query: Where should I park my rainy-day / emergency fund?

positive: "First off, you generally want to park your emergency fund somewhere that is ""safe"", meaning something that is not subject to market fluctuations.  Your emergency fund is something you need to be able to count on when times are tough!  That rules out things like stock market investments. Secondly, you need to think about how quickly you will need access to the money.  If you have an emergency, odds are you don't want to be waiting around for weeks/months/years for the money to become available.  This rules out most fixed-term investments (Bonds, traditional CDs, etc). If you are concerned that you will need near-instant access to your emergency money, then you probably want to keep it in a Savings or Money Market Account at the same bank as your checking account.  Most banks will let you transfer money between local accounts instantly. Unfortunately, your local bank probably has pitiful interest rates for the Savings/MMA, far below the inflation rate.  This means your money will slowly lose value over time.  Be prepared to keep contributing to it! For most people, being able to draw the cash from your fund within a few days (<1 week) is sufficient.  Worst case, you charge something on your credit card, and then pay down the card when the emergency fund withdrawal arrives. If ""money within a few days"" is okay for you, there are a few options: Money Market (Mutual) Funds (not to be confused with a Money Market Account) - This is the traditional place to keep an emergency fund.  These are investment funds you can buy with a brokerage account.  An example of such a fund would be Fidelity Cash Reserves.  MMFs are not FDIC insured, so they are not exactly zero risk.  However, they are considered extremely safe.  They almost never go down in value (only a few times in the past few decades), and when they have, the fund manager or the Federal Govt stepped in to restore the value.  They usually offer slightly better return than a local savings account, and are available in taxable and non-taxable varieties. Online High-Yield Savings or Money Market Account - These are a relatively new invention.  It's basically a the same thing as what your local bank offers, but it's online-only.  No local branch means low overhead, so they offer higher interest rates (2.0% vs 0.5% for your local bank).  Some of them used to be over 5% before the economy tanked.  Like your local bank, it is FDIC insured. One bit of caution:  Some of these accounts have become ""gimmicky"" lately.  They have started to do things like promo rates for a few months, only offering the high interest rate on the first few $K deposited, limiting the amount that can be withdrawn, etc.  Be sure to read the details before you open an account! No-Penalty CDs - Certificates of Deposit usually offer a better rate than a Savings Account, but your money is locked up until the CD term is up (e.g. 36 months).  If you need to cash out before then, you pay a penalty.  Some banks have begun to offer CDs that you can cash out with no penalty at all.  These can offer better rates than the savings account.  Make sure it really is no-penalty though.  Also watch what your options are for slowly adding money over time.  This can be an issue if you want to deposit $100 from every paycheck. Rewards Checking Accounts - These are checking accounts that will pay a relatively high interest rate (3% or more) provided you generate enough activity.  Most of them will have requirements like you must have direct deposit setup with them, and you must do a minimum number of debit card transactions from the account per month.  If you can stay on top of the requirements, these can be a great deal.  If you don't stay on top of it, your interest rate usually drops back to something pitiful, though. Personally, we use the Online High-Yield Savings Account for our emergency fund.  I'm not going to make a specific recommendation as to which bank to use.  The best deal changes almost week to week.  Instead, I will say to check out Bankrate.com for a list of savings accounts and CDs that you can sort.  The Bank Deals blog is a good place to follow rate changes."

positive: I would suggest your local credit union or local bank for security and liquidity.  Liquidity is probably the most important issue for a emergency fund.

positive: I am using ING for my emergency savings, but sometime last year I discovered SmartyPig. As of 4/24/2010 they offer 2.1%, which is even better than the 1 year CDs at most banks. I've switched two small accounts to SmartyPig and plan to switch my emergency savings. Their accounts are geared around monthly contributions, but you don't have to use that feature.

positive: This is probably a good time to note that credit is not a liquid asset, and not an emergency fund. Credit can be revoked or denied at any time, and Murphy's law states that you may have issues with credit when everything else goes wrong too.

positive: Something with an FDIC guarentee, so a bank. With an emergency fund, I think the 'return of capital' is more important than the 'return on the capital', so I'm fine with putting it in a standard savings account in a local bank(not an internet account) even if it pays next to nothing. The beauty is that since the bank is local, you can walk in and withdraw it all during any weekday.

negative: "An emergency fund is very well defined, both on this site and across the web.  An emergency fund is a cash account where you keep money for emergencies so you don't need to take on debt like a loan or credit cards. Car breaks down? emergency fund can help pay that. Lose your job? The emergency fund is there to pay rent and for groceries until you're back up an running. There are several schools of thought on how much money should be in your emergency fund, but it boils down to how high your risk assessment is. Typically, the average is to have 3 months in cash available at all times (like in a savings account). It'd be better to have more, but that's a typical goal. You're also asking about investments in the comments. An emergency fund should be readily available. If you already have $10K in savings, set aside what you would need to cover a few months of bills into a cash-ready savings account, then invest the rest. Investments sometimes take time, or have penalties, if you withdraw them. Additionally, as @JoeTaxpayer so correctly pointed out, getting into the habit of maintaining a separate emergency fund helps protect your other investments from becoming a crutch and instead used to save up for larger things like a house or, especially, retirement.  See also: What expenses should be covered by an emergency fund What should I reserve ""emergency savings"" for? What expenses do most people not prepare for that turn into ""emergencies"" but are not covered by an Emergency Fund? Less than a year at my first job out of college, what do I save for first?"

negative: As others have noted, you can do better than a checking or savings account. If you're going to invest emergency money, the vehicle you put it into should be: Liquid - Wherever you put it, you should be able to quickly cash it out. Highly liquid exchange traded products are good for this.   Low volatility/drawdowns - If you need at least 6 months of your paycheck to cover you in the event of an emergency, you don't want to park it in a portfolio that can potentially lose 30% value. Insured - Your investments should have SIPC coverage (protection against losses resulting from failure on part of broker). Moderate/Steady Growth - If the emergency fund doesn't grow, you'll need to continually pump money into it. My 'steady growth' portfolio is majorly allocated to fixed income. Within that, a major portion is allocated to high yielding instruments. Over the past 10 years, it's seen at least a 7% annualized return.

negative: If you're worried about volatility, and you're in mostly long positions, you should be looking to diversify your portfolio (meaning, buying some stocks that will do better in a bear market) if it's not already diverse, but you shouldn't be looking to abandon your positions, unless you anticipate a short-term need for cash.  Other than that, you may want to hold off on the short-term positions for a while if you're concerned about volatility, though many traders see volatility as a great time to make money (as there is more movement, there's more opportunity to make money from mispriced stocks in both directions).  Unless you think the market will be permanently down due to these reasons, anyway, but I don't see any reason to believe that yet.  Even World War Two wasn't enough to permanently hurt the market, after all! Remember that everyone in the market knows what you do.  If there were a sure thing that the market was going to crash, it already would have. Conservative positions tend to involve holding onto a well diversified portfolio rather than simply holding onto cash, unless the investor is very conservative (in which case the portfolio should be cash anyway). The fact that you say this is your rainy day fund does make me a little curious, though; typically rainy day funds are better in cash (and not invested) since you might hit that rainy day and need cash quickly (in which case you could take significant losses if the time isn't right).

negative: "The Roth vs not debate is irrelevant to the question. It doesn't matter where your emergency fund is kept, as long as it is liquid and safe. I said it before in an answer to another question: your emergency fund is not an investment -- it's your safety net This answer also says it well: an ""emergency fund"" is just that... for emergencies... NOT investment. While it ""hurts"" not to have your emergency money making more money... its MORE IMPORTANT to have quick access to it. So at TD Ameritrade, just park it in their FDIC deposit account. It will not earn any meaningful interest (at least until rates rise), but you'll be able to have access to it when you need it. Note that I would caution against putting it in a money market mutual fund. They're safer than many other investments, but they're not FDIC insured against loss and there is a potential for temporary loss of liquidity. In late 2008 when the credit markets collapsed, a lot of people suddenly became unemployed -- and needed access to their emergency funds. When Lehman Brothers went bust in September, the Reserve Primary Fund (with billions of dollars in their fund) ""broke the buck"" -- they lowered the price of shares below $1, meaning investors lost principal. The worst part is that investors were not as liquid as they wanted to be: the fund froze and it was hard to get money out. The lesson to take away from this is that one of the times you're likely to need access to your emergency fund is during a macroeconomic crisis. This is also the time when any investment that isn't guaranteed safe may potentially be (at least temporarily) unavailable or decline in value. Emergency funds should be 100% government insured. When you have your Roth funded to the point where there's extra money beyond the emergency fund, you can start investing in higher-yielding vehicles: stock or bond index ETFs would be a good start. But then that part of your Roth starts to look like a retirement account and not an emergency fund. If it were me, I'd open a Roth at a stable local bank and just keep it in their FDIC insured money market deposit account. Then if I wanted a slight boost, I might put the ""upper half"" of my emergency fund into short term CDs, but even CDs aren't worth much at the moment."

negative: You are only 33, with plenty of time to generate long-term returns. A correction is an opportunity for you to buy more at a lower price. My advice: invest about half in an index fund (S&P 500, for example) and half in a target fund (pick your retirement age), keep saving regularly, and in 30 years you'll be very happy you did. 5-10K a month is fine until all of the money is invested. (You said this is a retirement account, so invest the entire amount. Keep a rainy day fund in your non-retirement savings.) You can fiddle around with how you invest the money and I'm sure you'll get variations on my answer. My above suggestions may not be the absolute best option, but they are certainly not the worst option. Given that you are very risk-averse, keep in mind that you are in this for the long term and should be investing in something where you can safely ignore short-term downswings.

negative: You've never saved money?  Have you ever bought anything?  There probably was a small window of time that you had to pool some cash to buy something.    In my experience, if you make it more interesting by 'allocating money for specific purposes' you'll have better results than just arbitrarily saving for a rainy day.    Allocate your money for different things (ie- new car, emergency, travel, or starting a new business) by isolating your money into different places.  Ex- your new car allocation could be in a savings account at your bank.   Your emergency allocation can be in cash under your bed.   Your new business allocation could be in an investment vehicle like a stocks where it could potentially see significant gains by the time you are ready to use it.    The traditional concept of savings is gone.  There is very little money to be earned in a savings account and any gains will be most certainly wiped out by inflation anyway.  Allocate your money, allocate more with new income, and then use it to buy real things and fund new adventures when the time is right.

negative: "Look, as my final comment.  You're overthinking this.  Companies routinely have waaaay more cash on their books than they ""need"" because they keep a rainy day fund.  Yes, there are extreme examples like Apple that has about 60 billion more than they need but practically all companies are going to maintain excess cash for emergencies, acquisitions, etc.  As I said in another comment, the common theme between a DCF and an EV multiple is that they are both capital structure independent.    Even here there are going to be differences, companies with a really shitty capital structure (read: too much debt) will trade publicly at a lower enterprise value multiple because of the risk that they go bankrupt.  In an acquisition, this (probably) would not be the case.  In the case of a DCF, you would probably raise your discount rate to account for the risk of bankruptcy."

negative: "For me, the emergency fund is meant to cover unexpected, but necessary expenses that I didn't budget for.  The emergency fund allows me to pay for these things without going into debt. Let's say that my car breaks down, and I don't have any money in my budget for fixing it.  I really need to get my car fixed, so I spend the money from my emergency fund. However, cars break down periodically.  If I was doing a better job with my budget, I would allocate some money each month into a ""car repair/maintenance"" category. (In fact, I actually do this.)  With my budgeting software, I can look at how much I've spent on car repairs over the last year, and budget a monthly amount for car repair expenses.  Even if I do this, I might end up short if I am unlucky.  Emergency fund to the rescue! If I'm budgeting correctly, I don't pay any regular bills out of this fund, as those are expected expenses.  Car insurance, life insurance, and property tax are all bills that come on a regular basis, and I set aside money for each of these each month so that when the bill comes, I have the money ready to go. The recommended size of an emergency fund is usually listed as ""3 to 6 months of expenses.""  However, that is just a rough guideline.  As you get better with your budget, you might find that you have a lower probability of needing it, and you can let your emergency fund fall to the lower end of the guideline range.  The size of my own emergency fund is on the lower end of this scale. And if I have a true crisis (i.e. extended unemployment, severe family medical event), I can ""rob"" one of my other savings funds, such as my car replacement fund, vacation fund, etc. Don't be afraid to spend your emergency fund money if you need it.  If you have an unexpected, necessary expense that you have not budgeted for, use the emergency fund money.  However, your goal should be to get to the point where you never have to use it, because you have adequately accounted for all of the expenses that you can reasonably expect to have in the future."

negative: Congrats on making it this far debt free. It is rare, but nice to be in the situation that you are in.  The important thing here is that you want to remain debt free. That's really what the emergency fund is all about: it keeps you from needing to go into debt should something unexpected happen.  You've got 1.5 months worth of expenses saved up, and that's great. If you don't have a family or other responsibilities, that might be enough, but think about this: how are you paying for school, and what would happen if those funds stopped coming in? If you are paying for school out of your own income, what happens if you lose your job? If someone else, perhaps your parents, is paying for school, what happens if they are suddenly no longer able to do so?  While you have extra cash, you want to be saving it up for situations like this.  If I were you, I would build up that emergency fund until it got to the point where it could pay all your expenses and tuition until graduation. Hopefully, you won't need to touch it, but it will be there if you need it.  Since you need to be able to access your money quickly, it is generally recommended to park this money in a savings account, where it is very safe. Mutual funds are a great way to invest, but they are not safe in the short term.  Don't stress out about not being able to start retirement investing just yet. Making sure you can finish school debt free is the best investment you can make right now. After you graduate and land a job, you can start investing aggressively.

negative: "Emergency funds have a very specific and obvious benefit; you'll have money sitting around in case you need it.  A lot of people think a big car repair or some unexpected home repair is an emergency, and that's fine.  Emergency also expands up to ""I lost my job four months ago and we're a year in to a recession, the stock market is down 30% and I need to pay my rent or mortgage.""  Sure, you could just sell some of your stocks that have lost 30% and pay your rent. I know nobody likes to think about it, but the stock market can go down.  I know nobody likes to think about it, but the economy can slink in to a recession.  In fact, here's a small list of recent U.S. recessions: No competent investment adviser would advise that your emergency funds should be subject to market volatility because that completely defeats the purpose of an emergency fund. It's possible that this manager wants you to indicate a separate emergency fund to allocate a portion of your account to a low volatility US Treasury fund or something of the like, this would be materially different than investing in a broad market/large cap fund like VOO or VTI.  The effects of inflation are not so bad that you should put your emergency money in the market.  Who cares what inflation was if you have to sell an asset at a loss to pay rent?  One last point.  Index fund ETFs are not ""safe.""  Investing in diversified funds is safER than buying individual company stocks."

negative: "I live near historic Concord, Massachusetts, and frequently drive past Walden Pond. I'm reminded of Henry David Thoreau's words,  ""Simplify, simplify, simplify."" In my opinion, fewer is better. 2 checkbooks? I don't see how that makes budgeting any easier. The normal set of expenses are easily kept as one bucket, one account.  The savings 2&3 accounts can also be combined and tracked if you really want to think of them as separate accounts.  Now, when you talk about 'Retirement' that can be in tax-wise retirement accounts, e.g. 401(k), IRA, etc. or post tax regular brokerage accounts. In our situation, the Schwab non-retirement account was able to handle emergency (as money market funds) along with vacation/rainy day, etc, in CDs of different maturities. As an old person, I remember CDs at 10% or higher, so leaving money in lower interest accounts wasn't good. Cash would go to CDs at 1-5 year maturities to maximize interest, but keep money maturing every 6-9 months.  Even with the goal of simplifying, my wife and I each have a 401(k), an IRA, and a Roth IRA, I also have an inherited Roth, and I manage my teen's Roth and brokerage accounts. That's 9 accounts right there. No way to reduce it.  To wrap it up, I'd go back to the first 4 you listed, and use the #4 checking attached to the broker account to be the emergency fund. Now you're at 3. Any higher granularity can be done with a spreadsheet.  Think of it this way - the day you see the house you love, will you not be so willing to give up that year's vacation?"

negative: First you should maintain a monthly expense and find out the burn rate. There would be certain expenses that are annual but mandatory [School fees, Insurance Premium, Property Taxes, etc]. So the ideal emergency fund depending on your industry should be 3 month to 6 months plus your mandatory yearly payments, more so if they come together. For example Most of my annual payments come out in May and I bank on the Bonus payout in April to cater to this spike in expense. So if I were to lose a job in March, my emergency funds would be sufficient for routine expenses, if i don't provision for additional funds Second you need to also figure out the reduced rate of monthly burn and ideally the emergency funds should be for 3 months of normal burn and 6 months of reduced burn.

negative: An emergency fund is about managing risk. What would you do if your furnace, water heater, and cars all broke down at the same time? Being in Michigan, I can imagine that you wouldn't want to take cold showers, heat the entire house by wood fire, and walk to work every day. So how do you manage this risk? What would happen if you lost your job and couldn't find one for a few months? By only having $5k in the bank in an emergency fund, you are putting your family at risk. If these sorts of things happened, you would be in trouble. You would have to borrow money either hurting equity in the home that you have worked hard to build up, or by some other means. You and your spouse should sit down and decide what a good emergency fund looks like for your family. A reserve of 3-6 months of expenses is a good emergency fund. This could cover your family in the event of a lost job while you look for a new one. It would also cover you when Murphy strikes and things break down all at the same time. Once you and your spouse have determined how much you want to set aside, you two must determine how you will get there. Maybe you put in some extra hours at work, maybe you lower the retirement contributions temporarily, maybe you try to pay off the car as quickly as possible then put what you were paying on the car into the emergency fund. It will likely take a mix of things to get you there. You don't have to get it done in a day, a month, or even a year. But once you have that emergency fund fully funded, you will feel better. What may be a catastrophe now will be a minor annoyance with a fully funded emergency fund. Finally, I'd recommend going to your bank and setting up a separate account for this emergency fund. A separate account specifically labeled as your emergency fund. This way you will think twice before spending it on a non-emergency.

negative: From mid 2007 to early 2009 the DJI went down about 50 %. This market setback won't happen on a single day or even a few weeks.  Emergency funds should be in cash only. Markets could be closed for an unknown period of time.  Markets where closed September 11 until September 17 in 2001.

negative: Having a highly liquid emergency fund can lubricate the wheels for disaster recovery.  For example, several years ago I returned from a vacation to discover that, during my absence, a plumbing fixture had broken and my house was flooded. Since we had sufficient liquidity to cover the cost of the repairs in our emergency fund, the insurance company was much easier to deal with, and the relationships between the contractor, bank, and insurance company were much smoother. The bank was able to approve the insurance in minutes versus days. Ironically, we didn't actually have to touch our emergency fund precisely because we had it. Clarification - I make it a point to have no debt.

negative: Only having 1200 dollars sounds extremely dangerous and in my opinion is not a sound situation to intentionally put yourself into.   You have what, 11k total? That is roughly a rainy day fund, depending on your expenses and clarity of cash flow. I think you should keep that money in the bank as your new baseline. At least 10k of it. Don't touch that money unless you need to pay for an unexpected expense.  Now, you have $0 to work with, but a safe-ish cushion.   Then, and only then, should any extra money be used for either paying down the loan or tax advantaged accounts. A retirement account is probably the right long term financial choice. However, if it were me and I were (back) in that kind of situation, I would pay off the loan first, primarily for personal satisfaction, then start maxing retirement contributions.

negative: "The day I paid my last student loan payment and my last car payment was (January 4, 2000) a very happy day for me, being then 100% debt free.  It is a very good feeling, especially since I was saving cash as well.  It's a great thing to know that no-one ""owns"" you. Many others here have provided useful information about debt, and I know that paying off your existing loans will improve your credit rating, in case you want to go back into debt (which I did later in 2000, by buying a house). For most people, borrowing money to invest it is complicated (make sure you're not paying more on your borrowed $ than you make on your investment) due to the fact that most investments have risk involved. I would say that being debt-free is a very good goal, and there's a level of freedom it gives you.  Just make sure you have your ""rainy day"" fund building while you're on your way to getting there."

negative: I treat the concept of emergency funds as a series of financial buffers. One layer is that I have various credit cards with a small positive balance, that I can max out in an emergency should I go broke and not be in employment (those have saved me once or twice) My final level of emergency funds, is kept at home in the form of cash, I've never needed it, but it protects against getting locked out of the financial system (I lose my debit cards, banking system freezes all withdrawals, zombie invasion). It also doubles as my destitution fund, as if all else fails I still have raw cash to buy food and thus I won't starve (at least for a few months).

negative: First of all, a person that relies on their ability to tap a line of credit to cover an emergency isn't generally the kind of person that has investments they can cash out to cover the debt. That being said, my personal reasons for having a liquid emergency fund revolve around bank errors and identify theft. I used to work for a company that made bank software. Errors are a common occurrence. You'd be surprised how many transactions are still input by human hands despite our computerized world. All it takes is one typo to wipe out your ability to swipe plastic for a few days. This has actually happened to me. My utility company sent me a bill for $240 and wound up taking $2400 by accident, overdrawing my account and sending me into a fee spiral. They fixed their mistake... several days later. The snowball of fees from other transactions that bounced took another two months to correct. In the meantime, I also had my mortgage payment due. In the US, you can't pay your mortgage with credit, and for those who rent, many landlords won't let you pay with credit either. I have also seen this scenario play out twice with other people I've known who've had their ID stolen. Yes, the bank will cover the fraud after a lengthy process. But the disruption causes fees and overdrafts to quickly snowball out of control. I have a separate savings account at a different bank for this kind of thing, and I have a few hundred dollars cash in my house at all times. Having a liquid emergency fund allows you to quickly stabilize the situation and gives you walking around money for those times where the banking system becomes your enemy for a time.

negative: "What could a small guy with $100 do to make himself not poor? The first priority is an emergency fund. One of the largest expenses of poor people are short-term loans for emergencies. Being able to avoid those will likely be more lucrative than an S&P investment. Remember, just like a loan, if you use your emergency fund, you'll need to refill it. Be smart, and pay yourself 10% interest when you do. It's still less than you'd pay for a payday loan, and yet it means that after every emergency you're better prepared for the next event. To get an idea for how much you'd need: you probably own a car. How much would you spend, if you suddenly had to replace it? That should be money you have available. If you think ""must"" buy a new car, better have that much available. If you can live with a clunker, you're still going to need a few K.  Having said that, the next goal after the emergency fund should be savings for the infrequent large purchases. The emergency fund if for the case where your car unexpectedly gets totaled; the saving is for the regular replacement. Again, the point here is to avoid an expensive loan.  Paying down a mortgage is not that important. Mortgage loans are cheaper than  car loans, and much cheaper than payday loans. Still, it would be nice if your house is paid when you retire. But here chances are that stocks are a better investment than real estate, even if it's the real estate you live in."

negative: Not OP, but let's see:  My money-market account is showing 0.25% interest rate. My savings account, 0.20%. And checking, 0.22%.  It doesn't matter where I keep my emergency fund and what I keep my checking balance. It's making fuck-all for interest. And I need to keep a couple thousand in there because my mortgage hits for about $1600. And my monthly CC spend averages ~$3500 monthly.   I simply can't keep a couple hundred in there.

negative: Personally, I'd use my emergency fund first. It is unlikely (though possible, of course) that I will entirely lose my income at the same time I need to replace my roof or my furnace. I'd rather pay my emergency fund back with installment payments than pay off a HELOC to my bank. The lost interest on my emergency fund, which, after all, should be in cash, is much less than the cost of the loan. I could even set up an amortization schedule in a spreadsheet and charge myself interest when paying back into the emergency fund. That said, if I didn't have the cash in my emergency fund, I'd rather borrow against the house than finance with a contractor. If they'd even do that, which is unlikely--I've never dealt with a roofer or heating contractor that required anything but full payment at time of service. Home equity borrowing is generally the cheapest kind. I'm firmly in the camp of those who look at home ownership as a consumption decision rather than an investment. If the value goes up, great, but I just build in about 1% of the cost of building a new house (excluding the land price) into the housing budget each year, right along with mortgage interest, property taxes and basic utilities. Usually, that's enough to cover the major wear-and-tear related repairs (averaged over 3-5 year periods, anyway).

negative: I know this is heresy but if you have funds for significantly more   than 6 months of expenses (let's say 12 months), how risky would it be   to put it all into stock index funds? Quite risky as if you do need to dip into it, how fast could you get the cash? Also, do you realize the tax implications when you do sell the shares should you have an emergency? In the worst-case scenario, let's say you have a financial emergency   at the same time the stock market crashes and loses half its value.   You could still liquidate the rest and have sufficient funds for 6   months. Am I underestimating the risks of this strategy? That's not worst case scenario though. Worst case scenario would be another 9/11 where the markets are closed for nearly a week and you need the money but can't get the funds converted to cash in the bank that you can use. This is in addition to the potential wait for a settlement in the case of using ETFs if you choose to go that way. In the case of money market funds, CDs and other near cash equivalents these can be accessed relatively easily which is part of the point. A staggered approach where some cash is kept in house, some in accounts that can easily accessed and some in other investments may make sense though the breakdown would differ depending on how much risk people are willing to take. If it truly is an emergency fund then the odds of needing it should be   very slim, so why live with near zero return on that money? Something to consider is what is called an emergency here? For some people a sudden $1,000 bill to fix their car that just broke down is an emergency. For others, there could be emergency trips to visit family that may have gotten into accidents or gotten a diagnosis that they may pass away soon. Consider what do you want to call an emergency here as chances are you may not be considering all that people would think is an emergency. There is the question of what other sources of money do you have to cover should issues arise.

negative: "If you think about it, it's really all one big pot of money.  The idea behind an ""emergency fund"" is that you want to make sure your financial life has stability: it's not going to be suddenly driven into the red, below $0.  As long as that doesn't happen, you can figure out how to live your life as you want. The reason we separate out an ""emergency fund"" is to simplify decision making.  In theory, every single purchase you make should include a consideration of how it destabilizes you.  Every $100 you spend on groceries is $100 you won't be able to bring to bear if you get fired or have a major accident.  In practice, this would be a crippling way of thinking about things.  You don't know what emergencies can hit you, nor when they will hit.  That's why they're ""emergencies.""  If you had to think about them all the time, it'd be horrible!  You would end up simply not thinking about it (like most people), and then the emergency hits when you don't have enough cash to stay solvent. The purpose of an ""emergency fund"" is to help make these decisions easier.  If you have money set aside for ""emergencies"" that you only have to think about every now and then, you can make the decisions in the rest of your financial life without too much concern for them.  You don't have to worry about that $100 in groceries because you are confident that if an emergency hits, that $100 won't be the straw that broke the camel's back because you have reserves to draw on. So you should define an ""emergency fund"" in a way which is most helpful for you to remain stable and solvent without having to fret about it too much.  For most people, the criteria for tapping that fund is very high, because the goal is to not have to think about it all that much.  If you wanted to, you could feel free to lump those ""medium predictability"" items into the emergency fund, but it just means you have to spend more time and effort thinking about the state of the fund.  Every medium predictability purchase has to come with the thought process ""what is the state of the emergency fund? Could this purchase meaningfully destabilize my ability to handle emergencies?""  Your emergency fund might yo-yo under these extra purchases, which could force you to think about the state of your emergency fund for normal purchases.  That'd be bad. Different people might want to think about things different ways.  I'm a big-picture guy, so I prefer to think about all of my assets as one big account when I make a lot of my decisions.  My wife, on the other hand, prefers not to have to think that way when she makes her purchases.  For her, having a very discrete ""emergency fund"" has great value.  For me, it has less.  So when I look at the finances, I choose to lump the emergency funds in with, say, the funds to re-do our backyard (something we are looking at doing over the next 2-5 years).  For me, that is the most natural way to deal with analyzing the risks -- I just have to be aware of how backyard purchases interact with our safety net.  My wife prefers to keep those funds separate in her head, so that she can look at how to spend money on the backyard without thinking about how it affects our emergency readiness.  While complicated, it shows that even within a household, it's possible to think about emergency funding two different ways.  (it causes minimal headaches, though a fair bit of book-keeping) So define ""emergency fund"" however suits you and your life best.  However, practically speaking, most people find it desirable to not put those medium predictability purchases into the same bucket as emergencies.  Those that do find it desirable to put them in the same bucket typically have a personal reason for why that suits their needs better."

negative: "I am in a different situation, because I earn more than I spend, but I have found that I need to make the money inaccessible if I want to really avoid spending it.  I used to just throw my paychecks into a high-yield savings account, but eventually the balance was large enough that a ""large purchase"" didn't seem like ""that much"" (because I would have had so much left in the account after the purchase).  It was way too easy for me to spend way too much. Now, I invest my savings automatically.  The obvious benefit is my money has a much higher growth rate than a simple savings account (especially with fed interest rates so low).  I invest most of my savings in 401(k)/IRA retirement accounts, where there are severe penalties for withdrawing prior to retirement age.  Then, I invest a significant portion to a regular brokerage account, where the money is invested in stock and bond funds.  This money is accessible within a few days of whenever I need it.  The remainder of my savings goes into a savings account as cash I can get to at any time.  All 3 accounts grow with every paycheck (market fluctuations aside).   This 3-tiered system helps me to categorize my savings as ""Never, ever touch"" (retirement accounts), ""Touch, only if I can wait 3 days and am willing to pay taxes"" (brokerage account), or ""touch whenever you need it, with no penalties"" (Savings account).  If my savings account grows too much, I'll move money from there to the brokerage account (where it has more growth potential).  The longer my money is invested in the brokerage accounts, the less taxes I'll need to pay when I sell/withdraw the funds, so that's even more incentive for me to keep those funds where they are. I have credit cards, so in my opinion, having to wait 3 days for funds from my investment account to become accessible is considered ""accessible in an emergency,"" because my credit cards can be used to cover a large purchase for 3 days, and as long as I pay it off within the grace period, there's no interest charged. tl;dr investing is probably the smartest way to both grow your money and prevent the urge to spend it right away.  My advice is to start with a 401(k) or IRA as soon as you can, since the younger you are, the more time until retirement that your money has to compound.  Investing $100 more a month can mean hundreds of thousands of additional dollars in your account when you're ready to retire."

negative: "One can generalize on Traditional vs Roth flavors of accounts, I suggest Roth for 15% money and going pretax to avoid 25% tax.  If the student loan is much over 4%, it may make sense to put it right after emergency fund.  For emergency fund priority - I'm assuming EF really requires 2 phases, the $2500 broken transmission/root canal bill, and the lose your job, or need a new roof level bills. I'm in favor of doing what let's you sleep well. I'm also quick to point out that if you owe $2500 at 18%, yet have $2500 in your emergency fund, you're really throwing away $450 in interest each year. There's an ongoing debate of ""credit card as emergency fund."" No, I don't claim that your cards should be considered an emergency fund, per se, but I would prioritize knocking off the 18% debt as a high priority. Once that crazy interest debt is gone, fund the ER, and find a balance for savings and the next level ER, the 6-9mo of expenses one. One can choose to fund a Roth IRA, but keep the asset out of retirement calculations. It's simply an emergency account returning tax free interest, and if never used, it eventually is retirement money. A Roth permits withdrawal of deposited funds with no tax or penalty, just tracking it each year. This actually rubs some people the wrong way as it sounds like tapping your retirement account for emergencies. For my purpose, it's a tax free emergency fund. Not retirement, unless and until you are saving so much in the 401(k) you need more tax favored retirement money. I wrote an article some time ago, the Roth Emergency Fund which went into a bit more detail.  Last - keep in mind, this is my opinion. I can intelligently argue my case, but at some point, it's up to the individual to do what feels right. Paying 18% debt off a bit slower, say 4 years instead of 3, in favor of funding the matched 401(k), to me, you run the numbers, watch the 401(k) balance grow by 2X your pretax deposits, and see that in year 3, your retirement account is jump-started and far, far more than your remaining 18% cards. Those who feel the opposite and wish to be debt free first are going to do what they want. And the truth is, if this lets you sleep better at night, I'm in favor of it."

negative: I wonder in this case if it might be easier to look for an emerging markets fund that excludes china, and just shift into that.  In years past I know there were a variety of 'Asian tiger' funds that excluded Japan for much the same reason, so these days it would not surprise me if there were similar emerging markets funds that excluded China.  I can find some inverse ETF's that basically short the emerging markets as a whole, but not one that does just china.  (then again I only spent a little time looking)

negative: Excellent answers so far, so I will just add one additional consideration: liquidity. Money invested in a mutual fund (exclusive of retirement accounts with early withdrawal penalties) has a relatively high liquidity. Whereas excess equity in your home from paying down early has very low liquidity. To put it simply: If you get in a desperate situation (long term unemployment) it is better to have to cash in a mutual fund than try to sell your house on the quick and move in with your mother. Liquidity becomes less of an issue if you also manage to fund a decent sized rainy-day fund (6-9 months of living expenses).

negative: "Between 6 months and a year is normally regarded as the ""standard"".  Plan out what your monthly expenses are and save that money away.  One thing to consider is what extras can you give up.  If you are currently eating steak and lobster every day can you live with switching to ramen noodles for a period of time?  Can you switch from premium cable to basic cable (or cancel it altogether)?  Questions like this can greatly impact the amount you have to set aside. I personally have my emergency fund in CDs that mature the first of every month.  I know there is less liquidity in this approach but I'm ok with that.  My emergency fund is a sum of cash I'll always have so I wanted to reap the benefits of a higher yield.  If it comes down to it I can place an expense on a credit card and pay off the credit card when funds become available."

negative: Generally, you have 60 days to return funds.   If you've been stowing away money in to a Roth IRA and an emergency strikes you pull out contributions sufficient to tackle the emergency while leaving at least the earnings in there.  You've never paid taxes on these earnings and the earnings will continue to grow tax free.   If you've been stowing away money in a vanilla taxable account and an emergency strikes you pull out whatever amount to tackle the emergency.  You've been paying taxes on the earnings all along but there's no paperwork. You can't replace the money in the Roth IRA (outside the 60 day limit except for some specific same year rules that you should iron out with your custodian) but you also haven't lost anything.  Either way in the event of an emergency the funds are removed from an account, but in one case you haven't been paying taxes on gains. IF you want to go the route of a Roth IRA wrapper for your emergency fund you shouldn't be touching the funds for small events, tires for your car and the like.  If your goal is to juice the tax free nature of the Roth IRA wrapper for as long as you can then repurpose the money for retirement if you never experienced an emergency with the understanding that you may have to gut the account in an emergency, that's fine.  If you expect money to routinely come in and out of the account a Roth IRA is a horrible vehicle.

negative: ">That is absolutely not the point at all. It is a bridge to the next job. People should not have to sell their homes and move on, especially in this environment, simply because they went without a job for several months more than they expected.  Isn't this what a savings account is for? Are you to tell me that these people don't have enough money built up in a ""rainy day"" fund? I am about 900k from making a million dollars a year however i still have enough saved up for 8 months of being laid off, so that i DON'T have to get on govt assistance right away. You can't honestly expect me to believe that someone who has this kind of wealth didn't properly plan for this."

negative: Why are you saving your emergency fund in a Roth-IRA? That type of fund should be for retirement. I know you can pull out your principal but that would mean in a crisis you will be destroying your retirement fund.  Remember there is an annual limit, it could take years to replenish it if you have to pay for a big repair, or period of unemployment. The emergency fund should be kept in a very safe account. I would just keep in a high yeild account at a Credit Union


query: Buying an investment property in Australia - what are the advantages and disadvantages of building a house vs buying an existing one?

positive: When buying investment properties there are different levels of passive investment involved.  At one end you have those that will buy an investment property and give it to a real estate agent to manage and don't want to think of it again (apart from watching the rent come in every week). At the other end there are those that will do everything themselves including knocking on the door to collect the rent. Where is the best place to be - well somewhere in the middle. The most successful property investors treat their investment properties like a business. They handle the overall management of the properties and then have a team taking care of the day-to-day nitty gritty of the properties. Regarding the brand new or 5 to 10 year old property, you are going to pay a premium for the brand new. A property that is 5 years old will be like new but without the premium. I once bought a unit which was 2 to 3 years old for less than the original buyer bought it at brand new. Also you will still get the majority of the depreciation benefits on a 5 year old property. You also should not expect too much maintenance on a 5 to 10 year old property. Another option you may want to look at is Defence Housing. They are managed by the Department of Defence and you can be guaranteed rent for 10 years or more, whether they have a tenant in the property or not. They also carry out all the maintenance on the property and restore it to original condition once their contract is over. The pitfall is that you will pay a lot more for the management of these properties (up to 15% or more). Personally, I would not go for a Defence Housing property as I consider the fees too high and would not agree with some of their terms and conditions. However, considering your emphasis on a passive investment, this may be an option for you.

negative: I am from Australia, so my answer is based on my experience over here, however it should be similar for the USA. Generally, what determines both the price of houses/apartments and the rents for them is supply and demand. When there is high demand and low supply prices (or rents) generally go up. When there is low demand and high supply prices (or rents) usually go down. What can sometimes happen when house prices go down, is that the demand can drop but so can supply. As the prices drop, developers will make less money on building new houses, so stop building new houses. Other developers can go bankrupt. As less people (including investors) are buying houses, and more people (including investors) try to sell their existing houses, there will be more people looking to rent and less rental properties available to rent. This produces a perfect storm of high demand and low supply of rental properties, causing rents to rise strongly. When the property prices start to go up again as demand increases, there is a shortfall of new properties being built (due to the developers not building during the downturn). At this time developers start to build again but there is a lag time before the new houses can be completed. This lack of supply puts more pressure on both house prices and rents to go up further. Until equilibrium between supply and demand is realised or an oversupply of rental properties exists in the market, rents will continue to rise.

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negative: Consider not buying the house? Consider a cheaper property? What are your actual goals? Owning vs renting? Perhaps an actual investment goal? What is your rent now vs the mortgage on the house? What is the time frame for the mortgage you are considering?  Those are the real questions you need to ask yourself. It does sound like you can become overleveraged with this property, although your down payment is quite substantial, but one single thing goes wrong and your cash flow is irreparably constricted. I personally wouldn't take that risk if I had the same forecast of expenditures, but this could be altered if there were particular investment goals I had in mind.

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negative: If you are looking for the most and the very popular inspection team in Australia, now you have reached the right place, because we have a good experienced team of building inspection. We provide an affordable inspection service their clients. We identify the potential issue and out a residential or a commercial asset, it is inevitable to rent a building inspector. You don’t want to waste your cash in an investment as a way to now not prosper.  As you know, there are so many issues, creating in the building but, you don't need to worry in that case we will help, it is a most trusted building inspections in Australia. We investigate  the building securely and use better equipments in the inspection process. It is necessary to identify  a building is fit for use before buy the property.

negative: When you buy a property the house or the building goes down in value every year (it gets depreciated) similar to when you drive a new car out of the lot. However, it is the land that increases in value over time. As land becomes scarcer the value of land in that area will increase in value, as does land in sought after areas. If more people want to live in a particular suburb the land value will keep on increasing year after year. Sometimes established areas with houses built in the 1980s or even earlier can be worth much more than newly built areas. It comes down to the supply and demand of land and houses in a particular area. You might even get a situation where a run-down dilapidated house in a very sought after suburb sells for more than a brand new house in a less sought-after suburb nearby. Properties can be a very good investment and they can be a very poor investment. It can largely depend on the decisions you make in buying your investment property. The first thing you need to make a decision on is the location of the property. If you buy a property in a good area that is well sought after you can make good capital and rental returns over the long run. If you buy poorly in an area no one wants to live in then you might have problems renting it out or only be able to rent it out to bad tenants who cause damage, and you may not get any capital gains over many years. The second thing you need to decide on is when in the property cycle you buy the property. If you buy at the right time you can get higher rents and make some quick capital gains over a relatively short time. I can provide a personal example of this situation. I had bought a house (in Australia) in 2007 for $240,000 at a time when interests where at their highest (9%), no one was buying property and rents were on the increase (with low vacancy rates). Today, eight years after, we are getting $410 per week rent and the house next door (in worse condition than ours) has been put on the market asking for between $500,000 to $550,000 (most houses in the area had been selling during this year for over $500,000). So you can say that our house has more than doubled in 8 years. However, up to a few months ago houses were selling within 2 weeks of being listed. The house next door however, has been listed for over a month and has not had very much interest. So from this you can conclude that in 2007 we had bought near the bottom of the market, whilst now we are near the top of the market. What you also need to remember is that different areas of a country can have different cycles, so there is not just one property cycle but many property cycles in the same country.

negative: Will buying a flat which generates $250 rent per month be a good decision? Whether investing in real estate is a good decision or not depends on many things, including the current and future supply/demand for rental units in your particular area. There are many questions on this site about this topic, and another answer to this question which already addresses many risks associated with owning property (though there are also benefits to consider). I just want to focus on this point you raised: I personally think yes, because rent adjusts with inflation and the rise in the price of the property is another benefit. Could this help me become financially independent in the long run since inflation is getting adjusted in it? In my opinion, the fact that rental income general adjusts with 'inflation' is a hedge against some types of economic risk, not an absolute increase in value. First, consider buying a house to live in, instead of to rent:  If you pay off your mortgage before your retire, then you have reduced your cost of accommodations to only utilities, property taxes, and repairs. This gives you a (relatively) known, fixed requirement of cash outflows. If the value of property goes up by the time you retire - it doesn't cost you anything extra, because you already own your house. If the value of property goes down by the time you retire, then you don't save anything, because you already own your house. If you instead rent your whole life, and save money each month (instead of paying off a mortgage), then when you retire, you will have a larger amount of savings which you can use to pay your monthly rental costs each month. By the time you retire, your cost of accommodations will be the market price for rent at that time. If the value of property goes up by the time you retire - you will have to pay more on rent. If the value of property goes down by the time you retire, you will save money on rent. You will have larger savings, but your cash outflow will be a little bit less certain, because you don't know what the market price for rent will be. You can see that, because you need to put a roof over your own head, just by existing you bear risk of the cost of property rising. So, buying your own home can be a hedge against that risk. This is called a 'natural hedge', where two competing risks can mitigate each-other just by existing. This doesn't mean buying a house is always the right thing to do, it is just one piece of the puzzle to comparing the two alternatives [see many other threads on buying vs renting on this site, or on google]. Now, consider buying a house to rent out to other people:  In the extreme scenario, assume that you do everything you can to buy as much property as possible. Maybe by the time you retire, you own a small apartment building with 11 units, where you live in one of them (as an example), and you have no other savings. Before, owning your own home was, among other pros and cons, a natural hedge against the risk of your own personal cost of accommodations going up. But now, the risk of your many rental units is far greater than the risk of your own personal accommodations. That is, if rent goes up by $100 after you retire, your rental income goes up by $1,000, and your personal cost of accommodations only goes up by $100. If rent goes down by $50 after you retire, your rental income goes down by $500, and your personal cost of accommodations only goes down by $50. You can see that only investing in rental properties puts you at great risk of fluctuations in the rental market. This risk is larger than if you simply bought your own home, because at least in that case, you are guaranteeing your cost of accommodations, which you know you will need to pay one way or another. This is why most investment advice suggests that you diversify your investment portfolio. That means buying some stocks, some bonds, etc.. If you invest to heavily in a single thing, then you bear huge risks for that particular market. In the case of property, each investment is so large that you are often 'undiversified' if you invest heavily in it (you can't just buy a house $100 at a time, like you could a stock or bond). Of course, my above examples are very simplified. I am only trying to suggest the underlying principle, not the full complexities of the real estate market. Note also that there are many types of investments which typically adjust with inflation / cost of living; real estate is only one of them.

negative: Yes, it's a buyer's market. If one is looking to buy a house, comparing the cost to rent vs own is a start. Buying a property to rent to a stranger is a different issue altogether, it's a business like any other, it takes time and has risk.  If today, one has a decent downpayment (20%) and plans to stay in the house for some time, buying may make economic sense. But it's never a no-brainer. One needs to understand that housing can go down as well as up, and also understand all the expenses of owning which aren't so obvious. Ever increasing property tax, repairs, etc.

negative: "The basic answer is that you are comparing apples and oranges.  On the one hand, you are considering a case where someone buys a single already-built house.  On the other hand, you are considering a case where someone buys a large piece of land, builds 10 houses, and (presumably) sells or rents the 9 they're not living in. Those are two totally different endeavors.  It might be reasonable to compare the cost of a plot of land sized for a single house to the cost of a similar plot with a house already on it.  But you can't directly compare the cost of buying 10 houses worth of land to the cost of one house.  As other answers have mentioned, building 10 houses involves a massive amount of work: an architect has to design a house, somebody has to get permits to build it, someone may have to get water/power/sewage hookups, somebody has to physically build it -- then multiply all that by 10 for 10 houses.  Once you're done, you still haven't recouped your investment.  You just have 10 houses.  Now you have to sell them, which is a whole other job in itself. Because the things you're comparing are so different, the potential buyers for the two cases are also completely different.  This explains the ""inconsistency"" between the asking price and your perception of its value.  The two kinds of properties are in two different markets.  The people looking to buy a single home are just regular people looking for a place to live (or maybe trying to get a rental property).  The people looking to buy a 10-house plot are real estate developers with a whole different set of concerns.  There could be many reasons why the land hasn't been purchased yet, but you can't compare it to the cost of comparable houses, because almost no one who is looking for a house is going to consider buying 2 acres of land instead.  It's like asking why filling up your car with gas is so much more expensive per gallon than buying a gas station and giving yourself free gas.  They're just not the same thing.   But given the size of the land, I can join forces with other people which are also in the market and totally bring down the land price per piece to say 100k? You can do that, but basically what you'll be doing is forming a real estate development company of some sort.  This opens a whole other world of possible snafus (for instance, how ownership is to be divided, and what happens if the owners disagree on appropriate development of their portions). It is absolutely possible to make money by buying land and building houses on it, especially in California.  People do it all the time.  But it's not something you should attempt if you don't know what you're doing, and it's definitely not the same thing as just buying a house to live in."

negative: "If all the property is going up and down at the same rate, it's probably a bit of a wash. However, there are markets (e.g. the Front Range of Colorado, where I live), where property at different price levels and locations has performed very differently. For a place to live, I think it's most useful to look at housing as a consumption decision, like buying a car, rather than an investment decision, like buying art (since it is similarly illiquid). Consider what you need and want (features, location), how important the ""own vs rent"" tradeoffs are to you (including the risk of losing your equity), and what you can comfortably afford. Then don't worry so much about price trends. This, it seems to me, is the lesson of the recent housing bust."

negative: "after 30 years, you'd have a million dollar house vs a quarter million dollar house. You've captured three quarters of a million dollars in rent, given my napkin math hypothetical. As I figure the math, a 250,000 house appreciating to a million dollar house in 30 years requires a sustained ~4.9% appreciation every year--seems unrealistic. The historical rate of inflation, on average, has been closer to 3-3.5%; a 3% appreciation would give a final value of $589k.  This also doesn't taken into account the idea that you may have bought a property during a housing bubble, and so then you wouldn't get 3% year-over-year returns. But also, in terms of ""capturing rent"", you are not factoring in necessary or possible costs that renting doesn't have:  mortgage interest and insurance, maintenance, property tax, insurance, buying and selling associated fees, and, importantly, opportunity costs (in that the money not tied up in the house could be invested elsewhere).   So it is not such a slam dunk as you make it out.  Many use the NY Times buy/rent calculator to compare renting vs. buying."

negative: "Because the returns are not good. One of the big drivers in Australia is ""negative gearing"": if your investment loses money you can offset losses against your tax on other income. Institutional investors and corporations are in the business of making money: not losing it. Housing market investors are betting that these year to year revenue losses will ultimately be made up in a big capital gain: for which individuals get a huge tax break that is also not available to corporations. Capital gains are not guaranteed. Australia has benefited from 25+ years of economic, employment and wages growth: a result of good government planning, strong corporate governance and a fair slice of luck. If this were to end housing prices would plateau at best and crash at worst. A person who has negative cash flow investments has to sell them urgently if they lose their job. A glut of mortgagee sales and property prices could easily come off 20-30%. Rental yields on residential property in Sydney are about 4% with a capital gain of currently 10% but this has been flat or negative within the last 5 years and no doubt will be again within the next 5. Rental yields for residential property are constrained by mortgage rates: if it significantly cheaper to buy then to rent, why would anyone rent? In contrast, industrial and commercial property gets a yield of about 7% and gets exactly the same capital gain. This is because land is land and if the  price of industrial land doesn't grow at the same rate as the residential land next door eventually one will be converted into the other. Retail rentals are even higher. In addition commercial tenants are responsible for more outgoings and have fewer legal rights than residential tenants. Further, individual residential properties are horribly illiquid and have large transaction costs. While it is possible to bundle them up into property trusts so that units can be sold on the stock exchange it is far more common to do this with office and retail buildings. This is what companies like Westfield and AMP Capital do. Notwithstanding, heavily geared property trusts can get into deep water because of the illiquid nature of property as the failure of Centro  illustrates. That said, there are plenty of companies that develop residential houses and units for sale to owner occupiers or investors because that's where the money is."

negative: It is important to determine a constructing  and good inspector can suggest you on any precise troubles and feasible methods of repair. Get the coolest inspections group by means of Assured Building Inspections, we've got proper fantastic enjoy of the inspection the constructing. As a home consumer, you’re cautioned to have interaction an expert to undertake a pre-buy building inspection on a belongings earlier than you make a decision to buy. The motive of the property inspections is to understand any substantial structural damage, assets defects, or conditions likely to motive similarly damage. Pre-purchase assets  inspections will likely be in reality one in all the largest investments you may make in your existence.

negative: "Figure out how much money you earn, what you spend it on, and how that will change when you have kids (will one of you stay at home? if not, how much will daycare cost and how do you finance the first few month when your child is still too young for daycare?) You will usually plan to spend your current Kaltmiete (rent without utilities) on your mortgage (the Darlehen that is secured by your house) - keep in mind though that a house usually has a higher utility cost than an appartment. When you've figured out what you can save/pay towards a house now and how that will change when you have kids, you can go on to the next step. If you don't want to buy now but want to commit to saving up for a house and also want to secure today's really low interest rates, consider getting a ""Bausparvertrag"".  I didn't find a good translation for Bausparvertrag, so here is a short example of how it works: You take a building saving sum (Bausparsumme) of 150000€ with a savings goal (Sparziel) of 50000€ (the savings goal is usually between 20% and 50% of the sum) and then you make monthly payments into the Bausparvertrag until you reach the savings goal at which point you can take out your savings and a loan of 100000 € (or whatever your difference between the Bausparsumme and Sparziel is). If you're living in an expenisve area, you're likely to need more than 150000 but this is just an example. Upsides: Downsides: If you decide to buy sooner, you can also use your Bausparvertrag to refinance later. If you have a decent income and a permanent job, then ask your bank if they would consider financing your house now. To get a sense of what you'll be able to afford, google ""wie viel Haus kann ich mir leisten"" and use a few of the many online calculators. Remember that these websites want to sell you on the idea of buying a house instead of paying rent, so they'll usually overestimate the raise in rents - repeat the calculation with rent raise set to 0% to get a feeling for how much you'll be able to afford in today's money. Also, don't forget that you're planning to get children, so do the calculation with only one income, not two, and add the cost of raising the kids to your calculation. Once you've decided on a property, shop around a bit at different banks to get the best financing. If you decide to buy now (or soon), start looking at houses now - go to model homes (Musterhäuser) to find out what style of house you like - this is useful whether you want to buy an existing house or build a new one. If buying an existing house is an option for you, start visiting houses that are on sale in your area in order to practice what to ask and what to look for. You should have a couple of visits under your belt before you really start looking for the one you want to buy. Once you're getting closer to buying or making a contract with a construction company, consider getting an expert ""Bausachverständiger"". When buying an existing house they can help you estimate the price and also estimate the renovation cost you'll have to factor in for a certain house (new heating, better insulation, ...). When building a new house they can advise you on the contract with the construction company and also examine the construction company's work at each major step (Zwischenabnahme). Source: Own experience."

negative: The estimated cost of $200 sqft of living space is achievable by builders who are following one the their standard plans. They build hundreds of homes each year across the region using those standard plans. They have detailed schedules for constructing those homes, and they know exactly how many 2x4s are need to build house X with options A, F,  and P. They buy hundreds of dishwashers and get discounts. That price also includes the cost of the raw land and the required improvements of the property.  You need to know the zoning for that land. You need to know what you can build by right, and what you can get exceptions for. You don't want to pay $600 K and then find out you can only build a 1 level house and you can only use 1/4 acre. You would need to start with a design and then have the architect and the builder and a real estate lawyer look over the property. Then they can give you an estimate of what it would cost to put that design on that property.  83k sqft? I mean it can accommodate at least 10 houses. It depends on what is the minimum lot size. If the maximum allowable density is three houses per acre you can get 6 in 2.2 acres, but if the minimum lot size is supposed to be 5 acres, then you will need an exception just to build one house. And exceptions involve paperwork, hearings and lawyers.

negative: So like any market, the housing market will *on average* trend upward. But the extreme prices we're seeing in Toronto or San Francisco are not part of the normal market growth. There's a lot of factors that can affect housing outside of just increased demand. Here's a few of the big ones.  1) Low-Interest Rates: Since (2008? I think) interests rates have been really low, meaning mortgages are really low. If you can borrow money at 4% and the inflation rate is 8%, you've borrowed expensive dollars and are paying back in cheap dollars.  2)NIMBY (Not in my back yard): If you have enough land to build 10 houses or one 100 apartment building, what do you build? Theoretically the apartment building, but in reality, the people that already paid for their million dollar house, don't want a giant apartment complex bringing down the value of the neighborhood and ruining their views. So they pass laws preventing new and bigger buildings, meaning higher prices for the homes that already exist. And as a bonus, it's easier on the city to have 10 people who make a million dollars a year than a 100 people who make 100,000 a year.  Foreign investment: So there's a lot of places where people have money, but because of corruption or shaky economies, it's not safe to hold it there. So you buy properties in the U.S. or Canada because you know no one's going to seize it and it's (generally) not going to lose value. So you end up with foreign dollars competing with the local markets for housing, driving the price up.

negative: The assumption that house value appreciates 5% per year is unrealistic. Over the very long term, real house prices has stayed approximately constant. A house that is 10 years old today is 11 years old a year after, so this phenomenon of real house prices staying constant applies only to the market as a whole and not to an individual house, unless the individual house is maintained well. One house is an extremely poorly diversified investment. What if the house you buy turns out to have a mold problem? You can lose your investment almost overnight. In contrast to this, it is extremely unlikely that the same could happen on a well-diversified stock portfolio (although it can happen on an individual stock). Thus, if non-leveraged stock portfolio has a nominal return of 8% over the long term, I would demand higher return, say 10%, from a non-leveraged investment to an individual house because of the greater risks. If you have the ability to diversify your real estate investments, a portfolio of diversified real estate investments is safer than a diversified stock portfolio, so I would demand a nominal return of 6% over the long term from such a diversified portfolio. To decide if it's better to buy a house or to live in rental property, you need to gather all of the costs of both options (including the opportunity cost of the capital which you could otherwise invest elsewhere). The real return of buying a house instead of renting it comes from the fact that you do not need to pay rent, not from the fact that house prices tend to appreciate (which they won't do more than inflation over a very long term). For my case, I live in Finland in a special case of near-rental property where you pay 15% of the building cost when moving in (and get the 15% payment back when moving out) and then pay a monthly rent that is lower than the market rent. The property is subsidized by government-provided loans. I have calculated that for my case, living in this property makes more sense than purchasing a market-priced house, but your situation may be different.

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negative: This is why we need to get rid of the vultures that buy up property on the cheap, hoard it, and rent it out at a ridiculously inflated price.    The U.S., Australia, Canada, and others alike are in need of housing reform terribly.   As the article stated, eviction is not just a condition of poverty, it is a cause of it!

negative: Since then I wanted to move out of this house because the property taxes are so high and the mortgage payment is a killer. As I understand this is a property jointly owned by your parents and you. As they are not living staying in the house, you have taken over the mortgage payments for this house along with any other maintenance. If you move out of this house; the rent is expected to cover the cost of maintenance and mortgage payments. Are we better of staying in Jersey where our family and friends are?  This is an individual decision. It is not just family and friends, but also schooling of kids, penitentially if you change jobs would it also entail changing residence as the workplace would be more near from current home than the new home. I want to convince my wife to make this move because it will save us at least 800 month, but she fails to see how buying a second home is financially sound because we have to lose our savings and we have to pay interest on our second home. There are quite a few posts on first-time-home-buyer Some question like this one and this one and this one are good reads. There are historically times when the Mortgage EMI becomes equal or less than Rent paid. In such times it is good to buy home, than pay rent. Otherwise quite a few invest advisor's mention that fools buy house and wise live in it. There are advantages to buying as well advantages to renting. There is no simple answer and it depends on multitude of factors.

negative: "I don't look to Super or Pension, I am working on self funding. My method is work in Sydney and buy a house in Sydney (I bought 6 years ago). Let my property rise on this stupidly insane Sydney growth (my place has risen by 76% in the last 6 years and thats in a ""bad"" economic climate). Each time the equity hits a certain point get an investment property on an interest only home loan and rent it out. Build this portfolio up as much and as quickly as you can. Repeat over and over until I decide to retire. Sell up investment properties and buy NOT IN SYDNEY where it is much cheaper and move there, keep the main house I always lived in as by this time I will own it outright, rent it out for an income that will more than sustain me in my retirement. Although there is also merit in the idea of sell the one you lived in and use the money to pay of one of the investments, this way you avoid capital gains tax. This idea came to me last night :)"

negative: I used to own a few investment properties, so I'm pretty familiar with this.  As MrChrister mentions, lenders see investment mortgages as higher risk. People who fall into financial trouble are much more likely to let their investment properties go than their personal residence.  Consequently, the interest rates and downpayment requirements are generally higher. Typically a mortgage for an investment property will require 20% down, vs. as low as 3-5% down for a personal residence.  With excellent credit and some shopping around, you could probably do 10% down.  Interest rates are typically about a half-percent higher as well. You'll also find that the more investment properties you have, the harder it becomes to finance new ones.  Banks look at debt-to-income ratios to determine if you are over extended.  Typically banks like to see that your housing payments are less than 20% or so of your income.  However, with rental properties, housing payments generally account for far more than 20% of your rental income.  Other income you have can offset that, but after buying 2-3 houses or so, your DTI generally creeps into the range where lenders are uncomfortable lending to you anymore.  This is why you'll find that many rental properties are bought on land contracts with owner financing rather than with mortgages.

negative: Australia has a massive housing bubble (one of the last in the world to pop), no productivity growth (lots of investment in mining which hasn't yet payed off, though we'll do well if commodities pick up), and relies on China and India buying lots of coal and steel at historically high prices.

negative: Using cash to purchase a home allows you access to certain deals that mortgage buyers cannot take advantage of.  These are typically distressed properties and need to be moved off the books quickly.  Think of things like foreclosures and auctions. This does not mean that it gives you an advantage with every house on the market.  While you may be able to close quickly, with cash, some buyers may choose to wait for the (presumably) higher offers of mortgage buyers.   There are complications to purchasing in cash then mortgaging to replace that cash.  Namely, how was that cash invested?  If one were in mutual funds or stocks, with the money, one will have to pay capital gains tax on any profit.  If those investments increase in value, during the time the money is tied up, what do you do then?  Do you buy at the higher value or hold it back and dollar cost average it in?

negative: "Presumably the existing house has some value. If you demolish the existing house, you are destroying that value. If the value of the new house is significantly more than the value of the old house, like if you're talking about replacing a small, run-down old house worth $50,000 with a big new mansion worth $10,000,000, then the value of the old house that is destroyed might just get lost in the rounding errors for all practical purposes. But otherwise, I don't see how you would do this without bringing cash to the table basically equal to what you still owe on the old house. Presumably the new house is worth more than the old, so the value of the property when you're done will be more than it was before. But will the value of the property be more than the old mortgage plus the new mortgage? Unless the old mortgage was almost paid off, or you bring a bunch of cash, the answer is almost certainly ""no"". Note that from the lienholder's point of view, you are not ""temporarily"" reducing the value of the property. You are permanently reducing it. The bank that makes the new loan will have a lien on the new house. I don't know what the law says about this, but you would have to either, (a) deliberately destroy property that someone else has a lien on while giving them no compensation, or (b) give two banks a lien on the same property. I wouldn't think either option would be legal.  Normally when people tear down a building to put up a new building, it's because the value of the old building is so low as to be negligible compared to the value of the new building. Either the old building is run-down and getting it into decent shape would cost more than tearing it down and putting up a new building, or at least there is some benefit -- real or perceived -- to the new building that makes this worth it."

negative: "The flaw in your reasoning is that you are assuming that renting a house is easy and automatic. Who is going to manage the property? Your parents? What are you going to do if the tenants burn the place down, start having drug parties there, or secretly have 6 cats who piss everywhere so noone will ever want to rent it again? What are you going to do when the house goes unrented for a year and you have to pay a year's worth of mortgage payments with no rental income? What are you going to do when some deadbeat decides to stop paying the rent, but won't move out, and when you try to evict him, he goes to court to stop you? You going to fly to NJ to make the court appearances? Unless you sell your existing house, or your parents buy you out, then you need to stay. You should not attempt to own two houses at once with one of the houses located not where you are at. That will not turn out well. Also, just as an aside, 30-year mortgages are not an ""investment""; they are a way to lose money. Usually people get them because they want a big beautiful house that they cannot afford, so they borrow the money. That is not ""investing"", that is wasting money to live in luxurious circumstances. If you want to become wealthy, buy a property you can afford, not something that you have to string out payments for 30 years."

negative: It would depend on a) Ones view on Markets and b) Ones nature. If one believes that the market would be going up in the near future then it would be best to buy all at once. If one believes the market is uncertain, it would make sense to invest over a period of time. If one is a disciplined investor and can stick to plan, it would make sense to invest over a period of time as the risk is generally less. How much less is again subjective. If one is not a disciplined investor then buying now and getting done with is a good idea.   As to exactly quantifying this is absolute number for future would not be possible. One can take the data from past, however it would work advantages if the prices moves up and disadvantages if the price moves down.

negative: "People borrow money all the time to buy a house. Banks will lend money on one (up to 80%, sometimes more), because they consider it an ""investment."" If you own a large company and want to expand, a bank or bond issuer will first look at what you plan to do with the money, like build new factories, or whatever. Based on their experience, they may judge that you will earn enough money to pay them back. If you don't, they may ""repossess"" your factories and sell them to someone who can pay. As protection, you may be asked to ""mortgage"" your existing company to protect the lenders of the new money. If you don't pay back the money, the lenders get not only your new ""factories"" but also your existing company."

negative: First off, I'd highly recommend looking at this nytimes rent vs buy calculator. This calculator gives you some great flexibility (for example, estimating what will happen with a 7% return in the stock market, and comparing renting vs buying). Secondly, I have personally gotten a lot out of this wall street journal book. Check it out at the library or buy it and read it cover to cover.  My personal opinion is that buying a house or condo is mostly a lifestyle choice.  Some specific caveats with your situation: A sidenote: One of my friends who bought a condo in chicago is considering moving to a different city and is very much regretting buying a condo, even though he got the $8k housing credit, because renting isn't as easy as it looks (you can do it and do it profitably but you darn well better consider that BEFORE buying a condo)

negative: "No, it won't work like that. Get rid of regulations and people sill start building shitty houses that will fall down.  Even better solution, havethe governmenr sieze all property, and now you don't buy a house, you merley ""rent"" it from the governement."

negative: You don't start out buying a shopping mall, you have to work up to it.  You can start with any amount and work up to a larger amount. For me, I saved 30% of my salary(net), investing in stocks for 8 years.  It was tough to live on less, but I had a goal to buy passive income.  I put down this money to buy 3 houses, putting 35% down and maintaining enough cash to make 5 years of payments.  I rented out the houses making a cap of 15%.  The cap is the net payment per year / cost of the property, where the net accounts for taxes and repairs.  I did not spend any of the profits, but I did start saving less salary.  After 5 years of appreciation, mortgage payments and rental profit, I sold one house to get a loan for a convenience store.  Buildings go on the market all the time, it takes 14 years to directly recoup an investment at a 7% cap, which is the average for a commercial property sale.  Many people cash out for this reason, it's slow, but steady growth, though the earnings on property appreciation is a nice bonus.  Owning real estate is a long term game, after a long time of earning, you can reinvest, but it comes with the risk of bad or no tenants. You can start both slower and smaller, just make sure you're picking up assets, not liabilities.  Like investing in cars is generally bad unless you are sure it will appreciate.