Jordan shares a sneak peek of an exciting new show called The Elements of Money, where CEO Reese Harper and Abby Morton simplify real-world financial questions using the Elements framework.
Listen in as they discuss the ins and outs of building an emergency fund, distinguishing between short-term savings accounts and long-term investments, and how to figure out exactly how much liquid cash you need.
Whether you’re new to Elements or a long-time user, this client-focused demo reveals how the methodology “acts in the wild” and helps everyday people gain clarity around their finances.
Transcript
Jordan Haines:
Welcome friends to another episode of L mentality. Now I have a special treat for you today. If you’re a listener of the show and you’re here every week. You’ll remember my conversation with Abby Morton last week and we teased and mentioned. Of really fun project that she is working on with our very own CEO, Reese Harper. Um, and we’re going to call this the elements of money. [00:01:00] A show specifically for clients or consumers to help them understand. The elements that we have right now. So I wanted to replay one of these episodes with you today. We’re still building.
Jordan Haines: We’re having a lot of fun creating these. The focus of these, like I mentioned earlier is specifically to help clients. And prospective clients and just normal everyday people orient themselves to their financial situation for the first time. So, this is only a short, I think it’s 10, 15 minutes or something like that. Go ahead and give it a listen.
It’s a really good opportunity to see how elements. Ax in the wild. Many of you listen to this, have never seen elements. Uh, used in real life or our longtime users of elements. and want to see how we use this internally with people that we talk to. So give it a listen, let me know what you think. I hope you enjoy the episode.
Abby Morton: Welcome to the Elements of Money Show, where we help you make the most of what you’ve got. We’re two financial coaches using the Elements Financial Vital Sign Framework to answer your money questions. [00:02:00] Today’s question’s from Jackie, and we’re gonna jump right in.
Reese Harper: How fun. I’m excited for this. Thank you, Abby, for letting me be a part of this awesome show.
Abby Morton: So Jackie’s question is, where’s the best place to save my emergency fund?
Reese Harper: Wow. Okay. Well, let’s look at Jackie’s data to answer that question.
Abby Morton: So before we jump into the data though, I’d like to just define quickly what an emergency fund is, because I think there’s lots of different terms that have been used out there.
There’s lots of different ideas. Can we define it?
Reese Harper: Yes.
Abby Morton: I’m going to define it and you tell me, maybe you can change it because you might have a different opinion. I think it’s kind
Reese Harper: of a loose term, right?
Abby Morton: It totally is. So an emergency fund, a rainy day fund. I feel like those are the two most common. You know, an oh crap fun, you know, something the wash literally my washing machine died last week.
Oh crap. I got to go buy a 1500 new set of washer and dryer. So that’s what the, that money would be used for, right?
Reese Harper: Yep.
Abby Morton: So, um,
Reese Harper: I already have opinions right now and I want to share them. [00:03:00] So we’ll let you keep going.
Abby Morton: Okay. I’m going to finish up. I think the most common terms is three to six months worth of spending and maybe we’ll just leave it at that.
Three to six months worth of spending saved up in cash for those. Uh, you know, things that just happened in your life that you can’t control. What would you add to that?
Reese Harper: Well, I mean, for me, I think the word emergency fund is not super helpful because no one thinks of their liquid assets, uh, as for an emergency or not for an emergency.
It’s like, no one’s really like walking around being like, do I have my emergency ready? It’s like mostly you just have like a bank account balance. You pull up, open your bank’s app and you’re like, how much do I have in there? And if it goes down, you get scared. And if it goes up, you feel good. So I like what we did at, um, elements money where we took the one orange bucket that you see here [00:04:00] and we called this everything that’s in there.
We’re just saying is liquid. Now let’s just
Abby Morton: find liquid
Reese Harper: liquid. It’d be stuff you can get very quickly. It’s stuff you can, it’s in a bank account or in an investment account that you could like pull from very fast.
Abby Morton: No, no penalties or fees that are associated with getting to that money. You can get to it within a day or, you know, three days, right?
Reese Harper: Yeah. We would combine all the different types of accounts that you can get access to quickly in that bucket in that orange square.
Abby Morton: Yeah.
Reese Harper: So an emergency level. Would be a point two five score like if you have at least a point two five score That’s the equivalent of point two five years or three months.
Abby Morton: See what he did there He made the common terms apply to the elements framework. I love it.
Reese Harper: Oh nice. Good. Yes. Well, I
Abby Morton: point to five There’s your
Reese Harper: Not emergency,
Abby Morton: it’s your, uh, what are you calling it? Because you say that even like emergency, if you
Reese Harper: lack the word emergency, you can [00:05:00] say it all day long, folks. I think,
Abby Morton: I think a flashing machine literally went out.
It’s an emergency at my house right now. I
Reese Harper: don’t like thinking about emergencies that much. They scare me. So I just think of of it as my safe liquid bucket of money.
Abby Morton: Yeah.
Reese Harper: And if it’s in an investment account that’s in. Um, safe investments or if it’s in a bank account, I don’t really separate out those two like two distinctly.
Some people really like to do it. Um, there’s a thing in behavioral finance called mental accounting. where people have preferences for how they think about their money in terms of buckets. We’re just categorizing. However you think about it. We think about it in a big macro bucket called liquid. Um, it’s a liquid bucket.
So if it’s in your retirement account, we don’t think it’s the same. If it’s in your house, it’s not the same. If it’s in a business, it’s not really the same. So your liquid reserves, whether they’re in a bank account or an investment account, They’re if you can get out of them in a couple of days, we just want to [00:06:00] make sure that you at least have 0.
25 of that as a starting point.
Abby Morton: I
Reese Harper: think at a minimum. And you said at a minimum six months is 0. 5. Yep. But
Abby Morton: so yeah. So that’s why this question came up for Jackie. I think because she does have an emergency fund or money sitting on the side and she’s trying to decide what she’s Should that just be sitting in my checking account or my savings account because it’s not doing anything for me, right?
That red emoji
Reese Harper: was scaring me, dude. I’m sorry. I gotta take away the red emoji just to make sure that it’s not too scary. Let’s like focus in on that. Okay, we’ll focus
Abby Morton: in on the
Reese Harper: We have 0. 5
Abby Morton: Well, let’s Can we see like where her money’s at? Because I think that’s important, right? Some people are like, does it just sit in my checking and savings or is there somewhere better for it to be?
Reese Harper: Yeah. Well, she’s got it all in a checking account and that’s awesome. Shout out to us bank, our friends at us bank, they’re not sponsoring us, but we hope you will one day. Just kidding. So us bank accounts, we don’t have an investment account yet.
Abby Morton: No investment account.
Reese Harper: Now. So this is an interesting question, right?
So you have a 0. 5 liquid term score. Is it [00:07:00] time to invest my money? That’s a
Abby Morton: great question. We’re not going into that though.
Reese Harper: So what’s this question specifically? This question
Abby Morton: is, I need cash on hand. Does it sit in my checking or do I put it somewhere else? I’m going to answer that question because I have a very strong opinion.
What is it? I’d like to hear it. Yeah.
Reese Harper: As long as you don’t get mad when mine’s very different.
Abby Morton: Okay. I mean, that’s why we’re fun. It’s because we have different opinions about where your money should go. So Yes, I definitely think some portion of obviously you need to have balances in your checking and your savings account, right?
I think you need to have that, but I do like Reese mentioned, bucketing your money. I personally like to bucket my emergency fund in my family. I’m like, I want 30, 000 in my emergency fund. Like that’s the baseline that we’ve set up for our family that we want. And I have that set up in what’s called a high yield savings account, high yield savings accounts.
There’s a million out there. They’re mostly from online. like banking institutions, so they’re not like brick and mortar stores. [00:08:00] And so honestly, if you just Google high yield savings accounts, you will find a list every month. There’s a new list of the best high yield savings accounts out there. And there’s ways that you can optimize.
There’s a There’s like accounts that will move money from one account to the other account to follow the highest interest rate. I don’t think you necessarily have to do that, but I do think it’s wise to put money that’s just going to be sitting in cash for long periods of time, but you want to be able to get to it quickly to be in a high yield savings account because then it’s at least doing something for you.
You’re earning more than 0. 01 percent interest on that money. Typical high yield savings accounts today are paying somewhere between four and five percent. And so I think personally, I think everyone should have a high yield savings account. And that’s where the emergency fund money should sit.
Reese Harper: Okay. How many months would you keep in checking that you’re not putting in a high yield savings?
Are you a one month in advance? Cause you’re maximizing your high yield savings account or do you have to like, what do you like for?
Abby Morton: I’m like. I think that kind of is [00:09:00] person to person.
Reese Harper: You don’t mind managing it and moving it around probably.
Abby Morton: Well, so I always have my 30 grand sitting in my high yield savings and then, and I just have checking is you’re a person of
Reese Harper: privilege.
So I
Abby Morton: am kind of privileged
Reese Harper: like that 30, 000 has
Abby Morton: made me be very frugal more than I probably want to be in my life.
Reese Harper: So that’s great. I mean, I mean 30, 000 to someone might be a lot to another person might not be as much. I think the, the, the score here, the liquid term score, it translates. However much you have into a number of months or a number of years in this case.
So I’m what I would, I would just add to your coaching. I think it’s great advice. I liked what you shared. Um, I think it’s hard for, Most people to ever get to this point. I mean, the average person to get to a 0. 5 liquid term score is sometimes years and years and years and years of effort, right? It’s
Abby Morton: sometimes
Reese Harper: for some people it’s like very quickly it happens because they don’t spend very much.
Abby Morton: And that’s what this is about. [00:10:00] We’re this, this show is to help everyone, no matter where you’re at. It’s okay. If it takes you five years, it’s okay. You’re trying, if it takes you a month.
Reese Harper: I think that’s the question, though, of how much should I keep in checking versus how much should I keep in high yield savings?
Um, I think that a high yield savings account is a great place to keep anything, in my opinion, up to a 0. 5. Yeah. Anything up to a 0. 5, I’m saying could go in a high yield savings, and it’s probably a personal preference for how much you want to keep in checking. So of your 0. 5, 0. 1 might be in checking and for some people, maybe 0.
25 might be in checking. But if you have more than 0. 25, in my opinion, this is just one person’s opinion. Now I’m starting to really go, yeah, if you’ve got 0. 25, let’s go high yield savings with everything above a 0.
Abby Morton: 25.
Reese Harper: Now, Once we get above a 0. 5, which sounds like we’re going to talk about next week or another question at another time.
Now it’s a question of where should, should, should I invest that money or not? That’s a different question, but I [00:11:00] think you’re right that there’s some ratio of high yield savings and personal checking. That is probably a question for your own preferences for how much you want to manage this, like how much effort you want to put in.
I don’t want to minimize the value of that. Uh, high yield savings account, but I think it’s the reason we don’t separate out the two in our element scores and we put them all in one is because that amount of money and that amount of interest difference between 1 percent and four on that amount of money won’t be the difference between you being financially independent or not.
It’s just a preference for how much you want to optimize. Uh, for and the effort you want to put towards it, right? Do you agree with that? I love it. Cool. I
Abby Morton: think that’s a great like kind of wrapping up point is You kind of decide maybe use these guidelines these guide rails that we’ve given you today to know how much is in checking Versus how much do you put in a high yield [00:12:00] savings?
And then we’ll go into a future episode talking about, okay, I’ve, I’ve met maybe this 0. 5 or 0. 75 in my high yield savings. Where do I put the rest of the money? I don’t want to go too high level today. So, yeah. And
Reese Harper: if you’re at a 0. 25. I would say you’re probably not ready to like started investing a ton of money.
Oh, agreed. A hundred
Abby Morton: percent. Like, don’t eat. Let’s not even talk about investing until that liquidity is at a 0. 5.
Reese Harper: a great guy. Like
Abby Morton: that. Yeah. It’s a great
Reese Harper: guideline. Yeah. It’s a great guideline. Hey,
Abby Morton: there’s a little snippet into that future episode. Hey everyone. Thanks for joining us today and we’ll see you next time.
Reese Harper: Cheers.
Abby Morton: If you have a financial question you would like answered, email us at podcast at elements money. com. And don’t forget, if you want some one on one guidance for your personal situation, schedule a coaching session in the app anytime. Catch you in the next episode.