Funds to use
We generally have the following expenses one needs to plan for:
- Monthly regular expenses (rent/mortgage, phone, internet, groceries, etc)
- semi-annual or annual expenses (insurance, property taxes, some subscriptions, etc)
- Planned irregular expenses (new car, maintenance(house or car), vacation, etc)
- Unplanned irregular expenses (lost job, emergency room visits, etc)
- long term (retirement) savings.
1 and 2, the regular expenses, are super easy to plan for, just add them all up for a year, divide by 12, and you know how much you need in your checking account every month. This should all be in your core holding or FTEXX.
3 is a great place for FIKFX, you don't know when you need these things, but you know you need them. You can definitely plan these expenses. Vehicles are $.58 per mile and houses are 1-10% of value in maintenance per year. or you guesstimate $x/month moving into that fund to keep it full enough to handle any single biggest expense you expect. Alternatively if your savings rate is high enough, you can just absorb whatever comes along as it comes along from your cash flow and not have this fund, your savings would just decrease some whenever these expenses come up.
4 is also a great place for FIKFX, just plan for the biggest expense you want to plan for (probably lost job, you will need to cover #1(monthly regular) for X months and maybe some or all of #2. Add it up add 10% and that's how much should be in this fund.
5 should be in total stock market index funds and total bond market index funds.
Another way to think about it:
Short Term < 1 year.
For short term < 1 month, just use the core account.
For a month but less than 3-6, use FTEXX
Medium Term 1-5 years
Long Term (greater than 5 years)
Use FZROX in your tax-advantaged account(s) @ Fidelity.
Or for the ultra-lazy, a target date retirement fund.