Emergency Fund In An 8-Week T-Bill Ladder, My Thoughts.

I decided not to directly jump into 13-week T-Bills due to concerns about liquidity in time of losing my job or worse. But I still wanted the passive income of building a T-Bill Ladder for my 6-month Emergency Fund.

Idea For Building An 8-Week T-Bill Ladder Instead.

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I’m reading “I Will Teach You to Be Rich: No Guilt. No Excuses. Just a 6-Week Program That Works” by Ramit Sethi; I listened to a book on Audible and also read “A Beginner’s Guide to Short Term Trading: Maximize Your Profits in 3 Days to 3 Weeks” by Toni Turner, and the standard message is fear is the mind-killer.

They didn’t say it that way, but I also recently finished “Dune” by Frank Herbert. That mantra is repeated repeatedly: Fear Is The Mind-Killer.

Let me get to the point. I am experimenting with building t-bill ladders, a new way to invest my 6-month Emergency Fund(Step #3 of FPU‘s Baby Steps).

My first experiment, still in progress, is creating a 4-week T-Bill ladder to test out money withdrawals, interested accusations, maturity distributions, and later re-investment events, all on Treasury Direct.

I set up the 4-week T-bill ladder, and recently, I bought my first 4-week T-bill. I saw the money come out of my checking account, SoFi.com.

Feeling empowered, I want to move all my six-month Emergency funds into T-Bills since they offer higher rates than my High Yield Savings Account (HYSA). Also, remember the immunity from State and Local Income taxes T-Bills offers. Consult your tax advisor for maximum understanding.

But….. The Fear Point……?????

The fear point. I was going to invest almost all my Emergency Fund into 13-week T-Bills, with only the initial $1,000 immediately available( In Which Situation Would A Savings Account Be The Best Investment To Earn Interest? ). This lack of immediate funds scared me.

I could stagger my investments, preventing any period without access to my unmatured T-Bills for up to two weeks, but again, I would have to survive on just $1,000 till then.

So, I figured out a way to use my Fear and my desire to turn my Emergency Fund into a more fruitful passive income generator (PIG) by using the flexibility of maturity dates in my favor.

Follow along; I think I found a solution till I can stomach tying up so much of my emergency money in securities.

What I Did Today With Latest T-Bill Ladder Experiment.

The 4-week t-bill ladder experiment continues, and I will update you later about it. I have little skin in the game; 4 x $100 T-Bills for $400 committed to that experience.

Today, I separated my whole emergency fund into separate parts and invested in T-Bills with a large portion.

My Emergency Fund Separation:

$1,000 of (FPU Baby Step #1) remaining in my checking/savings bank account.
Balance of 2 months of monthly expenses left in my HYSA.
The remainder (4 months of expenses) of my Emergency Fund is being invested into T-Bills.

FYI, About My Funds/Savings Accounts.

I calculated my monthly expenses on a Monthly-Expense Worksheet, which included only necessary expenses to hold me over between jobs if I should become unemployed.

The role of this 6-month Emergency fund.

I have other funds that I save for scheduled items like car maintenance, house repair items, and holidays. But these non-emergency funds are tucked away in a HYSA.

Different Maturity Date Options.

I use Treasury Direct, https://www.TreasuryDirect.Gov,. I have no middle person and no concerns about my money being withdrawn early or not being fully invested—a later topic.

There are different maturity dates with T-Bills, T-Notes, and T-Bonds. I want my Emergency Fund to work hard and passively and remain available. Without having to go to a secondary market, another later topic.

So, I opted for T-Bills since their maturity periods are measured in weeks and are only up to one year.

What T-Bill Ladder I Built.

Wanting to maximize my investment returns while still having access to a chuck of my emergency fund, I am only investing four months of expense into T-Bills.

So, four months worked out into my head, as I used eight-week T-Bills for my Ladder.

Follow me here:

I split the four months into 4 one one-month expense balances. Then invested, each of the four one-month expense balances was invested into separate 8-week T-Bills.

Also, each T-Bill is separate from the others by two weeks.

This way, on my initial investment, I invested all four months with pre-ordered t-Bill purchases today. I’ve committed all four months. I still have two months of expenses completely liquid with me.

So even if I’m ‘fired’ today, I have my two months of monthly expenses immediately available. In 8 weeks, the first of the 4 T-Bills I bought matures.

Followed by the remaining T-bills maturing in two-week intervals.

Oh, Why All The Hard Work To Use T-Bills?

Well, it’s not hard work, but there are a few more steps to buying T-Bills and setting up the Ladder than leaving money in HYSA.

Even using my Money Market Mutual Fund, T. Rowe Price‘s TSCXX, is a few more steps than a HYSA, but easier than setting up a T-Bill Ladder.

With T-Bills, I get a higher return on my investment(Dec 2023 Info), which is the first answer.

SoFi’s HYSA(my savings account attached to my checking account) is 4.6%.

Source: https://www.sofi.com/banking/savings-account/

While TRowe Price’s TSCXX 7-Day SEC Yield is 5.23%.

Source: https://www.troweprice.com/personal-investing/tools/fund-research/TSCXX

Both pale in consideration to the 8-week T-Bill Yield, 5.4%.

Source: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_bill_rates&field_tdr_date_value=2023

Now, the TSCXX yield is very close to the 8-week T-Bill Yield, but remember, T-Bill interest returns are State and Local Tax Exampt. So, I get to keep more of my returns with the T-Bills than my money market mutual fund.

With more money kept, it means more money I can compound over time, which will mean more significant passive income growth with proper investments.

😀

What Do You Think About My T-Bill Ladder Idea?

If you do something different or have feedback, please comment below.

Also, here are the steps I took to build this 8-week T-bill Ladder: How I Built An 8-Week T-Bill Ladder Emergency Fund.

Tom, Growing His Passive Income Generators.