At least partially. Nest egg getquin style.
tl;dr
Common recommendations for a nest egg on the net (1-6 months' salary, everything in a current account or call money) are rubbish and not return-oriented. The nest egg should be calculated on the basis of expenditure and not income. From a certain deposit size and with a sensible investment strategy, part of the nest egg can be invested.
Once again, it's time to take a stand against frequent recommendations on the web. Today: the nest egg. As many people unfortunately continue to lump together regular planned expenses, the vacation fund and the nest egg, I'll start with the basics:
The nest egg contains reserves for absolute emergencies. For example, for urgent, unplanned expenses that are due at short notice and cannot be postponed under any circumstances. It also includes reserves to cover the absolutely most important recurring expenses should an income stream break off.
The nest egg should be separated from regularly planned expenses such as rent, food, hobbies, ... should be set aside. The money required for this (+ buffer) should always be in the current account and does not count as a nest egg. The same applies to money that is planned to be spent in the foreseeable future. For example, for a new smartphone or a vacation. Ideally, the necessary reserves should be held in a call money account and are not part of the nest egg. Or is it an emergency when you go on vacation?
Now that this has been clarified, let's look at the amount of the nest egg and thus one of the questionable "expert recommendations" on the internet: The nest egg should be invested in the amount of 2-3 (or, depending on the source 1-3, 2-4, 3-6, ...) monthly salaries (either gross or net).
Why do the figures vary like this? Because they are cheese. On the basis of the aforementioned foundations of a nest egg, it is not expedient to set it at 1-6 months' salary across the board. It is not the income situation that needs to be considered, but the expenditure situation. A low-income earner who rents, drives a 20-year-old car, is dependent on it and is frequently absent from work for longer periods due to health issues needs a higher nest egg than a top earner who lives rent-free in the basement of their parents' paid-off single-family home and works 100% from home.
When determining the size of the nest egg, options that ease the financial burden of an emergency should also be considered:
- Instead of repairing the car immediately, I drive publicly for some time
- If I am made redundant, it won't happen overnight and unemployment benefit is also available
- I have insurance in case of occupational disability
- ...
To determine a sensible nest egg amount, take a look at your recurring, irreducible expenses and combine them with possible unplanned expenses that cannot be compensated or delayed.
And that brings us to the polarizing part of the article: The nest egg belongs (partially) in the custody account! Simply because of the return.
Not right from the start, of course. After all debts have been paid off, the next step is to build up an appropriate nest egg before thinking about investing in the stock market. But once the nest egg has been built up, the savings plans on the stock market have been started and a multiple of the nest egg is in the custody account, you can definitely start to put parts of the nest egg into the custody account. Or to put it another way: You can reduce the size of the nest egg. At least if you pursue a reasonably responsible investment strategy (e.g. world ETF) and your portfolio doesn't just consist of godless revenge levers.
Why is this possible? Because your portfolio is another safety anchor. You no longer need to hold so much cash for emergencies, as you can withdraw money from your portfolio at relatively short notice. Yes, even your well-diversified global portfolio can collapse. But it will definitely not go to 0. And if it does, your nest egg in your current account will probably be worth nothing.
The larger your portfolio, the more you can reduce your nest egg and benefit from the returns on the stock market. You should take into account the time it takes for your money to arrive in your account from the time it is sold. This is often days. Accordingly, I would always keep a portion of your nest egg in a current account or call money account. Even if there aren't that many emergencies in which you really need money immediately:
- A layoff won't put you out on the street overnight
- If you are seriously ill, you will continue to receive your salary for several weeks
- If your car breaks down, it will be repaired and only then will the bill be paid
- If your washing machine breaks down, you can stop washing for 2 or 3 days, use your neighbor's machine or go to a laundromat
- ...
What's more, real, free credit cards offer you additional ways of getting money at short notice and without incurring charges. For me, it is therefore perfectly justifiable to put up to 50% of your nest egg into a deposit - as soon as it is big enough.
How could your nest egg develop over time?
You define how large the nest egg should actually be. As soon as you have paid off all your consumer debt, you build up the nest egg to the desired amount (current account or call money). Important: Do not use your nest egg to pay for your regular expenses or vacations. This is done separately. Then you can start working on your custody account. For every 10k in a world ETF, for example, you could transfer 500-1000 euros of your nest egg to your custody account. You do this for as long as you feel comfortable with it.
Conclusion
General recommendations on the internet definitely have their raison d'être. They are easy to understand, easy to implement and therefore a good point of reference for people who are not interested in the topic. But we are in a bubble here at getquin. We love getting to grips with finance and teasing out even more returns at a reasonable risk. So why not do the same with your nest egg?
How much is your nest egg and do you have it (completely) in a current or call money account?
Kiss on the deposit 💋
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