Author Topic: Appropriate emergency fund account?  (Read 9095 times)

ricky bobby

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Appropriate emergency fund account?
« on: May 08, 2014, 06:37:59 PM »
Over the last few months, I've cleared all debt and accrued a $5000 emergency fund. All extra money is now being split between a Roth IRA and a new Betterment.com account.

I've opened a money market account at my credit union, but I'm not sure that this is the best way to hold my money. I do like the quick availability of funds, but the low interest is a joke (0.1%). May as well bury it in the back yard.

What do you guys do with any money that you're holding?

brewer12345

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Re: Appropriate emergency fund account?
« Reply #1 on: May 08, 2014, 07:21:53 PM »
I always wanted a healthy emergency fund, but tried to minimize the drag of same.  So while I kept a chunk of it in a savings account, I put the rest in ultra safe stuff that could be accessed if needed, but otherwise would earn more than a savings account. Series I savings bonds and 5 year CDs at the highest payers (mostly penfed.org) were my choice.

Emg03063

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Re: Appropriate emergency fund account?
« Reply #2 on: May 08, 2014, 07:55:47 PM »
I keep mine in a no interest checking account, but that's probably not the best idea.  The ideal thing to if you're a homeowner is to pay it into your mortgage and then open a HELOC for emergencies.

brewer12345

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Re: Appropriate emergency fund account?
« Reply #3 on: May 08, 2014, 08:04:46 PM »
I keep mine in a no interest checking account, but that's probably not the best idea.  The ideal thing to if you're a homeowner is to pay it into your mortgage and then open a HELOC for emergencies.

Which works great until the lender cuts off your HELOC, which they are entitled to do at any time and for any reason (or no reason at all).

Mr. Frugalwoods

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Re: Appropriate emergency fund account?
« Reply #4 on: May 08, 2014, 08:13:57 PM »
If you have a taxable investment account (like you probably will if you are maxing out your tax advantaged accounts every year) then that can serve as a de-facto emergency fund.  Especially if you are saving a large percentage of your take home every month, your checking account is likely to have enough to float you until you can move some over from the brokerage account.

Another Reader

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Re: Appropriate emergency fund account?
« Reply #5 on: May 08, 2014, 08:29:15 PM »
High yield savings accounts and laddered CD's with low penalties.  I-bonds that have accrued some age as back up.  Right now about the best yield on savings/money market accounts is GE Capital Retail Bank at 0.95 percent.  Several are at 0.90 percent.  Check www.depositaccounts.com for a comprehensive list of yields on various savings and checking accounts.  If your credit union or another for which you are eligible offers a rewards checking account, you might do a little better.  You will have to jump through some hoops to get the higher interest rate, however.

The Money Monk

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Re: Appropriate emergency fund account?
« Reply #6 on: May 09, 2014, 08:04:55 AM »
Some people have posted about savings accounts that give 3 or 4 percent interest if you meet certain usage terms, may want to look into those.

You usually have log in a few times a month, and use the associated debit card a couple times a month (although I think micro purchases would still count) so the terms aren't onerous. an extra 2% on 5k would work out to $100, so it's up to you to decide if that's worth it or not.


samburger

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Re: Appropriate emergency fund account?
« Reply #7 on: May 09, 2014, 08:18:48 AM »
Mine sits in a savings account at the bank I use for my checking. I earned $0.43 in interest last month, so clearly I'm taking the best possible route... Ha.

There are online banks that will give you .8 - 1% interest. It's insulting, but it's better than 0.43/mo: http://www.nerdwallet.com/blog/banking/nerdwallets-top-high-yield-online-savings-accounts/

SDREMNGR

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Re: Appropriate emergency fund account?
« Reply #8 on: May 09, 2014, 08:24:22 AM »
I seriously never got this idea of an Emergency fund.  What the heck do you need emergency cash for that you couldn't either put on your credit card then pay off in full or wait a few days while you take funds out of your stock account?

I always keep about $5k normally in my bank account so I guess that could be construed as one, but it's a very small portion of my net worth.

People who have very little money seem more hell bent on creating these emergency funds when they should be focusing more in building a nest egg through, 401k or Roth Iras.

Insanity

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Re: Appropriate emergency fund account?
« Reply #9 on: May 09, 2014, 08:28:48 AM »
I seriously never got this idea of an Emergency fund.  What the heck do you need emergency cash for that you couldn't either put on your credit card then pay off in full or wait a few days while you take funds out of your stock account?

I always keep about $5k normally in my bank account so I guess that could be construed as one, but it's a very small portion of my net worth.

People who have very little money seem more hell bent on creating these emergency funds when they should be focusing more in building a nest egg through, 401k or Roth Iras.

Best plan:

1) Credit cards.
2) over 2 months worth of cash sitting in a checking account to deal with monthly bills
3) about 3 additional months worth of cash sitting in a taxable investment account in index funds.

skunkfunk

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Re: Appropriate emergency fund account?
« Reply #10 on: May 09, 2014, 08:37:10 AM »
Best plan:

1) Credit cards.
2) over 2 months worth of cash sitting in a checking account to deal with monthly bills
3) about 3 additional months worth of cash sitting in a taxable investment account in index funds.

That's what I do, but only one months expenses in checking. It works great. Takes 3-4 days to get funds out of my Vanguard account, which is plenty fast. I do not wish to do a HELOC, as those things have a fee. I hate fees.

Another Reader

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Re: Appropriate emergency fund account?
« Reply #11 on: May 09, 2014, 08:39:02 AM »
I will chalk up SDREMGR's comments about who wants or has an emergency fund as coming from someone young and inexperienced with cash crunches. 

Credit may not always be available to you, there may be delays in receiving unemployment if you lose your job, the stock market may be down 50 percent when you need the money, your tenants may file BK and the rent from your rental gets tied up in court, or a host of other problems could happen.  While it's true that people living closer to the edge have more of a need for an ATM-accessible emergency fund, my experience has been that people with accessible cash reserves do better in cash crunches.  And withdrawing from your 401k or IRA to meet a short term emergency costs you a lot of money in the long term.

Frankies Girl

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Re: Appropriate emergency fund account?
« Reply #12 on: May 09, 2014, 08:43:15 AM »
I seriously never got this idea of an Emergency fund.  What the heck do you need emergency cash for that you couldn't either put on your credit card then pay off in full or wait a few days while you take funds out of your stock account?

I always keep about $5k normally in my bank account so I guess that could be construed as one, but it's a very small portion of my net worth.

People who have very little money seem more hell bent on creating these emergency funds when they should be focusing more in building a nest egg through, 401k or Roth Iras.

Emergency funds are vital in the beginning.. If you have major debt, especially after using your credit cards for emergencies and are unable to pay them off and are only making minimum payments, then that is primarily who should have a liquid emergency fund. Say you've got several credit cards carrying thousands of dollars, high interest rates and get hit with an unexpected car repair bill of $600... adding that to a credit card with high interest that you can't afford to pay off just means you're digging in deeper instead of digging OUT of debt. If you have an emergency fund (cash or savings that you do not touch except for instances like the car repair), then you don't have to charge it - you pay it out of the EF, and keep hitting your debt (while slowly rebuilding your EF).

Investing everything at the beginning when a person is working out of debt is a good way to lose more money. If they constantly have to borrow from a 401k or sell off funds to pay for an unexpected expense (incurring possible losses on said funds and paying capital gains sometimes) they'd be worse off. Investing should be something you do with money you don't need right now. If you're in debt, you need every extra penny working on reducing that debt and preventing you from racking up even more debt.

Another good reason is if you are a sole provider for your family. If you have at least 3-6 months' worth of money that you can access in the event of job loss or injury that prevented you from doing your job, you won't have to worry about bills piling up immediately.

Think of an emergency fund as insurance. We pay for it to cover an unexpected event that we otherwise could not afford. As you get more funds and investments, it makes it easier to "self insure" and still keep most of your money working hard for you. I personally still make sure that there is a few thousand available in a savings or other account that is pretty much instantly attainable without having to sell off funds.

If you have enough liquid investments or other means of tapping money easily to cover the unexpected expenses without going into debt, then it's not as important to have an actual savings account. As long as you can access your funds within a few days, that's probably going to remove the need for a dedicated account that is mostly sitting around earning you nothing.


skunkfunk

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Re: Appropriate emergency fund account?
« Reply #13 on: May 09, 2014, 08:45:48 AM »
paying capital gains sometimes

I think you are probably better off paying capital gains on money than letting it stagnate. It would not have gained anything in a checking account.

nordlead

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Re: Appropriate emergency fund account?
« Reply #14 on: May 09, 2014, 08:59:03 AM »
I seriously never got this idea of an Emergency fund.  What the heck do you need emergency cash for that you couldn't either put on your credit card then pay off in full or wait a few days while you take funds out of your stock account?

I always keep about $5k normally in my bank account so I guess that could be construed as one, but it's a very small portion of my net worth.

People who have very little money seem more hell bent on creating these emergency funds when they should be focusing more in building a nest egg through, 401k or Roth Iras.

So, in 08-09 when people lost their jobs and the market tanked by 50% you'd advise they sell off their assets to continue living? What if a fire burns down your house and it takes a month for the insurance to pay up but it is after your payment is due? Do you just rack up credit card bills as you buy food, clothing, and rent shelter?

The emergency fund is there so you don't raid your investments at an inopportune time or access funds in tax advantaged accounts that will cause penalties. It is risk management, and isn't really all that expensive compared to raiding a retirement fund.

Yes, if you are living on 50% of your income, and you max out your tax advantaged accounts and contribute to a taxable investment account, then you can afford to take more risk (no emergency fund), but the vast majority don't max out their tax advantaged accounts and should have an emergency fund.

If I owned my own home, I'd slash my own emergency fund, but I'd rather not default on my home loan within 2 months of losing my job.


samburger

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Re: Appropriate emergency fund account?
« Reply #15 on: May 09, 2014, 09:11:13 AM »
The emergency fund is there so you don't raid your investments at an inopportune time or access funds in tax advantaged accounts that will cause penalties. It is risk management, and isn't really all that expensive compared to raiding a retirement fund.

Yes, if you are living on 50% of your income, and you max out your tax advantaged accounts and contribute to a taxable investment account, then you can afford to take more risk (no emergency fund), but the vast majority don't max out their tax advantaged accounts and should have an emergency fund.

Yep, exactly. I do save 50% of my income, but I'm also in my early twenties and my net worth is a whopping $25k. I keep 6 months of expenses out of the market because one little market correction will decimate my portfolio. What if my cat eats a bag of marbles and needs surgery on a month my puny investments took a shit?

I'm a fearful new investor. The last thing I need is to withdraw 10% of my portfolio at a loss.

Frankies Girl

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Re: Appropriate emergency fund account?
« Reply #16 on: May 09, 2014, 09:14:11 AM »
paying capital gains sometimes

I think you are probably better off paying capital gains on money than letting it stagnate. It would not have gained anything in a checking account.

I never said anything about a checking account? There's a difference in letting a small amount of money "stagnate" in a savings account or MM/other lower interest format during the short time a person is digging out of debt, and paying short term gains when it wouldn't have been necessary. It might not even be an issue technically, but there are so many things that new investors don't really think about I thought it would be something to throw out there to consider when a person is in the early stages of digging out of debt and might not have an emergency fund, and jumping into investing money they might need the next month isn't a very good idea in my opinion. (and I'm not talking about money that a person could be putting into company-sponsored retirement accounts)


Another Reader

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Re: Appropriate emergency fund account?
« Reply #17 on: May 09, 2014, 09:39:29 AM »
It's not about paying capital gains tax.  It's about being forced to sell assets at depressed prices.  The market could be down 25 or even 50 percent when you need the cash.

It is helpful to treat your finances like a business.    Most successful businesses have substantial cash on hand or in short term instruments for contingencies.  They usually have access to credit on better terms than you do, they have longer term investments they could liquidate, but they still maintain cash reserves.  The business of you needs the same flexibility.

Insanity

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Re: Appropriate emergency fund account?
« Reply #18 on: May 09, 2014, 11:19:39 AM »
It's not about paying capital gains tax.  It's about being forced to sell assets at depressed prices.  The market could be down 25 or even 50 percent when you need the cash.

It is helpful to treat your finances like a business.    Most successful businesses have substantial cash on hand or in short term instruments for contingencies.  They usually have access to credit on better terms than you do, they have longer term investments they could liquidate, but they still maintain cash reserves.  The business of you needs the same flexibility.

For me, it is simply a personal risk acceptance.  If my house does go up in smoke, I have a lot bigger issues than if I'm pulling money out in a depressed market.  I've got two kids that I need to figure out how to get a roof over their head and deal with the fall out of their psyche, I work out of my house so I need an office location,  and etc.







ZiziPB

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Re: Appropriate emergency fund account?
« Reply #19 on: May 09, 2014, 12:04:49 PM »
Quote
if you are living on 50% of your income, and you max out your tax advantaged accounts and contribute to a taxable investment account, then you can afford to take more risk (no emergency fund)

I do all that and have substantial investments but I still keep a healthy emergency fund (6 months of expenses).   A job loss for me would likely correlate with a depressed market and I have no intention of going into debt (credit cards) with no job/income.  Also, a good asset allocation typically includes some cash, so that is how I look at it.  The majority of my e fund is in a no penalty CD earning .87% currently.

 

Jack

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Re: Appropriate emergency fund account?
« Reply #20 on: May 09, 2014, 12:06:01 PM »
If you have a taxable investment account (like you probably will if you are maxing out your tax advantaged accounts every year) then that can serve as a de-facto emergency fund.  Especially if you are saving a large percentage of your take home every month, your checking account is likely to have enough to float you until you can move some over from the brokerage account.

At Sharebuilder, even the cash-sweep account gives 0.03% per week (~1.5% annual, give or take compounding) if you set it to money-market instead of FDIC-insured.

Say you've got several credit cards carrying thousands of dollars, high interest rates and get hit with an unexpected car repair bill of $600... adding that to a credit card with high interest that you can't afford to pay off just means you're digging in deeper instead of digging OUT of debt. If you have an emergency fund (cash or savings that you do not touch except for instances like the car repair), then you don't have to charge it - you pay it out of the EF, and keep hitting your debt (while slowly rebuilding your EF).

I've never been able to convince myself that doing what you suggest is better than just using the whole emergency fund to immediately pay down the credit card. I'd rather take the risk of paying credit card interest in an emergency than take the certainty of paying it now!

zurich78

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Re: Appropriate emergency fund account?
« Reply #21 on: May 09, 2014, 12:53:19 PM »
I keep 6 months of emergency funds in an Ally Bank savings account.

And I just let it slowly accrue interest over time so at some point in 30 years I'll have 7 months of EF!  Haha.

I will only touch that money if I lose my job and use it to live off of, or if there is a substantial medical bill. 

I create other savings accounts for things like major car repair, major home repair, etc.

SDREMNGR

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Re: Appropriate emergency fund account?
« Reply #22 on: May 09, 2014, 03:40:14 PM »
I will chalk up SDREMGR's comments about who wants or has an emergency fund as coming from someone young and inexperienced with cash crunches. 

Credit may not always be available to you, there may be delays in receiving unemployment if you lose your job, the stock market may be down 50 percent when you need the money, your tenants may file BK and the rent from your rental gets tied up in court, or a host of other problems could happen.  While it's true that people living closer to the edge have more of a need for an ATM-accessible emergency fund, my experience has been that people with accessible cash reserves do better in cash crunches.  And withdrawing from your 401k or IRA to meet a short term emergency costs you a lot of money in the long term.

I'm 36 so I'm not that old, but I have multiple properties that I own as well as a business that I own 100%.  And I have never experienced any time that I needed emergency cash of more than $5k at any given day.  And for those types of "emergencies" it's easily covered with a check or credit card.  The worst "emergency" that I experienced was having to pay for a A/C for my office when it went down the day AFTER I closed escrow.  Talk about timing.  But other "emergencies" like a auto accident, broken down car, medical emergency, do not require cash.  These issues are easily solved with a swipe of the credit card, and I have more than enough excess cash in the bank to pay for them within 30 days.

The whole idea of stashing a sum of money in a checking account, or savings account, separately as a sum of money that you would need immediate access to me is unnecessary. 

I went through a 3 year period when I was starting up my business when I had to supplement the income I was paying myself from the business with my personal savings.  I estimate that I went through about $20k during that period.  I paid myself more as time went on and at around the 3 year mark, I was paying myself enough to offset my personal expenses.  But that $20k didn't sit in my checking account, earning next to nothing.  I had it in my stock brokerage account, in the market, which was a good thing, because those years were some good years.

The need for an "emergency cash" savings is due to financial shortsightedness and lack of true savings.  Also, it may point to poor earnings potential or 100% dependence on a salaried job for income.  I'm lucky to know that barring some economic meltdown, my business will net me about $10k+ each month so I don't have to worry about whether I will need some crazy cash for if I need emergency surgery due to an auto accident.

Again, there are only 2 types of "emergencies."  One where you really need money in a hurry, for car trouble, medical bills, etc.  And in most cases, those are easily covered by a credit card and withdraw of stocks from a brokerage account, or in my case, I just save less the following month and pay the credit card bills from my earnings of the next month.

The 2nd type is due to prolonged unemployment or lack of ongoing earnings.  In those cases, you have unemployment to help soften the blow, and the negative shortfall should be easily supplemented by withdrawing from your stock portfolio on an as needed basis.

The possible 3rd type is catastrophic in nature, and you can't really plan for those.  You are just F**ked.  I'm talking a big accident and you can't walk or talk for life or something like that.  Or at least you can't work for life.  Then you are on government disability or you better have good family members who will take care of you.

Outside of those things, what else would you need "emergency savings" that can't be solved by "money savings?"

SDREMNGR

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Re: Appropriate emergency fund account?
« Reply #23 on: May 09, 2014, 03:47:39 PM »
It's not about paying capital gains tax.  It's about being forced to sell assets at depressed prices.  The market could be down 25 or even 50 percent when you need the cash.

It is helpful to treat your finances like a business.    Most successful businesses have substantial cash on hand or in short term instruments for contingencies.  They usually have access to credit on better terms than you do, they have longer term investments they could liquidate, but they still maintain cash reserves.  The business of you needs the same flexibility.

For me, it is simply a personal risk acceptance.  If my house does go up in smoke, I have a lot bigger issues than if I'm pulling money out in a depressed market.  I've got two kids that I need to figure out how to get a roof over their head and deal with the fall out of their psyche, I work out of my house so I need an office location,  and etc.

I can accept that you always need "working capital."  But I question whether it should be 6+ months of your monthly expenditures.   And business do not keep their working capital in cash.  Most keep it in some form of liquid investment.  It used to be money markets or CDs but lately not sure what they would do.  I keep mine in my bank account where I get 1% back.  So it's better than nothing.

But for my personal life, I do not keep an outside account that I designate for "new roof savings" or "new car savings" or things like that I see people who also clip coupons doing.  I guess it works for some people, but I see those people also putting credit cards in water and freezing it so they can't to it right away and silly things like that.  If you don't have the self-control to structure your finances so that unemployment or a short term cash need can't be met with your regular savings, then you have bigger problems that need to be addressed.

Heart of Tin

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Re: Appropriate emergency fund account?
« Reply #24 on: May 09, 2014, 04:12:36 PM »
I will chalk up SDREMGR's comments about who wants or has an emergency fund as coming from someone young and inexperienced with cash crunches. 

Credit may not always be available to you, there may be delays in receiving unemployment if you lose your job, the stock market may be down 50 percent when you need the money, your tenants may file BK and the rent from your rental gets tied up in court, or a host of other problems could happen.  While it's true that people living closer to the edge have more of a need for an ATM-accessible emergency fund, my experience has been that people with accessible cash reserves do better in cash crunches.  And withdrawing from your 401k or IRA to meet a short term emergency costs you a lot of money in the long term.

I'm 36 so I'm not that old, but I have multiple properties that I own as well as a business that I own 100%.  And I have never experienced any time that I needed emergency cash of more than $5k at any given day.  And for those types of "emergencies" it's easily covered with a check or credit card.  The worst "emergency" that I experienced was having to pay for a A/C for my office when it went down the day AFTER I closed escrow.  Talk about timing.  But other "emergencies" like a auto accident, broken down car, medical emergency, do not require cash.  These issues are easily solved with a swipe of the credit card, and I have more than enough excess cash in the bank to pay for them within 30 days.

The whole idea of stashing a sum of money in a checking account, or savings account, separately as a sum of money that you would need immediate access to me is unnecessary. 

I went through a 3 year period when I was starting up my business when I had to supplement the income I was paying myself from the business with my personal savings.  I estimate that I went through about $20k during that period.  I paid myself more as time went on and at around the 3 year mark, I was paying myself enough to offset my personal expenses.  But that $20k didn't sit in my checking account, earning next to nothing.  I had it in my stock brokerage account, in the market, which was a good thing, because those years were some good years.

The need for an "emergency cash" savings is due to financial shortsightedness and lack of true savings.  Also, it may point to poor earnings potential or 100% dependence on a salaried job for income.  I'm lucky to know that barring some economic meltdown, my business will net me about $10k+ each month so I don't have to worry about whether I will need some crazy cash for if I need emergency surgery due to an auto accident.

Again, there are only 2 types of "emergencies."  One where you really need money in a hurry, for car trouble, medical bills, etc.  And in most cases, those are easily covered by a credit card and withdraw of stocks from a brokerage account, or in my case, I just save less the following month and pay the credit card bills from my earnings of the next month.

The 2nd type is due to prolonged unemployment or lack of ongoing earnings.  In those cases, you have unemployment to help soften the blow, and the negative shortfall should be easily supplemented by withdrawing from your stock portfolio on an as needed basis.

The possible 3rd type is catastrophic in nature, and you can't really plan for those.  You are just F**ked.  I'm talking a big accident and you can't walk or talk for life or something like that.  Or at least you can't work for life.  Then you are on government disability or you better have good family members who will take care of you.

Outside of those things, what else would you need "emergency savings" that can't be solved by "money savings?"

Dude, my credit limit is $300. I cannot easily cover an emergency with a credit card. Some of us don't magically have access to credit immediately out of college. I have an emergency fund with one year's expenses parked in a savings account since I'm a temporary employee right now while I gain experience in my (very high earnings potential) field. Sure, I could invest that money in the stock market, but it would leave me with only six months of living expenses if the market tanked like in 2007. That would probably mean the end of my intership as well since it's easier to get rid of temporary employees. I don't like my chances of finding a job under those circumstances either.

My emergency fund is a risk management tool. Different people have different risk management needs. We are not all you. Stop insulting other people who have different needs than you. It's very offesive.

Eric

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Re: Appropriate emergency fund account?
« Reply #25 on: May 09, 2014, 04:23:41 PM »
Dude, my credit limit is $300.

Ouch!  Sorry HoT  :(

I mostly agree with SDREMNGR on his EF thoughts, but of course I have about a $17K limit.  As a business owner, I'm sure his is even higher.  It's a good reminder that this is not the case for everyone.

aj_yooper

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Re: Appropriate emergency fund account?
« Reply #26 on: May 09, 2014, 04:33:01 PM »
Heart of Tin, good job for your situation!  Everyone has a context.  No exact answers.  Rick Ferri recommends maintaining 2 years expenses of quick assets for investors. 

For me, it's 2 months income in checking account, cc s, and HELOC @3.25%, if necessary.  But, as Brewer says, cc s and HELOCs can be cancelled or called.  Our asset allocation is also 60/40 so we have some slack there too.

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Re: Appropriate emergency fund account?
« Reply #27 on: May 09, 2014, 06:14:57 PM »
Your assumptions about who wants or needs an emergency fund are not valid.  I own a number of rentals and I have a substantial amount of money in the paper asset markets.  I have all kinds of checks arriving in my virtual mailbox every month.  I'm also old enough to remember the world before credit cards.  I have plenty of available credit today.  Might not be available in a real crunch.  A few bad decisions in October 2008 and we could have been looking at a lot of bank and insurance company failures.  Credit if that had happened?  I don't think there would have been much available. 

A lot of folks here depend on paper assets.  A 50 percent drop in the market would destroy their cash flow without reserves.

I don't like selling assets at depressed prices to raise capital.  Therefore I am not comfortable without substantial cash reserves.  If you are comfortable, you just haven't been through a credit squeeze yet.

SDREMNGR

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Re: Appropriate emergency fund account?
« Reply #28 on: May 09, 2014, 06:53:28 PM »
Your assumptions about who wants or needs an emergency fund are not valid.  I own a number of rentals and I have a substantial amount of money in the

 paper asset markets.  I have all kinds of checks arriving in my virtual mailbox every month.  I'm also old enough to remember the world before credit cards.  I have plenty of available credit today.  Might not be available in a real crunch.  A few bad decisions in October 2008 and we could have been looking at a lot of bank and insurance company failures.  Credit if that had happened?  I don't think there would have been much available. 

A lot of folks here depend on paper assets.  A 50 percent drop in the market would destroy their cash flow without reserves.

I don't like selling assets at depressed prices to raise capital.  Therefore I am not comfortable without substantial cash reserves.  If you are comfortable, you just haven't been through a credit squeeze yet.

Hey, different strokes for different folks.  I agree the need for cash if you have business or investment needs for it.  And I'm definitely more aggressive than the average with my investments but that's why I've made money and lost money in different markets.

But the guy with the $300 credit limit is. Good example of people who should be focusing on building credit and good financial management instead of blindly building a stash.  The whole point of credit is to have it available to you for when you need it.  I graduated from college with 700+ credit score and over 10k in credit and all I ever used my credit on was like $200 monthly average on books and beer so I know it doesn't take much to build good credit in college.  Although I take your point about risk management and needing it in your case.

However, I still point to the needlessness of maintaining multiple year emergency funds in checking or savings account when many of these people also have unpaid credit card debt, no other savings to speak of, and other financial emergencies to tend to before saving a cash stash.  If you are hell bent on keeping a big cash stash, so be it, but I'm just pointing out that it's not really an emergency fund, but the cash portion of your investments.  And if your total portfolio is $3000 in stocks and $10000 cash, then that's not the best allocation.  If it's $100,000 cash and $10,000,000 stocks and bonds and $5,000,000 real estate, then that's another matter.

deborah

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Re: Appropriate emergency fund account?
« Reply #29 on: May 09, 2014, 08:14:01 PM »
In 1999 I had an accident (giant bus ran into the back of my small car while I was waiting for an ambulance to cross the road), which resulted in me having whiplash for 3 years and a much reduced income for all that time. Unfortunately, I had started contracting 9 months previously (if it had been 12 months, I would have had an employment history, so I would have received income assistance payments), so there was no way I would receive any payments from anybody. I have estimated that the accident cost me over $60,000 that was not reclaimable (and I am sure it was a lot more). I am lucky to be alive - certainly the bus driver and the people from the ambulance were sure I was dead.

However, no-one knows how long it is going to take to recover from an accident, and you have a lot of expenses that you wouldn't normally have. I couldn't work more than half days for a long time, and I couldn't do any house cleaning or most of the daily activities that needed doing. Medical expenses were all paid by the accident commission, so at least I didn't have them, but I couldn't do the paperwork required. I don't know how I retained the contract position I had - but almost all my energy was focused on that.

Was this an emergency? It lasted for three whole years - so it couldn't have been. It involved a lot of money having to be paid after something unforeseen occurred - so of course it was.

So my first question is - what constitutes an emergency for you? Think of all the scenarios that you would classify as an emergency.

Next - how quickly would you need money? And how much would you really need quickly? When I accidentally burnt my bedroom down during my University degree, I only had the clothes I stood up in (the fire did a very thorough job, and consumed every possession except what I was wearing). I needed money that day to buy more clothes. The accident didn't need quick money. Generally speaking, I think that almost anyone can put their hands on the money they would need quickly - even with a small credit card, or bank account.

The hard part is figuring out what to do next - you have got rid of the immediate cash need, but you still have a situation where your finances are shot. How are you going to deal with that? Also, think about the time you will need - because time is money (with my fire I needed to buy a bed, a mattress, clothes, go to the bank and get new account books... - I could not have worked for at least a week).

As others have said, there are situations where you may find it difficult to access some of your money - think of those situations, and work out how you would get around them. Having money in diverse investments helps.

Eric

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Re: Appropriate emergency fund account?
« Reply #30 on: May 09, 2014, 09:08:09 PM »
I graduated from college with 700+ credit score and over 10k in credit and all I ever used my credit on was like $200 monthly average on books and beer so I know it doesn't take much to build good credit in college. 

I'm in the same boat, but I don't think it works like this anymore.  Credit is a lot tighter since 2008.  Before that, I think you couldn't even get a CC w/ a limit under $1000.

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Re: Appropriate emergency fund account?
« Reply #31 on: May 10, 2014, 03:11:24 PM »
Ok, so since there is such a variation in people's needs.  Lets try to break it down for people's different needs.  I've been searching through the forums about vehicles for emergency funds, and there have been a lot of long threads and long conversations.   But not very many straight answers.  I propose we try to break things down based on age-range/estimated time from early retirement/current health+disability insurance/monthly expenditures (low,medium,high)/Available Credit

So in the case of the OP He seems to be

Young,Many Years from ER, Health/LTD Insurance through work (im assuming), Low monthly expenditure (no mortgage), <$10k Credit Line:

Best Vehicle For Emergency Fund: ???