Author Topic: How do you handle your "emergency fund"?  (Read 12982 times)

Pinkie Mustache

  • 5 O'Clock Shadow
  • *
  • Posts: 37
  • Location: Israel
How do you handle your "emergency fund"?
« on: July 29, 2014, 06:45:39 AM »
How much do you keep in your "emergency fund"? And how do you keep it - in your checking account or in a saving fund where there's no-hassle transfers? And do you use a rule of X number of paychecks/monthly expenses, or just a number you think makes sense to have on hand?

PloddingInsight

  • Bristles
  • ***
  • Posts: 308
Re: How do you handle your "emergency fund"?
« Reply #1 on: July 29, 2014, 06:48:17 AM »
I keep separate funds that I pay into for various purposes: car repair, home repair, medical expenses, etc etc.

I also keep an eye on the total of all the emergency funds.

MoneyCat

  • Handlebar Stache
  • *****
  • Posts: 1754
  • Location: New Jersey
Re: How do you handle your "emergency fund"?
« Reply #2 on: July 29, 2014, 06:48:45 AM »
I keep enough money to cover eight months of expenses in my emergency fund in a regular savings account so I have easy access to it.  It doesn't earn much interest, but that's not the point of having it.  The point is to have money quickly available when necessary (and hopefully you'll never need to dip into it.)

Thegoblinchief

  • Guest
Re: How do you handle your "emergency fund"?
« Reply #3 on: July 29, 2014, 06:53:16 AM »
I keep separate funds that I pay into for various purposes: car repair, home repair, medical expenses, etc etc.

I also keep an eye on the total of all the emergency funds.

I have one large general e-fund and then smaller ones for cars, home, etc. The smaller ones are considered spent money, but the large one is considered cash assets.

I contribute to all of them each month, unless they get so big that I'll stop. All of them are with Capital One 360.

JGB

  • Stubble
  • **
  • Posts: 108
  • Age: 37
  • Location: Oklahoma
    • Grinderschool Poker Training
Re: How do you handle your "emergency fund"?
« Reply #4 on: July 29, 2014, 06:56:16 AM »
For me, most of my "emergency fund" is merged with my other taxable investments. If I end up with more than two or three month's worth of money in a standard bank account, I'm pretty unhappy with having so much money just sitting there doing nothing.

It doesn't take that long to shift money out of my taxable VTSAX and back into the bank, were something big to hit. Two months should more than cover it, and in a worst-case scenario, I have the added safety of my paid-off-each-month credit cards.

apfroggy0408

  • Stubble
  • **
  • Posts: 215
Re: How do you handle your "emergency fund"?
« Reply #5 on: July 29, 2014, 07:26:40 AM »
I have a number that I'm "comfortable" with in my checking/savings. I'm about to go way under what I'm "comfortable" with to finish off my last student loan this month.

If I truly have an emergency that I can't cover while being under my level, well time to get creative. ;)

But I also have the same level available to me in credit card limit.

nuprinmmm

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: How do you handle your "emergency fund"?
« Reply #6 on: July 29, 2014, 07:35:07 AM »
after WaMu went down I split my emergency fund between two US banks.

Recently there was a post about someone who had her identity stolen or some nonsense at her bank then because of this had all her cards cancelled and so she couldn't access her E-fund anyways. made me very happy i decided to have two banks, but nothing is perfect. I also keep a small stash of actual cash at home and at work, enough for a couple of days.

my advisor says "one plan is no plan"

Rienk

  • 5 O'Clock Shadow
  • *
  • Posts: 26
  • Age: 33
  • Location: Netherlands
Re: How do you handle your "emergency fund"?
« Reply #7 on: July 29, 2014, 07:36:37 AM »
I have 8 months expenses in a savings account, but this is also a buffer for large expenses: for home repairs, furniture, a new (used) car, I take the money out of the account and then fill it up again, rather than "saving up" for things.

gobius

  • Stubble
  • **
  • Posts: 167
Re: How do you handle your "emergency fund"?
« Reply #8 on: July 29, 2014, 08:14:43 AM »
I'm probably less efficient than most.  I recently downsized to a smaller house and my bills are lower, so I now have a minimum of 8-12 months of my expenses in my savings/checking (depending on if the "emergency" is losing my job).  It's higher throughout the month when I get paid and lowers again when I pay bills and invest.

My wife also has probably 4-6 months of her expenses (we have separate expenses but obviously would help each other if needed).  We also have a joint account that as 2-3 months of total expenses.  We probably need to clean some of this up but have been used to our current ways for years; we've only been married for a few months.

I used to have a lot more in my emergency fund but have lowered it for investing and a down payment on our current house.

Iron Mike Sharpe

  • Bristles
  • ***
  • Posts: 397
Re: How do you handle your "emergency fund"?
« Reply #9 on: July 29, 2014, 08:15:53 AM »
I have somewhere between 6-7 months of take home pay in its own bank account as my emergency fund in case of loss of job.  In my regular account I also have money saved for car repairs, insurance, vacations, minor home repairs and minor health care costs, etc.

I have started being a little more aggressive as I am now investing my long-term home repair money as well as my replacement car funds.  I figure if I ever need that money when the market is down, I can just leverage my emergency fund.

But, I'm single so don't have a spouse with a second income to rely on if I lose my job, so I'll keep my emergency fund liquid.

Cromacster

  • Handlebar Stache
  • *****
  • Posts: 1696
  • Location: Minnesnowta
Re: How do you handle your "emergency fund"?
« Reply #10 on: July 29, 2014, 08:29:24 AM »
Two income couple here.  We probably keep 5 months (maybe) in actual cash in what we consider our emergency fund.  We do save cash in other accounts for different purposes (car/ house maintenance, goal savings, travel, etc).  In my opinion an efund should only ever be needed for a SHTF situation.  Like dual job loss, crazy medical emergency, non-insurance covered event (damn them floods).  Once our HSA is big enough to cover our deductible (next year acutally), I will probably reduce our actual cash held in our efund even further.

I feel those that are using efund money on house maintenance, car maintenance/repair, updates to house, or whatever are not using this fund for what it's true intent is.  These situations should be accounted for in a budget and should not be considered emergencies.
« Last Edit: July 29, 2014, 08:32:12 AM by Cromacster »

aneel

  • Stubble
  • **
  • Posts: 180
Re: How do you handle your "emergency fund"?
« Reply #11 on: July 29, 2014, 08:51:12 AM »
We have one plain old savings account with 3 months of expenses saved up.  We will occasionally dip into the fund for unexpected (not routine) maintenance events, but then the fund is priority for building back up.
I think the OP is really getting at how we store rather than what we're saving.  I'd like to have my emergency fund be a little more productive than standard savings account interest rates as well, but have yet to find a reasonable solution that has low/no risk.

eccdogg

  • 5 O'Clock Shadow
  • *
  • Posts: 42
Re: How do you handle your "emergency fund"?
« Reply #12 on: July 29, 2014, 08:57:47 AM »
For me, most of my "emergency fund" is merged with my other taxable investments. If I end up with more than two or three month's worth of money in a standard bank account, I'm pretty unhappy with having so much money just sitting there doing nothing.

It doesn't take that long to shift money out of my taxable VTSAX and back into the bank, were something big to hit. Two months should more than cover it, and in a worst-case scenario, I have the added safety of my paid-off-each-month credit cards.

This is me too.  ~ one year of salary in taxable account invested in index funds+ one month in bank account for cashflow management.

The way I look at it even it if the market drops in half I still have 6 mo of expenses covered + I have credit cards for very short term cashflow needs and HELOC to draw down home equity as necessary.

With all of that I kind of see true emergency fund as uncessary. My wife and I are also two income couple so that helps.

jp

  • Stubble
  • **
  • Posts: 129
Re: How do you handle your "emergency fund"?
« Reply #13 on: July 29, 2014, 09:00:48 AM »
I $5000 in my regular checking account ($2000 is my $0 balance). 

I keep $50K in an online money market account earning basically nothing.  This is about a year's expenses at current spending level, maybe 16 months if we went beans and rice.  It is excessive, but I prefer to have a large safety net with easy access.  It is completely out of balance with my investments, which are not that large.  I have been fired from a job in the past and only had $10k in an "emergency fund" and it felt completely inadequate to me.  I had to take a roth withdrawal (principal only) to make up for it. 

NinetyFour

  • Walrus Stache
  • *******
  • Posts: 6559
  • Location: Southwestern US
Re: How do you handle your "emergency fund"?
« Reply #14 on: July 29, 2014, 09:14:11 AM »
I have been keeping about $10,000 in my EF.  Up until recently, it was all in my Capitol One account.  However, I now keep $750 in each of two local brick and mortar banks--just in case there is a glitch and I am unable to access Cap One.  I will still keep $8500 at Cap One.

I also have $13,000 in Roth contributions that I could access if necessary.  So I do wonder if my EF is currently too large.  I will re-evaluate in 2015.

Scandium

  • Handlebar Stache
  • *****
  • Posts: 2223
  • Location: EastCoast
Re: How do you handle your "emergency fund"?
« Reply #15 on: July 29, 2014, 09:25:35 AM »
I think our EF is about $35-40k. My wife is good at worrying.. I don't know how much is in her savings account, only in our joint one. And I don't really feel like arguing about it. Personally I just keep $5k in my savings account.

I have been debating putting some of our joint account into I-bonds. Would earn 2.5% interest (with inflation adjustment) instead of 0.9%. Would still be pretty accessible (after one year), and earn a bit more. But not sure it's worth it yet.

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: How do you handle your "emergency fund"?
« Reply #16 on: July 29, 2014, 11:08:53 AM »
The more money I have, the less I keep in a savings account.  I'm a DINK that's a renter, so I have fewer items that would be considered an emergency.  I have about 2 months worth of expenses, but most of that is just because the car has been acting up lately.  Usually it's only the equivalent of a month or so.

Beric01

  • Handlebar Stache
  • *****
  • Posts: 1156
  • Age: 29
  • Location: SF Bay Area
  • Law-abiding cyclist
Re: How do you handle your "emergency fund"?
« Reply #17 on: July 29, 2014, 11:19:07 AM »
I have just enough in the bank to pay one month's bills/expenses. Everything else is in my investments, so I'm maximizing my return on my capital.

I can't conceive of an emergency where I'd need a large amount of cash within a few hours. And if I do have one, I can just use a credit card (if there's one time I might actually run a balance, it would be during a true emergency). For cash, I can withdraw from my taxable Vanguard account, which takes just a few days.

horsepoor

  • Magnum Stache
  • ******
  • Posts: 3169
  • Location: At the Barn
  • Horses: for sanity & poverty!
Re: How do you handle your "emergency fund"?
« Reply #18 on: July 29, 2014, 12:21:21 PM »
I've been keeping about 4K in a money market that's linked to my checking account.  I also don't feel the need to keep a huge e-fund since I have a stable job and a new vehicle and so does my husband (he keeps a larger e-fund).  I have about 8 weeks of annual leave and several months of sick leave saved up, which figure into my catastrophic emergency scenarios, as well as some assets that could be liquidated in the event of a major catastrophe (truck, horse trailer, saddles etc).  Vet bills are the one thing that I could see needing an e-fund for, but there are limits to that, as each animal, sad to say, has a price on its head, so to speak.  It was also needed last fall during the gov't shutdown, but generally that can be seen looming early enough that there's some time to add some padding to the e-fund, so it's sort of a slow-mo emergency.

ETA:  per a thread here a week or two ago, I'm planning to move most of my e-fund to my credit union in the event that my checking account gets hacked and needs to be frozen.  This would also prevent my EF being drained covering checking acct. overdrafts in that scenario.
« Last Edit: July 29, 2014, 12:24:12 PM by horsepoor »

Dulcimina

  • Stubble
  • **
  • Posts: 182
  • Location: Maryland
Re: How do you handle your "emergency fund"?
« Reply #19 on: July 29, 2014, 02:13:30 PM »
I have somewhere between 6-7 months of take home pay in its own bank account as my emergency fund in case of loss of job.  In my regular account I also have money saved for car repairs, insurance, vacations, minor home repairs and minor health care costs, etc.

...

But, I'm single so don't have a spouse with a second income to rely on if I lose my job, so I'll keep my emergency fund liquid.
This is what I do as well.  Once a year, I drain the EF to fund my IRA, and to rebalance my taxable accounts. 

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1536
  • Location: Canada
    • My Necronomicon of Badassity
Re: How do you handle your "emergency fund"?
« Reply #20 on: July 29, 2014, 02:23:18 PM »
4-months worth in cash in a high-interest account.  Personally (and I definitely don't speak for everyone on this) I think it is a horrible idea to have an emergency fund in investments.   The last time the majority of people needed to tap their emergency fund was when they got laid-off in the economic downturn.  ...Which was also the exact time when investments (index included) were at their absolute lowest in value.  To me, it's sort of like keeping the emergency water bucket inside the flammable liquids cabinet.  ...Just a bad, bad idea.

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: How do you handle your "emergency fund"?
« Reply #21 on: July 29, 2014, 04:19:41 PM »
4-months worth in cash in a high-interest account.  Personally (and I definitely don't speak for everyone on this) I think it is a horrible idea to have an emergency fund in investments.   The last time the majority of people needed to tap their emergency fund was when they got laid-off in the economic downturn.  ...Which was also the exact time when investments (index included) were at their absolute lowest in value.  To me, it's sort of like keeping the emergency water bucket inside the flammable liquids cabinet.  ...Just a bad, bad idea.

I think it helps to define "emergency" for each individual.  Personally, a job loss wouldn't be an emergency for me. (I realize I might be in the minority here) Since my wife and I save 50% of our income (and could cut back further if necessary), we would BOTH have to lose our jobs for it to be an emergency.  And even then, Unemployment Insurance would cover the great majority of our expenses so that there still wouldn't be many regular expenses to be covered after we exhausted our smaller emergency fund.  And of course the chances of dual job loss are pretty slim (for us), so it's worth the extra risk of selling depressed investments in order to benefit from the upside gain by having that money invested.

I was more comfortable with a larger emergency fund when I had less money, but once my taxable accounts approached and surpassed 6 figures, the risk of having to sell when depressed lessens, as even the depressed amount is still a lot of money.  So if we both lost our jobs and had to tap depressed investments that would most definitely suck, but we wouldn't starve and I figure we probably wouldn't be retiring early with extended job losses anyway.

As a renter, I have no unexpected housing repairs.  That pretty much leaves buying a "new" car because the current one completely dies or major medical event as emergency situations.  In fact, the worst case is probably to combine those, a car accident that results in a totaled car and a major medical event.  If that happens, you can be sure the last thing that I'll worry about is having to sell some stocks at a 20% loss.

However, none of those scenarios is particularly likely in my opinion, so I think the upside gains of having that money invested outweigh the downside risk of possibly having to sell at a loss.  (and of course, selling at a loss can reduce your taxes anyway, so it's not all bad)

If I was a homeowner, had a more cyclical job, was part of a one income family, had a job that was commission based, had kids, or a number of other factors, I could see wanting to have a larger E-Fund.  But as part of a DINK couple that rents, there just aren't that many emergencies out there that aren't already covered by insurance.  It's important to figure out what constitutes and emergency and do the math for yourself though.

P938LVR

  • 5 O'Clock Shadow
  • *
  • Posts: 59
    • My Fiverr
Re: How do you handle your "emergency fund"?
« Reply #22 on: July 29, 2014, 04:29:55 PM »
We try to have an emergency fund but it keeps getting used for emergencies! I think we must be very unlucky because it seems like other people have huge emergency funds and we can barely get a months worth before something comes by and uses it all up!

FIreDrill

  • Handlebar Stache
  • *****
  • Posts: 1044
Re: How do you handle your "emergency fund"?
« Reply #23 on: July 29, 2014, 05:33:17 PM »
We keep about 6 months of expenses in an Ally money market account.  I think it earns .84% and we can transfer it out in like 2 days or use it directly through check/debit card.

ThermionicScott

  • 5 O'Clock Shadow
  • *
  • Posts: 55
Re: How do you handle your "emergency fund"?
« Reply #24 on: July 29, 2014, 06:43:05 PM »
4-months worth in cash in a high-interest account.  Personally (and I definitely don't speak for everyone on this) I think it is a horrible idea to have an emergency fund in investments.   The last time the majority of people needed to tap their emergency fund was when they got laid-off in the economic downturn.  ...Which was also the exact time when investments (index included) were at their absolute lowest in value.  To me, it's sort of like keeping the emergency water bucket inside the flammable liquids cabinet.  ...Just a bad, bad idea.

True if your investments aren't diversified.  With my investments split between US/international stocks, Vanguard Total Bond (being a mix of government and corp bonds), Vanguard Inflation-Protected Securities, and some I-bonds, I'm confident that not everything will go to zero if I should need it before I retire.

Keeping more than a month's worth of expenses in depreciating cash doesn't make sense for my retirement plans, but it does help other people sleep better, so I won't knock it.

- Scott
« Last Edit: July 29, 2014, 06:44:44 PM by ThermionicScott »

Beric01

  • Handlebar Stache
  • *****
  • Posts: 1156
  • Age: 29
  • Location: SF Bay Area
  • Law-abiding cyclist
Re: How do you handle your "emergency fund"?
« Reply #25 on: July 29, 2014, 06:56:57 PM »
4-months worth in cash in a high-interest account.  Personally (and I definitely don't speak for everyone on this) I think it is a horrible idea to have an emergency fund in investments.   The last time the majority of people needed to tap their emergency fund was when they got laid-off in the economic downturn.  ...Which was also the exact time when investments (index included) were at their absolute lowest in value.  To me, it's sort of like keeping the emergency water bucket inside the flammable liquids cabinet.  ...Just a bad, bad idea.

True if your investments aren't diversified.  With my investments split between US/international stocks, Vanguard Total Bond (being a mix of government and corp bonds), Vanguard Inflation-Protected Securities, and some I-bonds, I'm confident that not everything will go to zero if I should need it before I retire.

Keeping more than a month's worth of expenses in depreciating cash doesn't make sense for my retirement plans, but it does help other people sleep better, so I won't knock it.

- Scott

The problem is, several months or more of expenses in cash is actually a huge opportunity cost over the long term. That money could be earning returns, and those returns returns. Putting your emergency funds in investments will definitely help you reach FI earlier.

Treat your credit card as emergency fund. If you actually need to use it regularly, then you might want to check a) your definition of an emergency and b) your budget.

Roth IRA's can also have the initial investment withdrawn penalty-free.

theincurableapprentice

  • 5 O'Clock Shadow
  • *
  • Posts: 20
  • Location: Lexington, KY
    • the incurable apprentice
Re: How do you handle your "emergency fund"?
« Reply #26 on: July 29, 2014, 07:11:16 PM »
I am really impressed with all the large emergency funds discussed in this post.  We have had about 2 months of expenses in a savings account for several years.  We are also dual income living on a little more than half our income right now... so it would not be a critical emergency if one of us lost our job.  We would also use unemployment and credit cards as a back up plan if needed. 

I think it is interesting that the less money we have the more money people want in an emergency fund, the more money we have the less needed in an emergency fund.

Trifecta

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: How do you handle your "emergency fund"?
« Reply #27 on: July 29, 2014, 07:18:25 PM »
We only keep enough in our checking account to pay the bills each month, another month or two worth of expenses in our savings account (earning a whopping 0.75%), and the rest is being invested - a lot in ETFs which we could easily pull out if/when necessary.  The $50K home equity line of credit gives us a nice buffer too.

apfroggy0408

  • Stubble
  • **
  • Posts: 215
Re: How do you handle your "emergency fund"?
« Reply #28 on: July 30, 2014, 06:38:55 AM »
Really interesting replies going on around here.

With my current spending levels my "comfortable" number has been about 4 months living expenses. But this is with eating like a power lifter which is my biggest expense and could be dialed back significantly if need be.

I'm about to pay off my last student loan in bulk in August and this is going to bring me down to maybe a 1 month of living expenses in my liquid savings.

I'm ready for the challenge that I don't need a huge amount of cash siting idly so that I can force myself to start investing a little harder.

I have an old jeep, a 45 minute commute, and a possible need to buy a new car soon but I won't use these as excuses to take a challenge head on! I can always sell the crap I've been meaning to sell anyways ha.

frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1671
Re: How do you handle your "emergency fund"?
« Reply #29 on: July 30, 2014, 08:13:42 AM »
My situation is atypical, requiring more in emergency reserves:

1.  I am a one person household.  This is a big factor in that I do not have a significant other's income to cushion any blows.
2.  My job is difficult to replace.  I've been looking in the marketplace and am frustrated with what I am finding.
3.  I currently get around on mass transit and bicycling.  If I needed to replace my job, I might have to take a suburban job.  This would require buying a car.
4.  Currently, all of my retirement savings are in stock index funds (Roth IRA and Roth rollover) without a bond allocation.  I would not want to tap any of this. 

Besides a buffer account and a dental account, I have one year's living expenses.  I keep the funds in high-yield checking accounts (kasasa.com) averaging 2.75% for jumping through hoops (debit card transactions, e-statements, etc.).  I maintain a spreadsheet with various columns as to what is checking, what is dental, what is slush fund, what is emergency fund. 

This is not for everyone.  It requires careful monitoring for the yield.

madage

  • Bristles
  • ***
  • Posts: 405
  • Location: TX
Re: How do you handle your "emergency fund"?
« Reply #30 on: July 30, 2014, 08:40:11 AM »

The problem is, several months or more of expenses in cash is actually a huge opportunity cost over the long term. That money could be earning returns, and those returns returns. Putting your emergency funds in investments will definitely help you reach FI earlier.

Treat your credit card as emergency fund. If you actually need to use it regularly, then you might want to check a) your definition of an emergency and b) your budget.

Roth IRA's can also have the initial investment withdrawn penalty-free.

I'm really surprised this is the first mention of using your Roth for emergency funds. I keep at least 20% of our annual gross salaries in a combination of TIPS index funds and CDs in our Roths. I would only touch the funds in event of an extended job loss. I include these funds in the calculation of my overall asset allocation so I'm not too heavily invested in bonds and cash. I can float our expenses over several credit cards if necessary while waiting for cashed-out contributions to arrive.

For an unexpected ~$5,000 non-medical expense, I have a backlog of un-reimbursed medical expenses and much more than enough in my HSA to cover it. I can cover this $5,000 non-medical expense and still have enough in my HSA to cover my annual out-of-pocket maximum in the event of an insured medical issue. My HSA is also invested approximately 70/30 towards stocks. This strategy, however, does make me vulnerable to a medical expense that my insurance refuses to cover.

I don't usually have more than $5,000 or so in actual bank account cash, and much of that is planned for large annual expenses like insurance and tax bills.

eccdogg

  • 5 O'Clock Shadow
  • *
  • Posts: 42
Re: How do you handle your "emergency fund"?
« Reply #31 on: July 30, 2014, 08:41:28 AM »
4-months worth in cash in a high-interest account.  Personally (and I definitely don't speak for everyone on this) I think it is a horrible idea to have an emergency fund in investments.   The last time the majority of people needed to tap their emergency fund was when they got laid-off in the economic downturn.  ...Which was also the exact time when investments (index included) were at their absolute lowest in value.  To me, it's sort of like keeping the emergency water bucket inside the flammable liquids cabinet.  ...Just a bad, bad idea.

It really depends on how big your taxable account is and how easily it is to tap cash.  I think the worst one year loss in stock market was like 50%.  So if you want a 6 mo emergency fund if you have 12 months spending in your taxable account you should be fine even in a really bad outcome.




Scandium

  • Handlebar Stache
  • *****
  • Posts: 2223
  • Location: EastCoast
Re: How do you handle your "emergency fund"?
« Reply #32 on: July 30, 2014, 08:53:57 AM »

The problem is, several months or more of expenses in cash is actually a huge opportunity cost over the long term. That money could be earning returns, and those returns returns. Putting your emergency funds in investments will definitely help you reach FI earlier.

Treat your credit card as emergency fund. If you actually need to use it regularly, then you might want to check a) your definition of an emergency and b) your budget.

Roth IRA's can also have the initial investment withdrawn penalty-free.

I'm really surprised this is the first mention of using your Roth for emergency funds. I keep at least 20% of our annual gross salaries in a combination of TIPS index funds and CDs in our Roths. I would only touch the funds in event of an extended job loss. I include these funds in the calculation of my overall asset allocation so I'm not too heavily invested in bonds and cash. I can float our expenses over several credit cards if necessary while waiting for cashed-out contributions to arrive.

For an unexpected ~$5,000 non-medical expense, I have a backlog of un-reimbursed medical expenses and much more than enough in my HSA to cover it. I can cover this $5,000 non-medical expense and still have enough in my HSA to cover my annual out-of-pocket maximum in the event of an insured medical issue. My HSA is also invested approximately 70/30 towards stocks. This strategy, however, does make me vulnerable to a medical expense that my insurance refuses to cover.

I don't usually have more than $5,000 or so in actual bank account cash, and much of that is planned for large annual expenses like insurance and tax bills.

Bonds/CDs in roth is not optimal. Since it's all tax free you should have the highest growth assets in the roth, and rather keep bonds in a tax-deferred account. Especially with such low CD yields why not just keep them in taxable?

And using roth contributions for emergencies; can you put that money back in or is it out forever? If it's the latter you're then giving up a lifetime of tax-free growth on those contributions so it had better be an extremely serious emergency!

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1086
Re: How do you handle your "emergency fund"?
« Reply #33 on: July 30, 2014, 09:04:09 AM »
I keep $4k, which is a little less than two paychecks, in our savings that's connected to our checking account so it's always easily accessible. It pays a little bit of interest, so not too bad of a deal. Then I keep the rest in an internet savings account so that we have 6 months expenses on hand at all times.

Mister Fancypants

  • Bristles
  • ***
  • Posts: 296
  • Age: 42
  • Location: New York
Re: How do you handle your "emergency fund"?
« Reply #34 on: July 30, 2014, 09:07:35 AM »
We keep about $2,000 in our checking accounts, we keep 6 months of living expenses $60k in a CapitalOne 360 account, another 6 months living expenses $60k in either a 6 month CD or 3 month T-Bill's whichever has the better yield at the time we need to buy.

We also have a $200k HELOC backstop that we use as a sweep account, it has a base balance of $85k which was part of a refi from our primary mortgage so there is a $115k buffer available. Our interest rate is 2.49%.

We deposit our income in the HELOC so the balance is constantly changing and pay all of our bills (mostly credit cards) from this account to reduce current interest expenses.

The majority of our bills are paid by credit card to maximize cash back, we have about $200k in available credit on credit cards.

So generally speaking if our income can cover the expense within a credit card cycle our HELOC balance and cash accounts remain intact, if we need to more then a credit card cycle to cover an expense the HELOC can be replenished by our CapitalOne 360 account to not pay any interest, if we need more then 6 months, the CapitalOne 360 account can be replaced by the CD/T-Bill and current income.

All investing is on hold until all ER accounts are at 100%, even though that is mathematically ineffective we had to use $150k of ER funds for uninsured medical expenses so having the safety net we the best decision we had made financially as our investments remained intact.

We are still in the process of completely refunding the accounts.

-Mister FancyPants






rubybeth

  • Handlebar Stache
  • *****
  • Posts: 1402
  • Location: Midwest
Re: How do you handle your "emergency fund"?
« Reply #35 on: July 30, 2014, 09:14:28 AM »
We keep about one month's expenses in our 'checking' account (actually a brokerage account) at all times, so if for some reason, the income stopped coming, we'd have a month's worth of regular bills already there. We also have a money market account that has a debit card and checks along with it that we use as general savings toward very short-term expenditures and also as 'emergency' funds. We keep 5,000-10,000 in that account (when it gets to 10,000, I usually move a chunk into an IRA) and it covers my husband's tuition bills, travel expenses, and emergencies. Honestly, though, since we save such a huge chunk of our income, we have literally never had to tap our emergency fund for an emergency. Not once. Instead, we just put less into savings in the month we've needed to pay a bigger unexpected bill like a car repair or a medical co-pay. But I think of that account as more of a 'peace of mind' account than an emergency fund. It's easily accessible money (debit card/checks) and it would allow us to take a last-minute trip or bail out a friend in need. And the 5,000 minimum is basically my comfort amount just to cover our car insurance/medical insurance deductibles in case of a major accident or catastrophic event.

Richie Poor

  • 5 O'Clock Shadow
  • *
  • Posts: 65
  • Age: 38
  • Location: Texas
Re: How do you handle your "emergency fund"?
« Reply #36 on: July 30, 2014, 09:19:58 AM »
I only keep about 10k in savings. I think that would cover almost every emergency I can think of aside from extended job loss. I have 24k in HSA that would help with a medical emergency. Also since we pay our medical bills out of pocket I could withdraw that amount from the HSA if I were in a pinch. Withdrawing from a Roth IRA would be a last ditch effort.

If I did lose my job I think I could get my expenses down to about $1,200 per month. I feel like even in a poor economy and without our current jobs my wife and I scrape together $1,200 from odd jobs. If our skills ever lose all value then we are probably living in post apocalyptic world and I'll spend my time making leather outfits so we look good at the Thunderdome.

madage

  • Bristles
  • ***
  • Posts: 405
  • Location: TX
Re: How do you handle your "emergency fund"?
« Reply #37 on: July 30, 2014, 01:45:46 PM »

Bonds/CDs in roth is not optimal. Since it's all tax free you should have the highest growth assets in the roth, and rather keep bonds in a tax-deferred account. Especially with such low CD yields why not just keep them in taxable?

And using roth contributions for emergencies; can you put that money back in or is it out forever? If it's the latter you're then giving up a lifetime of tax-free growth on those contributions so it had better be an extremely serious emergency!

Valid points. It made sense to me when I didn't have a large Roth IRA balance to keep my "emergency" portion in bonds. Now that the balances have grown it probably doesn't make sense for me to make this distinction anymore. Thank you for making me re-examine this.

In my case, "emergency" means a prolonged loss of job, like after unemployment benefits run out prolonged. As I indicated, I have other assets available to cover unexpected large expenses. Keeping emergency funds in a Roth is not right for everyone, but I believe it can be a good option for many.

tarheeldan

  • Pencil Stache
  • ****
  • Posts: 770
Re: How do you handle your "emergency fund"?
« Reply #38 on: July 30, 2014, 02:02:09 PM »
I have 6k which is 2.6mo of expenses in an online savings account. I have a checking with them too so I can access the funds immediately. Then there's Roth contributions in case it really hits the fan.

I agree with the idea of budgeting for car maintenance or repairs and other items and keeping that separate from the EF. So, I have online savings accounts with a different bank, one for car stuff and one for my dog.

ETA: 6k is lower than I would like but I still have hair on fire. Rates are low thankfully, but still. Also have primary checking with brick and mortar institution.
« Last Edit: July 30, 2014, 02:04:49 PM by tarheeldan »

ThermionicScott

  • 5 O'Clock Shadow
  • *
  • Posts: 55
Re: How do you handle your "emergency fund"?
« Reply #39 on: July 30, 2014, 03:37:06 PM »
Bonds/CDs in roth is not optimal. Since it's all tax free you should have the highest growth assets in the roth, and rather keep bonds in a tax-deferred account. Especially with such low CD yields why not just keep them in taxable?

If you are investing enough to spill over the Roth contribution limits each year, it's a good idea to put the less tax-efficient things in there, since dividends are taxed as income.  Stocks throw off dividends as well, but most of the growth is in capital gains, which you don't have to pay taxes on until you cash them in (and CG rates are currently lower than dividend/income rates.)

Low CD yields just beg the question of why have much of them in the first place?  ;^)

Quote
And using roth contributions for emergencies; can you put that money back in or is it out forever? If it's the latter you're then giving up a lifetime of tax-free growth on those contributions so it had better be an extremely serious emergency!

You can replace your withdrawals within the same year, after that, you've lost your chance.
« Last Edit: July 30, 2014, 03:39:30 PM by ThermionicScott »

Zikoris

  • Magnum Stache
  • ******
  • Posts: 3487
  • Age: 33
  • Location: Vancouver, BC
  • Vancouverstachian
Re: How do you handle your "emergency fund"?
« Reply #40 on: July 30, 2014, 03:57:15 PM »
I keep $5000 in an easy-access savings account. That's about 3.5 months of expenses for both of us, or 7 of just my share of expenses. Other than that, I only keep the minimum in my bank account to cover expenses - everything else goes straight into investments.

I think it's more psychological than anything. There have been times in my pre-mustache days when I didn't have money and could have used it, so I like having it there to look at now. I get 1.4% interest on it.

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 32
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: How do you handle your "emergency fund"?
« Reply #41 on: July 30, 2014, 04:06:31 PM »
4-months worth in cash in a high-interest account.  Personally (and I definitely don't speak for everyone on this) I think it is a horrible idea to have an emergency fund in investments.   The last time the majority of people needed to tap their emergency fund was when they got laid-off in the economic downturn.  ...Which was also the exact time when investments (index included) were at their absolute lowest in value.  To me, it's sort of like keeping the emergency water bucket inside the flammable liquids cabinet.  ...Just a bad, bad idea.

It really depends on how big your taxable account is and how easily it is to tap cash.  I think the worst one year loss in stock market was like 50%.  So if you want a 6 mo emergency fund if you have 12 months spending in your taxable account you should be fine even in a really bad outcome.

What you didn't account for in this scenario was that you lost all of the capital you had invested with no chance to gain back the losses.

NoraLenderbee

  • Handlebar Stache
  • *****
  • Posts: 1255
Re: How do you handle your "emergency fund"?
« Reply #42 on: July 30, 2014, 04:09:30 PM »
We keep about a year's expenses liquid. We don't have an emergency fund as such. The liquid fund is for covering any large outlay, including home repairs and improvements. If we withdraw cash to pay for a new roof, we then replenish the fund from cash flow. The cushion is unnecessarily large, but both my husband and I sleep better knowing that we don't have to liquidate investments if anything happens. I was laid off in 2012 and didn't get a job for over five months. My severance and vacation pay covered us most of that time, but I felt a LOT better knowing that I could survive a whole year.

We do need to think about getting a bit more yield. It's in a savings account now. (face punch).

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: How do you handle your "emergency fund"?
« Reply #43 on: July 30, 2014, 04:20:42 PM »
4-months worth in cash in a high-interest account.  Personally (and I definitely don't speak for everyone on this) I think it is a horrible idea to have an emergency fund in investments.   The last time the majority of people needed to tap their emergency fund was when they got laid-off in the economic downturn.  ...Which was also the exact time when investments (index included) were at their absolute lowest in value.  To me, it's sort of like keeping the emergency water bucket inside the flammable liquids cabinet.  ...Just a bad, bad idea.

It really depends on how big your taxable account is and how easily it is to tap cash.  I think the worst one year loss in stock market was like 50%.  So if you want a 6 mo emergency fund if you have 12 months spending in your taxable account you should be fine even in a really bad outcome.

What you didn't account for in this scenario was that you lost all of the capital you had invested with no chance to gain back the losses.

The only way to lose all of the capital that you invested is if the market drops to zero (assuming index fund and not buying stock in one company).  You're going to need a lot more than a cash emergency fund if that happens.

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 32
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: How do you handle your "emergency fund"?
« Reply #44 on: July 30, 2014, 04:59:30 PM »
4-months worth in cash in a high-interest account.  Personally (and I definitely don't speak for everyone on this) I think it is a horrible idea to have an emergency fund in investments.   The last time the majority of people needed to tap their emergency fund was when they got laid-off in the economic downturn.  ...Which was also the exact time when investments (index included) were at their absolute lowest in value.  To me, it's sort of like keeping the emergency water bucket inside the flammable liquids cabinet.  ...Just a bad, bad idea.

It really depends on how big your taxable account is and how easily it is to tap cash.  I think the worst one year loss in stock market was like 50%.  So if you want a 6 mo emergency fund if you have 12 months spending in your taxable account you should be fine even in a really bad outcome.

What you didn't account for in this scenario was that you lost all of the capital you had invested with no chance to gain back the losses.

The only way to lose all of the capital that you invested is if the market drops to zero (assuming index fund and not buying stock in one company).  You're going to need a lot more than a cash emergency fund if that happens.

12 months spending in a taxable account, 50% drop in the market, and you use the full 6 months worth of spending that you withdrawal = $0 left in taxable account. 

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: How do you handle your "emergency fund"?
« Reply #45 on: July 30, 2014, 05:19:50 PM »
Okay, but you didn't lose all of your capital in that scenario.  You used it to pay expenses.  Two very different things.

If you had half that amount in a savings account, and used it to pay expenses, you wouldn't say that your savings account lost all of it's capital, right?
« Last Edit: July 30, 2014, 05:25:57 PM by Eric »

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 32
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: How do you handle your "emergency fund"?
« Reply #46 on: July 30, 2014, 05:44:43 PM »
Okay, but you didn't lose all of your capital in that scenario.  You used it to pay expenses.  Two very different things.

If you had half that amount in a savings account, and used it to pay expenses, you wouldn't say that your savings account lost all of it's capital, right?

Valid point, and true. But you would have made out better with an emergency fund rather than investing it all into taxable in this situation.

SailAway

  • Stubble
  • **
  • Posts: 102
Re: How do you handle your "emergency fund"?
« Reply #47 on: July 30, 2014, 05:52:07 PM »
We keep 10k in a money market account with the same bank as our checking so we can quickly transfer funds as needed. Interest sucks but at least it's readily available.

ThermionicScott

  • 5 O'Clock Shadow
  • *
  • Posts: 55
Re: How do you handle your "emergency fund"?
« Reply #48 on: July 31, 2014, 10:19:54 AM »
Here's another reason I don't keep a lot of easily-accessible cash in my savings/checking account -- I'll spend it on something dumb.  Better to put as much money as possible out of reach.  ;^)

t-rymz

  • 5 O'Clock Shadow
  • *
  • Posts: 30
Re: How do you handle your "emergency fund"?
« Reply #49 on: July 31, 2014, 08:21:19 PM »
I have living expenses for 2-3 months in a savings account at my bank. I will increase that to 4-6 months if I have children and need that additional stability. The rest is called "investments."