’re having kids or you’re buying a house. Your expenses just changed dramatically. You have to make sure that you are adjusting your emergency fund accordingly. The other thing that could happen is you could have a life event that saves you a lot of money, right? Whether that’s moving back in with family, whether that’s getting a roommate, that could be maybe getting a new job, something along those lines where now you don’t have to commute as much. So anything that might impact your expenses is going to impact the amount you have to have in your emergency fund because we’re using the expenses as that measurement.

CJ Follini: Yeah, and yet another interrelated topic. You can do the re-evaluation of your emergency fund at the same time you should be doing a next year budget. So if you’re doing, and we do budgets for our companies starting in October, probably finish around Thanksgiving, depends on how big. Personally that could take just a couple days. So I always Advocate, you know not towards the imminent end of the year because you never know when you have to adjust either your emergency fund, 529, your 401k, your Roth Etc, adjust contributions. So you need some weeks to do that especially in the holidays when you go into the Vortex of the holidays and time just has no meaning at that point. So I’d like to finish the annual budget for the following year by Thanksgiving. In fact I usually do it Thanksgiving weekend. That’s a great time to do the emergency fund reevaluation at the same time.

Nate Hoskin: And you might find that you freed up a lot of space for yourself to save more the next year. So you set those budget goals, now you’re filling up your emergency fund faster or you have space to go save into other places. So you can see how they all kind of tie together. That’s how it becomes a financial system not just you holding on for dear life.

CJ Follini: Exactly. In fact the filling of that emergency fund and the altering the amounts that you fill and how fast you fill, that’s a line item in the budget. So when you’re looking forward you say oh I had more than I thought, let me readjust the budget, add to this line item of the emergency fund and fill faster.

Nate Hoskin: Yep exactly.

CJ Follini: I love that, interesting. All right, well I’m sure you know I love YNAB, You Need a Budget. I’d like to actually go back and see if they have accounted for emergency fund in their line, in their line item templates and their budget templates. I’m going to check that out online, little note. Let’s check out some of our tools especially our friends at YNAB and see if they have emergency fund as a line item. You keep them separate. I mean I guess they are separate if you have the separate accounts we discuss vehicles?

Nate Hoskin: Yeah, and why the high yield savings account I believe should be completely separate from everything else because the way I think about it is in buckets. So you have your now bucket, you have your soon bucket and you have your later bucket. And so by the time any money is going to make it into your now bucket it means you need it right now. So unless there is some extraneous circumstance where you’re going to buy a house in the next weeks, chances are the only money in your high yield savings account is going to be for emergencies, things that you don’t know when they’re going to happen. If you’re saving for something and you’re not sure when you’re going to spend that money, people often make the mistake of just leaving it in their high yield savings account or leaving it in their checking account. The problem with this is that then that money is not working very hard for you while you’re there being kind of wondering when you’re going to time this. And so it’s actually better to move that money into your soon bucket, your taxable brokerage account and invest it there. That’s why I like to keep the emergency fund separate is so that every goal is spoken for and I know where that money is sitting.

CJ Follini: Okay so you are using the organizational logic of the different types of vehicles and which also correlate to the how fast and how liquid it is: credit card immediate, high yield savings slightly less immediate, soonish, and investment brokerage account less immediate still. So three different levels of liquidity that also form the logic of how you organize, here’s my expense money, here’s my emergency fund, here’s where my money is working for my future.

Nate Hoskin: Yes, well said. And it also informs how much risk you can take with those Investments because emergency fund you can’t be very risky, has to be in a high yield savings or maybe in that brokerage account in really conservative investments. But if it’s in the soon bucket might happen in the next three to five years you can invest more aggressively. If it’s locked down for 30 years in a retirement account you can invest that pretty much as aggressively as you feel comfortable.

CJ Follini: Also smart about the organization of the objective. Keep your objective and your risk, your risk objectives as well as your return objectives organized by the level of liquidity in that account. So I love that because you’re right if you do blend your high yield savings which you should be less risky with your investment which you can assume a little bit more risk, that’s impossible to keep clear. That’s really not, I love the organization, I’ve never even done it that way and I think I’m going to.

Well you know what let’s not inundate with a super long podcast. I just learned a bunch of practical techniques, really actionable and things even as a 40-year investor and advisor and wealth manager for high net worth families that I didn’t do. Now their approach is a little different, and but you know what I think this should be, these ideas should be utilized by all levels of net worth really.

Nate Hoskin: I agree.

CJ Follini: Thank you Nate, excellent, really efficient, actionable, pragmatic, love it. And I’m going to be changing some of my emergency fund strategies right after this.

Nate Hoskin: Love it man, I’m glad to hear it.

CJ Follini: Well thank you for another episode of Inheriting the Future. I’m CJ Follini and we want to thank our guest Nate Hoskin from Hoskin Capital. And remember to subscribe to Noyack Wealth Weekly, our personal wealth management newsletter which is now, drum roll please, up to 160,000 subscribers and going strong. Comes out every Sunday morning, subscribe at the link below. Thank you, have a great day Nate.

Nate Hoskin: Bye CJ, thank you.