In Praise of Big, Fat Emergency Funds

[moneytaichi]

We have a cash EF to last perhaps 6 months, but our "backup" EF is the principal on our Roth IRAs.  It would be psychologically painful to dip into this for many reasons, but it would allow us to get by for another year or two.

I am assuming your Roth IRAs are invested in conservative funds such as MM or short-term bonds. Is it right? I am trying to set up Roth IRAs as the backup for EF.

[Erma]

I am so happy that we have the money for approximately 6 months without income. We are now only earning less (still enough to save some) so no need for it, but in case that work completely stops it is very nice to have the money for all the bills.

[SquashingDebt]

I have a year's worth of expenses in cash.  Probably more like 18 months if I really tighten things up (which no travel or eating out is really helping with right now!).  Half of that is technically my "car replacement fund", but I'm hoping to not have to replace my car for a few years still.

[LWYRUP]

I have a year's worth of expenses in cash.  Probably more like 18 months if I really tighten things up (which no travel or eating out is really helping with right now!).  Half of that is technically my "car replacement fund", but I'm hoping to not have to replace my car for a few years still.

A car replacement fund is a great emergency fund, because if push comes to shove and the car breaks and you spent it down, you can still get cheap financing.  The only thing is you need to make sure to top it up before you buy the car so you aren't at zero after the purchase. 

[ducky19]

Just ran the numbers and between cash reserves, Roth IRA, and HSA accounts, we have 12 months covered without factoring in unemployment insurance income, rental income, etc. Obviously I don't want to touch HSA or Roth unless absolutely necessary, so we did increase our cash position from around $5k to $20k. Best case scenario, if I were to lose my job tomorrow we would be good for 2 years including unemployment and full rental income. Reality would probably be somewhere in between those two, so I'm estimating we're set for a solid 18 months. I'm glad I went through the exercise of figuring this up - I knew we would be ok, but it feels good to be able to see it on paper. I'm going to sleep better tonight!

[The_Big_H]

How big should your emergency fund be, well that is wholly dependent on how flexible your spending is, if the emergency actually cuts off your job income OR increases your spending, # of jobs you have, their stability, your health, your living circumstances etc.

Here's a fun guideline,  your emergency fund should cover one (risky), two (medium), or 3 (conservative) of the following (assign a dollar value to each and pick the 1/2/3 most expensive ones and add them up):

1) Complete loss of income, 2 months, bills/essential expenses ONLY, PLUS COBRA (no UI).  (if you pick 2 or 3, you could instead double or triple this if this one is the most expensive)
2) Combine your driver and home/renters insurance deductible "drive car thru house".
3) Your Out of Pocket Maximum healthcare coverage for you or your family (double if someone is chronically ill)
4) Do you drive?  If so, the most expensive possible repair, or the price of a car you'd be willing to buy cash instead of repairing
5) Do you own a home?  if so, insert the most expensive home repair here that you are liable for (usually going to be roof, A/C, or Boiler)
6) Do you rent?  Three month's rent in case you need to pick up and move (for deposit and moving costs)
7) "death" fund.  Regardless of life insurance, money to unexpectedly need to bury a loved one, plus time off from work, counseling, and maybe a month or two of unexpected daycare while you pick up the pieces / wait on the life insurance money.
8) "lawyer" fund.  40 hours at the going billable rate of a lawyer you might find yourself in need of at the going rate in your locale.  More if you are especially legally vulnerable.

For me, that is
1) $8000
2) $5000
3) $7000
4) $5000 (I don't drive expensive cars and can get around by bike, so this one barely applies to me)
5) $6000 (A/C, no heat (FL) and HOA covers the roof
6) N/A
7) $4000 funeral, $1000 daycare, $1000 off work = $6000
8) 40*250/hr = $10,000

So my cash-money Efund should be $10,000, I'm perfectly happy only securing one of these, I figure I could secure another $8000 (two-fer) or $15,000 (triple-threat) through other means such as selling something, no/low interest APR CC, or a roth withdrawl.

[deborah]

That's all very well until an emergency hits! It's amazing how the costs snowball. Let's look at a few of the emergencies I've actually been in...

1. Double decker express bus hit my car while I was stopped for an ambulance: Car totalled (needed replacement, covered by insurance). Whiplash for 3 years (medical covered by accident insurance, cooking and house cleaning not covered nor was all the other assistance I needed throughout the three years). Lost pay for 3 years (working as a contractor, after being permanent until 4 months before the accident therefore no employment history, and thus it wasn't covered).

2. Fire burnt every single possession: Insurance was for replacement cost rather than new cost. There is a trade off between money and hours. When you have just burnt all your clothes it takes quite a bit of hunting around to replace them all. The same for everything else. It's much quicker and easier to go into a store and order all the different kitchenware and then go to another and order all the different clothes. When you have burnt your house, even if it's in OK condition, the fire brigade will turn off your power, and you need an electrician to check that the wiring is still safe. And everything is smoke damaged...

3. Car conked out in the middle of nowhere: A road that people have been stranded on for two weeks in the past. Getting your car back to a repair place costs a lot of money (five hours of towing...), and it took several days to organise - so several days of accommodation. That's all before repair. Fortunately it was covered, as was a hire car for a week while it was being fixed.

[Dicey]

How big should your emergency fund be, well that is wholly dependent on how flexible your spending is, if the emergency actually cuts off your job income OR increases your spending, # of jobs you have, their stability, your health, your living circumstances etc.

Here's a fun guideline,  your emergency fund should cover one (risky), two (medium), or 3 (conservative) of the following (assign a dollar value to each and pick the 1/2/3 most expensive ones and add them up):

1) Complete loss of income, 2 months, bills/essential expenses ONLY, PLUS COBRA (no UI).  (if you pick 2 or 3, you could instead double or triple this if this one is the most expensive)
2) Combine your driver and home/renters insurance deductible "drive car thru house".
3) Your Out of Pocket Maximum healthcare coverage for you or your family (double if someone is chronically ill)
4) Do you drive?  If so, the most expensive possible repair, or the price of a car you'd be willing to buy cash instead of repairing
5) Do you own a home?  if so, insert the most expensive home repair here that you are liable for (usually going to be roof, A/C, or Boiler)
6) Do you rent?  Three month's rent in case you need to pick up and move (for deposit and moving costs)
7) "death" fund.  Regardless of life insurance, money to unexpectedly need to bury a loved one, plus time off from work, counseling, and maybe a month or two of unexpected daycare while you pick up the pieces / wait on the life insurance money.
8) "lawyer" fund.  40 hours at the going billable rate of a lawyer you might find yourself in need of at the going rate in your locale.  More if you are especially legally vulnerable.

For me, that is
1) $8000
2) $5000
3) $7000
4) $5000 (I don't drive expensive cars and can get around by bike, so this one barely applies to me)
5) $6000 (A/C, no heat (FL) and HOA covers the roof
6) N/A
7) $4000 funeral, $1000 daycare, $1000 off work = $6000
8) 40*250/hr = $10,000

So my cash-money Efund should be $10,000, I'm perfectly happy only securing one of these, I figure I could secure another $8000 (two-fer) or $15,000 (triple-threat) through other means such as selling something, no/low interest APR CC, or a roth withdrawl.

IMO, if you don't have enough to avoid a Roth withdrawal, your plan is not optimal. Roth monies may be withdrawn without penalty, but they can't be returned once withdrawn. It would be a shame to lose that investment space just because you didn't keep a reasonably large EF.

[The_Big_H]

IMO, if you don't have enough to avoid a Roth withdrawal, your plan is not optimal. Roth monies may be withdrawn without penalty, but they can't be returned once withdrawn. It would be a shame to lose that investment space just because you didn't keep a reasonably large EF.

That's like the third or fourth "option" past my main cash fund.  I can easily trim spending, liquidate some possessions, or qualify for a zero % for 6-12ish months card, all before hitting the roth (which I fill completely, plus spousal, plus mega backdoor.... hence why I don't have a taxable account).

I just don't see the need to keep a 20-25-30k E-fund to cover 99.7% of disasters that's too much money sitting still, when $10k covers like 90% of disasters

[Dicey]

IMO, if you don't have enough to avoid a Roth withdrawal, your plan is not optimal. Roth monies may be withdrawn without penalty, but they can't be returned once withdrawn. It would be a shame to lose that investment space just because you didn't keep a reasonably large EF.

That's like the third or fourth "option" past my main cash fund.  I can easily trim spending, liquidate some possessions, or qualify for a zero % for 6-12ish months card, all before hitting the roth (which I fill completely, plus spousal, plus mega backdoor.... hence why I don't have a taxable account).

I just don't see the need to keep a 20-25-30k E-fund to cover 99.7% of disasters that's too much money sitting still, when $10k covers like 90% of disasters

That's cool, you do you. But why the heck are you even participating in this thread?

[DadJokes]

IMO, if you don't have enough to avoid a Roth withdrawal, your plan is not optimal. Roth monies may be withdrawn without penalty, but they can't be returned once withdrawn. It would be a shame to lose that investment space just because you didn't keep a reasonably large EF.

Personal finance is indeed personal.

With our income, we can't quite max out every tax-advantaged space, and both of our 401(k)s & my 457(b) have fees & options similar to what we'd get in a Vanguard IRA. As such, we generally don't invest in an IRA. However, a few years ago, we started moving portions of our emergency fund into a Roth IRA. After a few years of growth, it'll serve us better than if it had just sat in a savings account.

Like The Big H, it's still way down our list of things to use in the case of an emergency. As I'm only putting in $6k per year, it'll still take several years to DCA my entire emergency fund into the IRA, but an event like this doesn't affect my plans.

[Step37]

My big, fat EF is giving me a lot of peace of mind right now. Even in the (highly unlikely) event that we lost all income streams, it could support all necessary spending for about two years. Having no debt (other than a small mortgage on a rental property), a stocked pantry, and cooking skills definitely helps a lot as well. It’s a fortunate position to be in and is due to both good luck and good planning.

[SotI]

My big, fat EF is giving me a lot of peace of mind right now. Even in the (highly unlikely) event that we lost all income streams, it could support all necessary spending for about two years. Having no debt (other than a small mortgage on a rental property), a stocked pantry, and cooking skills definitely helps a lot as well. It’s a fortunate position to be in and is due to both good luck and good planning.

This! (minus the rental/mortgage bit). Mind you, peace of mind is important to me. One cannot plan for everything in life, but I don't see any reason to not at least have a strategy for things that can be factored in (all subject to personal risk preferences).

[ChiStache]

I am 37 years old with two small kids, and this experience has totally changed my outlook on emergency funds.  I have a lot of equity in my house, decent retirement savings, and no other debt, but I would feel SO much more at ease if I had 6 months of expenses in cash right now.  I know it's not entirely rational, it's just driven by my own idiosyncratic anxieties.  A pile of cash would put me at ease.  Big kudos to those of you who have one!!

[Dicey]

I am 37 years old with two small kids, and this experience has totally changed my outlook on emergency funds.  I have a lot of equity in my house, decent retirement savings, and no other debt, but I would feel SO much more at ease if I had 6 months of expenses in cash right now.  I know it's not entirely rational, it's just driven by my own idiosyncratic anxieties.  A pile of cash would put me at ease.  Big kudos to those of you who have one!!

Ah, but they are not idiosyncratic anxieties in the least! This is why I vehemently disagree with Pete on this topic. Shit hits the fan on a regular basis in life. Sometimes it's your turn and sometimes it's not. Some people seem to never have a turn. This pandemic proves it can happen to every damn one of us. I truly hope Pete modifies his stance after this experience. I am positive there are plenty of people who feel the way you do right now. Part of that is because they blindly bought on to the rhetoric that you don't need an EF, or more correctly, that available credit is the same as an EF. Nope.

Fortunately for you, ChiStache, is not being able to move about freely means the cash is possibly easier to pile up. Now might be a good time to start one of Mrs. Frugalwoods Uber Frugal Weeks or Months to hasten the fattening of your EF.

[raincoast]

I am 37 years old with two small kids, and this experience has totally changed my outlook on emergency funds.  I have a lot of equity in my house, decent retirement savings, and no other debt, but I would feel SO much more at ease if I had 6 months of expenses in cash right now.  I know it's not entirely rational, it's just driven by my own idiosyncratic anxieties.  A pile of cash would put me at ease.  Big kudos to those of you who have one!!

Ah, but they are not idiosyncratic anxieties in the least! This is why I vehemently disagree with Pete on this topic. Shit hits the fan on a regular basis in life. Sometimes it's your turn and sometimes it's not. Some people seem to never have a turn. This pandemic proves it can happen to every damn one of us. I truly hope Pete modifies his stance after this experience. I am positive there are plenty of people who feel the way you do right now. Part of that is because they blindly bought on to the rhetoric that you don't need an EF, or more correctly, that available credit is the same as an EF. Nope.

Fortunately for you, ChiStache, is not being able to move about freely means the cash is possibly easier to pile up. Now might be a good time to start one of Mrs. Frugalwoods Uber Frugal Weeks or Months to hasten the fattening of your EF.

I have generally followed the "six months expenses in cash" EF advice. I was in university during the crash of 2008, but that experience convinced me that you can't always rely on a job or access to credit, and the stock market will often drop just when you need the money.

My pre-pandemic calculation of my EF number was based on my budget from the year before I discovered MMM and FIRE, which was a bit more spendy than now but not significantly so (I've always been frugal). Having that cash cushion, plus a 25% bond allocation in my portfolio, has helped me weather this storm without worrying too much about my finances.

But with all of the uncertainty lately, I decided that I wanted to increase that cash cushion to a full year, even though my job and my income have been secure so far. I sat down and calculated a "bare bones" budget and found that my current EF is closer to 10 months necessary expenses - without considering any potential unemployment benefits. I'm still planning to add to the EF from my tax refund and my next few paycheques so I'm confident it can last a full year.

We don't often talk about family support networks when talking about emergencies, but I think the possibility of family support is also relevant to the amount you need in your EF. If I lost my job and had no reasonable prospect of finding another one within a year I would probably give up my expensive apartment and move into my parents' large, fully paid off house. That's my "worst-case scenario", but it's not an option for everyone. People who don't have that family support probably need a bigger EF.

[MrThatsDifferent]

I’ve changed my mind on this issue as well. Not because of an emergency per se, but more realizing that without a good chunk of cash, I’m not able to jump on opportunities, whether it’s buying property or something else. I’ve decided to redirect my money for the rest of this calendar year to HISA. Then I’ll return to investing my extra money. I think that will feel a bit better.

[Dicey]

@raincoast, something else to think about is that during a long bout of unemployment, a number of your usual expenses might be well below your current budget, allowing your EF to last even longer. Your commuting/transportation costs would decrease, you could practice cooking and eating well for less, you would need fewer work clothes and the ones you have would last longer. You could focus on fitness, which has obvious long term health benefits. You could pick up occasional cash gigs. You would have time to sort through your stuff and sell off or barter with what you don't need. You could practice thrift store/garage sale buying and reselling. The list is long and I'm sure there is more I haven't thought of. In other words, for an experienced, resourceful, frugal person like yourself, that ten month EF might well last for a year or more.

[Dicey]

I’ve changed my mind on this issue as well. Not because of an emergency per se, but more realizing that without a good chunk of cash, I’m not able to jump on opportunities, whether it’s buying property or something else. I’ve decided to redirect my money for the rest of this calendar year to HISA. Then I’ll return to investing my extra money. I think that will feel a bit better.

I want to address this separately, but it kind of applies to @raincoast too, so I hope this answer is food for thought for both of you. Unless your jobs are in peril or in industries likely to be very hard hit or extra slow to rebound, squirreling away all your available cash when you have a reasonably solid EF might be a sub-optimal move in the game of FIRE. Using "found money*" to buy extra investments on the dips has huge upside. The market is on sale now. To rephrase your post MTD, what you're kind of saying is, "I'm going to ignore this sale for now, because I want to wait and pay more later."  Let's talk through that a bit, shall we?

Yes, I'm the one who started this thread, but I also hastened my attainment of FIRE because, for a variety of reasons, I leaned in hard in 2008. When the markets rebounded, my newly acquired additional investments catapulted me over the finish line. I am unbelievably grateful to my past self for making that decision. This crisis is completely different for me because I am 100% certain I can weather this storm, which is an incredibly uplifting feeling. I'm also better able to help others which adds to my feeling of resilience and buoyancy. I am not making light of this pandemic, just saying that axiom of putting on your own mask first has added meaning now.

If you're really struggling with this, I strongly suggest making a compromise such as save half, invest half. Thus crisis is also an opportunity, you don't want to miss out on.

*In this sense, found money is anything additional you can scrounge up beyond your normal budget and savings level. Are you saving money by cooking from scratch at home? Working from home right now and spending less than usual on commuting/transportation costs? Is your insurance company offering rebates? Are your kids temporarily not in day care? Are you getting a stimulus check? Take those temporary economies and throw them into equities. BTW, I do not recommend a balanced approach with this found money. You're already doing that with your normal retirement savings. Funnel all of your found money into VTSAX or similar for maximum impact. You can always rebalance later. It's a great problem to have.

Hope this helps.

[OtherJen]

This discussion and the current world situation is making me realize that I really don’t care so much about FIRE as fast as possible. I’d rather keep more money in cash than is mustache-optimal because we can’t count on family support. My parents would absolutely let us live with them if needed, but they’re both older and Dad is retired, and I don’t want them ever to worry about having to use their own fixed incomes to support us. My MIL is adamantly against giving any financial help to adult children so I don’t even consider my in-laws a last resort. Hence, we now have about 6 months of barebones expenses in cash (not including the HSA) and plan to keep it that way, regardless how stable our jobs are. I’d actually like to have a full year, but if we need more before we can get there, my Roth IRA principal is the back-up emergency fund.

[lhamo]

Like Dicey, we also "leaned in hard" from 2008-2013:

Bought a fancy condo in Beijing at the absolute bottom of the market in spring 2009

Threw large chunks of money into the kids college funds in fall 2008 and spring 2009

Once we knew our new budget with the mortgage included, upped our retirement savings back up to the max, and also started doing larger monthly contributions to the kids college funds

We pulled back on retirement and college savings in fall 2013 when we bit the bullet and sent the kids to a more expensive private school.  But we had caught much of the market runup on our investments, and by the time we sold it in early 2017 our fancy condo was worth roughly 3x what we paid for it.

Up until the time we FIREd we still maintained a pretty large cash slush fund -- tried not to go under 200k -- because due to the nature of our jobs there was always the possibility they could end suddenly and it would be unlikely we could get something as high paying in our field easily.  So that was the "get the heck out of Dodge" fund that we could presumably fall back on while we worked out selling the apartment.

Having that slush fund allowed DH to resign in fall 2015 when he had originally been planning to hang on for another 6-18 months.  His job had become extremely stressful and they were trying to force him to take an international trip when his father had just had a heart attack.  I told him to go ahead and tell them FU.  He was a bit more polite than that, but he gave notice and went to help his family. 

So yeah, don't miss out on opportunities to invest, but think a bit about how much of a cushion you want as REAL FU money if/when the time comes.  It is really nice to be able to pull the plug on a nasty situation and know you have enough cash to tide you over until you figure out next steps, regardless of what the market does.

[raincoast]

I’ve changed my mind on this issue as well. Not because of an emergency per se, but more realizing that without a good chunk of cash, I’m not able to jump on opportunities, whether it’s buying property or something else. I’ve decided to redirect my money for the rest of this calendar year to HISA. Then I’ll return to investing my extra money. I think that will feel a bit better.

I want to address this separately, but it kind of applies to @raincoast too, so I hope this answer is food for thought for both of you. Unless your jobs are in peril or in industries likely to be very hard hit or extra slow to rebound, squirreling away all your available cash when you have a reasonably solid EF might be a sub-optimal move in the game of FIRE. Using "found money*" to buy extra investments on the dips has huge upside. The market is on sale now. To rephrase your post MTD, what you're kind of saying is, "I'm going to ignore this sale for now, because I want to wait and pay more later."  Let's talk through that a bit, shall we?

Yes, I'm the one who started this thread, but I also hastened my attainment of FIRE because, for a variety of reasons, I leaned in hard in 2008. When the markets rebounded, my newly acquired additional investments catapulted me over the finish line. I am unbelievably grateful to my past self for making that decision. This crisis is completely different for me because I am 100% certain I can weather this storm, which is an incredibly uplifting feeling. I'm also better able to help others which adds to my feeling of resilience and buoyancy. I am not making light of this pandemic, just saying that axiom of putting on your own mask first has added meaning now.

Fair point. I have not stopped my automated investment contributions, only the additional ones I make from whatever money is left over at the end of the month. After I get my tax refund and any extra amount from my next paycheque, I will likely be at a comfortable 1 year cash cushion and be ready to resume my extra investment contributions going forward.

Unfortunately my life has not become dramatically cheaper because of social distancing - I didn't go out to restaurants much anyway, and my transportation costs were already close to zero.

[Dicey]

I’ve changed my mind on this issue as well. Not because of an emergency per se, but more realizing that without a good chunk of cash, I’m not able to jump on opportunities, whether it’s buying property or something else. I’ve decided to redirect my money for the rest of this calendar year to HISA. Then I’ll return to investing my extra money. I think that will feel a bit better.

I want to address this separately, but it kind of applies to @raincoast too, so I hope this answer is food for thought for both of you. Unless your jobs are in peril or in industries likely to be very hard hit or extra slow to rebound, squirreling away all your available cash when you have a reasonably solid EF might be a sub-optimal move in the game of FIRE. Using "found money*" to buy extra investments on the dips has huge upside. The market is on sale now. To rephrase your post MTD, what you're kind of saying is, "I'm going to ignore this sale for now, because I want to wait and pay more later."  Let's talk through that a bit, shall we?

Yes, I'm the one who started this thread, but I also hastened my attainment of FIRE because, for a variety of reasons, I leaned in hard in 2008. When the markets rebounded, my newly acquired additional investments catapulted me over the finish line. I am unbelievably grateful to my past self for making that decision. This crisis is completely different for me because I am 100% certain I can weather this storm, which is an incredibly uplifting feeling. I'm also better able to help others which adds to my feeling of resilience and buoyancy. I am not making light of this pandemic, just saying that axiom of putting on your own mask first has added meaning now.

Fair point. I have not stopped my automated investment contributions, only the additional ones I make from whatever money is left over at the end of the month. After I get my tax refund and any extra amount from my next paycheque, I will likely be at a comfortable 1 year cash cushion and be ready to resume my extra investment contributions going forward.

Unfortunately my life has not become dramatically cheaper because of social distancing - I didn't go out to restaurants much anyway, and my transportation costs were already close to zero.

And the bolded has my vote for MPP of the Day. Good for you!

[Cassie]

We have always had a emergency fund even when young. When we got married most people gave us money and we didn’t take a honeymoon. We saved it. 3 years and 2 kids later my husband got hurt on the job and no checks came for months. We were a single earner family. We had that money. Now retired on a fixed income which meets our needs and of course savings.

[Villanelle]

I am 37 years old with two small kids, and this experience has totally changed my outlook on emergency funds.  I have a lot of equity in my house, decent retirement savings, and no other debt, but I would feel SO much more at ease if I had 6 months of expenses in cash right now.  I know it's not entirely rational, it's just driven by my own idiosyncratic anxieties.  A pile of cash would put me at ease.  Big kudos to those of you who have one!!

Ah, but they are not idiosyncratic anxieties in the least! This is why I vehemently disagree with Pete on this topic. Shit hits the fan on a regular basis in life. Sometimes it's your turn and sometimes it's not. Some people seem to never have a turn. This pandemic proves it can happen to every damn one of us. I truly hope Pete modifies his stance after this experience. I am positive there are plenty of people who feel the way you do right now. Part of that is because they blindly bought on to the rhetoric that you don't need an EF, or more correctly, that available credit is the same as an EF. Nope.

Fortunately for you, ChiStache, is not being able to move about freely means the cash is possibly easier to pile up. Now might be a good time to start one of Mrs. Frugalwoods Uber Frugal Weeks or Months to hasten the fattening of your EF.

I have generally followed the "six months expenses in cash" EF advice. I was in university during the crash of 2008, but that experience convinced me that you can't always rely on a job or access to credit, and the stock market will often drop just when you need the money.

My pre-pandemic calculation of my EF number was based on my budget from the year before I discovered MMM and FIRE, which was a bit more spendy than now but not significantly so (I've always been frugal). Having that cash cushion, plus a 25% bond allocation in my portfolio, has helped me weather this storm without worrying too much about my finances.

But with all of the uncertainty lately, I decided that I wanted to increase that cash cushion to a full year, even though my job and my income have been secure so far. I sat down and calculated a "bare bones" budget and found that my current EF is closer to 10 months necessary expenses - without considering any potential unemployment benefits. I'm still planning to add to the EF from my tax refund and my next few paycheques so I'm confident it can last a full year.

We don't often talk about family support networks when talking about emergencies, but I think the possibility of family support is also relevant to the amount you need in your EF. If I lost my job and had no reasonable prospect of finding another one within a year I would probably give up my expensive apartment and move into my parents' large, fully paid off house. That's my "worst-case scenario", but it's not an option for everyone. People who don't have that family support probably need a bigger EF.

This would likely be our plan as well.  If it got to this, my parents would be more than happy to have us as it would mean the shit had truly, truly hit the fan in almost unimaginable ways.  Their house is paid off and they have social security plus two pensions for their own expenses.  It has plenty of space for us, and we could certainly make ourselves useful assisting two people in their mid-70s around the house.  (Actually,  in a universe where this happened, people in their senior community are always looking for help with odd jobs and shopping, but they are loath to trust strangers.  My parents are very well connected in the community and I suspect that would bring us a fair amount fo work changing light bulbs and picking up prescriptions so we could contribute to the household, if my parents would take money from us.)

These are the kinds of details that I tend to bring up in the various EF conversations where people dig in about the "right" answer.  It's such an incredibly individual thing. 

[ShastaFire]

...
We don't often talk about family support networks when talking about emergencies, but I think the possibility of family support is also relevant to the amount you need in your EF. If I lost my job and had no reasonable prospect of finding another one within a year I would probably give up my expensive apartment and move into my parents' large, fully paid off house. That's my "worst-case scenario", but it's not an option for everyone. People who don't have that family support probably need a bigger EF.

Good point, and I think what you're talking about here the relevance of social capital.  I think for many communities, families, individuals, social capital IS their emergency fund.  When there's little money, the people around you are your backup.  This is why people long settled in impoverished areas don't just move to get a better job.  They would be leaving their only source of support as they know it. 

Anyway, I am deeply grateful for my 6 months cash right now, just sitting there!

[ducky19]

Just ran the numbers and between cash reserves, Roth IRA, and HSA accounts, we have 12 months covered without factoring in unemployment insurance income, rental income, etc. Obviously I don't want to touch HSA or Roth unless absolutely necessary, so we did increase our cash position from around $5k to $20k. Best case scenario, if I were to lose my job tomorrow we would be good for 2 years including unemployment and full rental income. Reality would probably be somewhere in between those two, so I'm estimating we're set for a solid 18 months. I'm glad I went through the exercise of figuring this up - I knew we would be ok, but it feels good to be able to see it on paper. I'm going to sleep better tonight!

Update on us: over the past several weeks, my confidence that my job is safe has been slowly eroding. Not to the point that I'm worried (see above), but enough to get me started thinking of other things we could do to put us in a better position if a job loss happened.

We're currently 5 years into a 15 year mortgage on our house that we were fortunate to be able to lock in at 3.1% back in 2015. On the down side, the shorter time frame means this is easily our biggest expense each month. I reached out to our local bank that we've banked with for the past 20 years to see what rates were on a 30 year note. Amazingly, we could get that same 3.1% rate that our 15 year note is at on a 30 year note! Discussed with DW and we are proceeding with the refinance with the intention of continuing to make the same payment as before. This will result in the same payoff timing, but would save us about $740 a month if the shit hits the fan.

After this goes into effect, we will have 15 months covering all basic expenses not factoring in rental income or unemployment. With unemployment and full rental income, we will have nearly 4 years of basic expenses covered, all for the cost of closing costs on the refinance ($1700). Overall pretty happy with that hedge!

[Daisy]

Just ran the numbers and between cash reserves, Roth IRA, and HSA accounts, we have 12 months covered without factoring in unemployment insurance income, rental income, etc. Obviously I don't want to touch HSA or Roth unless absolutely necessary, so we did increase our cash position from around $5k to $20k. Best case scenario, if I were to lose my job tomorrow we would be good for 2 years including unemployment and full rental income. Reality would probably be somewhere in between those two, so I'm estimating we're set for a solid 18 months. I'm glad I went through the exercise of figuring this up - I knew we would be ok, but it feels good to be able to see it on paper. I'm going to sleep better tonight!

Update on us: over the past several weeks, my confidence that my job is safe has been slowly eroding. Not to the point that I'm worried (see above), but enough to get me started thinking of other things we could do to put us in a better position if a job loss happened.

We're currently 5 years into a 15 year mortgage on our house that we were fortunate to be able to lock in at 3.1% back in 2015. On the down side, the shorter time frame means this is easily our biggest expense each month. I reached out to our local bank that we've banked with for the past 20 years to see what rates were on a 30 year note. Amazingly, we could get that same 3.1% rate that our 15 year note is at on a 30 year note! Discussed with DW and we are proceeding with the refinance with the intention of continuing to make the same payment as before. This will result in the same payoff timing, but would save us about $740 a month if the shit hits the fan.

After this goes into effect, we will have 15 months covering all basic expenses not factoring in rental income or unemployment. With unemployment and full rental income, we will have nearly 4 years of basic expenses covered, all for the cost of closing costs on the refinance ($1700). Overall pretty happy with that hedge!

I don't want to get into the whole mortgage vs paid off house debate, but I feel if you want a paid off house, you are better off NOT paying the bank more with each monthly payment. Use that $740 to keep in an emergency fund and/or invest, then accumulate enough money over 15 years and THEN payoff the mortgage in one big payment. This gives you more flexibility during the tough times such as now, and a paid off house in 15 years as you wish.

Instead of giving away your flexibility and investing power to the bank, keep it for yourself while you build up enough capital to pay off the house.

You may agree or disagree, but I just wanted to provide another point of view.

[elaine amj]

Just ran the numbers and between cash reserves, Roth IRA, and HSA accounts, we have 12 months covered without factoring in unemployment insurance income, rental income, etc. Obviously I don't want to touch HSA or Roth unless absolutely necessary, so we did increase our cash position from around $5k to $20k. Best case scenario, if I were to lose my job tomorrow we would be good for 2 years including unemployment and full rental income. Reality would probably be somewhere in between those two, so I'm estimating we're set for a solid 18 months. I'm glad I went through the exercise of figuring this up - I knew we would be ok, but it feels good to be able to see it on paper. I'm going to sleep better tonight!

Update on us: over the past several weeks, my confidence that my job is safe has been slowly eroding. Not to the point that I'm worried (see above), but enough to get me started thinking of other things we could do to put us in a better position if a job loss happened.

We're currently 5 years into a 15 year mortgage on our house that we were fortunate to be able to lock in at 3.1% back in 2015. On the down side, the shorter time frame means this is easily our biggest expense each month. I reached out to our local bank that we've banked with for the past 20 years to see what rates were on a 30 year note. Amazingly, we could get that same 3.1% rate that our 15 year note is at on a 30 year note! Discussed with DW and we are proceeding with the refinance with the intention of continuing to make the same payment as before. This will result in the same payoff timing, but would save us about $740 a month if the shit hits the fan.

After this goes into effect, we will have 15 months covering all basic expenses not factoring in rental income or unemployment. With unemployment and full rental income, we will have nearly 4 years of basic expenses covered, all for the cost of closing costs on the refinance ($1700). Overall pretty happy with that hedge!

I don't want to get into the whole mortgage vs paid off house debate, but I feel if you want a paid off house, you are better off NOT paying the bank more with each monthly payment. Use that $740 to keep in an emergency fund and/or invest, then accumulate enough money over 15 years and THEN payoff the mortgage in one big payment. This gives you more flexibility during the tough times such as now, and a paid off house in 15 years as you wish.

Instead of giving away your flexibility and investing power to the bank, keep it for yourself while you build up enough capital to pay off the house.

You may agree or disagree, but I just wanted to provide another point of view.

Yeah, I wish I had heard of this when I studied the whole payoff vs don't payoff our mortgage thing. We focused hard on paying off our mortgage and were mortgage free fairly quickly, but this would have been the smarter way to do it instead of giving all extra money to the bank through the years.

Sent from my VCE-AL00 using Tapatalk

[Kem]

I don't want to get into the whole mortgage vs paid off house debate, but I feel if you want a paid off house, you are better off NOT paying the bank more with each monthly payment. Use that $740 to keep in an emergency fund and/or invest, then accumulate enough money over 15 years and THEN payoff the mortgage in one big payment. This gives you more flexibility during the tough times such as now, and a paid off house in 15 years as you wish.

Instead of giving away your flexibility and investing power to the bank, keep it for yourself while you build up enough capital to pay off the house.

You may agree or disagree, but I just wanted to provide another point of view.

I actually look to refinance the house every year and push back out the 30 years fixed so long as the rate is below 5% --- and anytime the cashflow improvements pay for the refi within 18 months I pull the trigger (obv. then the next refi analysis would not occur for 2 years). 

The difference is invested when the EF is fully funded (6 months).  This game also reduces the EF cap each time it is played. 

What is cool with doing this, is that my FI+Debt payoff number is SIGNIFICANTLY lower than my FI including debt payments number and should cut a significant portion of the FI accumulation tiimeperiod off. 

As a byproduct, it makes leveraging this house into rental ideal in a desirable growing area where obtaining cashflow rentals is otherwise hard to obtain --- ignoring depreciating the structure I'm cashflow positive after all expenses (insurance, taxes, P&I, 20% vacancy, monthly long term maint fund etc) even If i wanted a management company to skim off the top.  I see zero reason to sell the property before fat FI as I'd loose 7-10% in fees off the top, all that lovely principal paydown, all that investable cashflow, and the potential of inflation match... oopsie I mean 'appreciation'.  This means I have another source of accelerated net worth towards the shortening the FI date.

[jaysee]

At this point I'm 20% cash.

I'm not even calling it an emergency fund anymore. It's a whole bucket unto itself.

Enough to fund my current lifestyle for 7 years and my soon-to-be-downsized lifestyle for 12 years.

Like another poster, I'm a little contrarian and disagree with the arguments against holding cash.

Cash is a beautiful thing, especially when you live very frugally and minimally.

A highly frugal and minimal lifestyle is:

A) Much less affected by inflation - how much has the price of flour gone up over the last 20 years?
B) Much less risky - no car costs/insurance because you don't own a car; no house burning down because you don't own a house (but just rent a room somewhere); no expensive clothes to replace because you hardly own any clothes; etc etc

Combine extreme frugality and minimalism with loads of cash and you get a safety cushion that can easily last 3-4 recessions let alone one.

Thankfully I'm still employed, so I don't even need to draw the funds, but instead can add to them.

[ducky19]

Just ran the numbers and between cash reserves, Roth IRA, and HSA accounts, we have 12 months covered without factoring in unemployment insurance income, rental income, etc. Obviously I don't want to touch HSA or Roth unless absolutely necessary, so we did increase our cash position from around $5k to $20k. Best case scenario, if I were to lose my job tomorrow we would be good for 2 years including unemployment and full rental income. Reality would probably be somewhere in between those two, so I'm estimating we're set for a solid 18 months. I'm glad I went through the exercise of figuring this up - I knew we would be ok, but it feels good to be able to see it on paper. I'm going to sleep better tonight!

Update on us: over the past several weeks, my confidence that my job is safe has been slowly eroding. Not to the point that I'm worried (see above), but enough to get me started thinking of other things we could do to put us in a better position if a job loss happened.

We're currently 5 years into a 15 year mortgage on our house that we were fortunate to be able to lock in at 3.1% back in 2015. On the down side, the shorter time frame means this is easily our biggest expense each month. I reached out to our local bank that we've banked with for the past 20 years to see what rates were on a 30 year note. Amazingly, we could get that same 3.1% rate that our 15 year note is at on a 30 year note! Discussed with DW and we are proceeding with the refinance with the intention of continuing to make the same payment as before. This will result in the same payoff timing, but would save us about $740 a month if the shit hits the fan.

After this goes into effect, we will have 15 months covering all basic expenses not factoring in rental income or unemployment. With unemployment and full rental income, we will have nearly 4 years of basic expenses covered, all for the cost of closing costs on the refinance ($1700). Overall pretty happy with that hedge!

I don't want to get into the whole mortgage vs paid off house debate, but I feel if you want a paid off house, you are better off NOT paying the bank more with each monthly payment. Use that $740 to keep in an emergency fund and/or invest, then accumulate enough money over 15 years and THEN payoff the mortgage in one big payment. This gives you more flexibility during the tough times such as now, and a paid off house in 15 years as you wish.

Instead of giving away your flexibility and investing power to the bank, keep it for yourself while you build up enough capital to pay off the house.

You may agree or disagree, but I just wanted to provide another point of view.

I appreciate the alternate viewpoint! Our intent was never to pad the emergency fund and has always been to pay off the house sooner rather than later. I also don't want to get into the debate (pay off vs. don't pay off), for us it makes sense as our expenses drop to nearly nothing without a mortgage and gives us the piece of mind we're looking for. I know it doesn't make the most sense mathematically, and we're ok with it. The only real reason for us to go back to a 30 year note is to reduce risk - but again, thanks for the insight!

[Just Joe]

We've been fine. No debt but the mortgage, WFH though in theory furloughs will be possible until the economy springs back. Who knows how long that will take.

If anything we've saved more money during this pandemic due to reduced spending.

Fallbacks: currently several months of cash. We have a credit card with a big credit limit if things were that dire. Can't/wouldn't rely on family bailouts. One side has strong feelings against it (would never ask them anyhow), other side has limited resources and more members potentially in need and surely relying on credit cards for now.

Looking forward: we want to increase our savings rate. Want a year's worth of expenses. We have made a commitment to each other to build a lump sum payoff for our mortgage. Want that gone. Life would be very cheap without it and our method won't delay our retirement. We won't retire MMM early due to late start but we'll retire comfortably and earlier than most of our peers with traditional retirements. 

[Dicey]

We've been fine. No debt but the mortgage, WFH though in theory furloughs will be possible until the economy springs back. Who knows how long that will take.

If anything we've saved more money during this pandemic due to reduced spending.

Fallbacks: currently several months of cash. We have a credit card with a big credit limit if things were that dire. Can't/wouldn't rely on family bailouts. One side has strong feelings against it (would never ask them anyhow), other side has limited resources and more members potentially in need and surely relying on credit cards for now.

Looking forward: we want to increase our savings rate. Want a year's worth of expenses. We have made a commitment to each other to build a lump sum payoff for our mortgage. Want that gone. Life would be very cheap without it and our method won't delay our retirement. We won't retire MMM early due to late start but we'll retire comfortably and earlier than most of our peers with traditional retirements.

Hurrah for lump sum payoff decision!

[BigIslandGuy]

Still working on a 6 month cash emergency fund, but if I count some gold and bitcoin which could be liquidated pretty easily (they are "cash equivalents in my mind) then I have about 8 months. 

I had always thought that Unemployment Insurance would provide be a 4-5 month additional cushion is it meets 90% of my expenses, but now I realize that most state's unemployment systems are intentionally designed to avoid paying people. Between lack of funds in the pot, the website crashes, and inability to get people on the phone and numerous application hurdles, I realize now that we cannot count on unemployment insurance at all. Total bullshit. But thats how it is.  The system is designed to handle 2-3% unemployment, not 20-30% that we are having with COVID.

So its important to have a true 6 month fund, at least. If not 1 year.

[FINate]

Still working on a 6 month cash emergency fund, but if I count some gold and bitcoin which could be liquidated pretty easily (they are "cash equivalents in my mind) then I have about 8 months. 

I had always thought that Unemployment Insurance would provide be a 4-5 month additional cushion is it meets 90% of my expenses, but now I realize that most state's unemployment systems are intentionally designed to avoid paying people. Between lack of funds in the pot, the website crashes, and inability to get people on the phone and numerous application hurdles, I realize now that we cannot count on unemployment insurance at all. Total bullshit. But thats how it is.  The system is designed to handle 2-3% unemployment, not 20-30% that we are having with COVID.

So its important to have a true 6 month fund, at least. If not 1 year.

It's not that unemployment system can't handle a high unemployment rate, it is just that it happen almost literally over night and overwhelmed the system. During the great recession there was a slower build up of unemoyment claims (a flatter curve) and so the system ran smoothly and efficiently. Plus there was 2 years worth of UI benefits then for many people not 4 or 6 months like now that phased in or out over that time period.

But yes, good to have a EF always even just to supplement UI benefits as for most people they aren't enough to live on.

In many case unemployment was overwhelmed because backends depend on a computer language designed in 1959(!) which very few people know nowadays. Is this woeful underinvestment in unemployment insurance systems the result of callousness or incompetence? In some instances it's intentional,  whereas elsewhere (California?) it's likely due to a lack of long-term vision.

[Fomerly known as something]

Still working on a 6 month cash emergency fund, but if I count some gold and bitcoin which could be liquidated pretty easily (they are "cash equivalents in my mind) then I have about 8 months. 

I had always thought that Unemployment Insurance would provide be a 4-5 month additional cushion is it meets 90% of my expenses, but now I realize that most state's unemployment systems are intentionally designed to avoid paying people. Between lack of funds in the pot, the website crashes, and inability to get people on the phone and numerous application hurdles, I realize now that we cannot count on unemployment insurance at all. Total bullshit. But thats how it is.  The system is designed to handle 2-3% unemployment, not 20-30% that we are having with COVID.

So its important to have a true 6 month fund, at least. If not 1 year.

It's not that unemployment system can't handle a high unemployment rate, it is just that it happen almost literally over night and overwhelmed the system. During the great recession there was a slower build up of unemoyment claims (a flatter curve) and so the system ran smoothly and efficiently. Plus there was 2 years worth of UI benefits then for many people not 4 or 6 months like now that phased in or out over that time period.

But yes, good to have a EF always even just to supplement UI benefits as for most people they aren't enough to live on.

In many case unemployment was overwhelmed because backends depend on a computer language designed in 1959(!) which very few people know nowadays. Is this woeful underinvestment in unemployment insurance systems the result of callousness or incompetence? In some instances it's intentional,  whereas elsewhere (California?) it's likely due to a lack of long-term vision.

Yes and no.  As someone who has watched their own much smaller government entity take years to transition to a new computer system, I can say it’s not easy when you have 7 decades of data you need to transition.  Oh and the new system honestly doesn’t work as well at searching as the old one did.  My guess is because things didn’t all get transferred well.  I also think we might still be using the old system if some congressperson didn’t have a hissy fit in 2016.

[BeautifulDay]

I’m a convert!

I’ve never been big on EFs preferring to invest any extra money. We were in a pretty secure situation. We don’t have a high cost of living, mortgage could be paid if DH and I both work a minimum wage job, and we’ve got good secure jobs. At least we thought that we were in a secure situation. That all changed in March. We still have our jobs but I’m faced with the reality that they could easily disappear and even minimum wage jobs could be scarce. 

This experience changed my mind on EFs. Don’t think I’ll ever want an EF smaller than 6 months and would prefer 2 years.

Going into this crisis we had one month EF. Thru increased savings and selling some equities (only lost $20 otherwise I wouldn’t have sold) we are now at 4 months basic living expenses.

I SLEEP MUCH BETTER NOW.

We haven’t backed off of our investments either. Just changed some short term spending priorities and cut our monthly spending.

[CupcakeGuru]

I have never been a fan of MMM emergency fund stance of helocs, small amount of cash. As someone who was laid off twice (one time while pregnant) I want the funds easily accessible.

We have about 6-8 months of expenses right now. Especially since all the family's extra curricula activities are cancelled. My job is stable but DH could have problems in the coming weeks.

Good for you! I know plenty of people who had their helocs closed or their limits seriously reduced during the Great Recession - as in, reduced to the existing balance, which is just as bad if you're counting on it as an EF. I mentioned that on another thread a while back and was actually met with scornful disbelief. Such short memories some people have. Hope those doubters are doing okay now.

Yep, it happened to us too. It was super fun, especially once husband was laid off. We don't do HELOCs anymore. EF is cash only.

Update on why we love big fat emergency funds - We have had a run of not so great luck the last 3 months.

Bathroom flood & basement damage - $2,500
Water Heater failed - $1,200
Washer & Dryer both died same time - $1,200
Fridge died - $1,000
Car repair - $1,100

It was such piece of mind that we did not have to worry about having the cash to do these things. It was eye opening for our kids (teenagers) because we did not freak out when all this stuff was happening. It was a great conversation with them on why we have an emergency fund, because sometime when it rains, it pours.

Long live Big Fat Emergency Funds!

[Dicey]

Yikes! You might say your EF gave you "peace" of mind, so you didn't lose a "piece" of your mind as all of this was going down. I hope you enjoy all of your shiny new (necessary) things for years to come.  Iit's great that your kids saw how well you coped, in part due to your big, fat EF. Great life lesson.

[CupcakeGuru]

Yikes! You might say your EF gave you "peace" of mind, so you didn't lose a "piece" of your mind as all of this was going down. I hope you enjoy all of your shiny new (necessary) things for years to come.  Iit's great that your kids saw how well you coped, in part due to your big, fat EF. Great life lesson.

Oops, spelling has never been my strong suit! I think this may have affected some of my friends also. They were freaking out for me when all this was happening especially since all but the bathroom happened within a six week time frame. They started asking a bunch of financial questions etc. Maybe we will have more MMM converts because of this.

[NorthernMonkey]

3. Car conked out in the middle of nowhere: A road that people have been stranded on for two weeks in the past. Getting your car back to a repair place costs a lot of money (five hours of towing...), and it took several days to organise - so several days of accommodation. That's all before repair. Fortunately it was covered, as was a hire car for a week while it was being fixed.

Where is this road? from England where you can walk to the nearest village from anywhere in about 5 hours tops, this seems, well, different to anything ive seen before?

[deborah]

3. Car conked out in the middle of nowhere: A road that people have been stranded on for two weeks in the past. Getting your car back to a repair place costs a lot of money (five hours of towing...), and it took several days to organise - so several days of accommodation. That's all before repair. Fortunately it was covered, as was a hire car for a week while it was being fixed.

Where is this road? from England where you can walk to the nearest village from anywhere in about 5 hours tops, this seems, well, different to anything ive seen before?

The road from White Cliffs to Wanaaring. There are about three farms on that road. I was lucky that the farmer decided to check up on the part of his property that includes the part of the road where I was stranded, so I was found 5 hours after the car conked out. Gear box was ruined but the farmer got it working enough for me to make it to Wanaaring in third gear at 20kph - I think it was 80km. Other gears weren’t working. At Wanaaring, they got it going a bit better, and I made it to Bourke at 30kph. The towing was from Bourke to Dubbo where I could get a mechanic.

It’s nowhere near the most remote part of Australia. NSW is our most populous state, but I was definitely in the very remote parts of it.

It was covered by roadside assistance.

[Dicey]

3. Car conked out in the middle of nowhere: A road that people have been stranded on for two weeks in the past. Getting your car back to a repair place costs a lot of money (five hours of towing...), and it took several days to organise - so several days of accommodation. That's all before repair. Fortunately it was covered, as was a hire car for a week while it was being fixed.

Where is this road? from England where you can walk to the nearest village from anywhere in about 5 hours tops, this seems, well, different to anything ive seen before?

The road from White Cliffs to Wanaaring. There are about three farms on that road. I was lucky that the farmer decided to check up on the part of his property that includes the part of the road where I was stranded, so I was found 5 hours after the car conked out. Gear box was ruined but the farmer got it working enough for me to make it to Wanaaring in third gear at 20kph - I think it was 80km. Other gears weren’t working. At Wanaaring, they got it going a bit better, and I made it to Burke at 30kph. The towing was from Burke to Dubbo where I could get a mechanic.

It’s nowhere near the most remote part of Australia. NSW is our most populous state, but I was definitely in the very remote parts of it.

It was covered by roadside assistance.

What a story!

[jmechanical]

COVID is my first time living alone through a financial crisis/big market drop.

It has changed my attitude towards emergency funds a bit. I've doubled my cash/savings account position since February from around $6k (around 2 months of expenses) to now around $12-13kish and have no regrets.

I sleep better at night and in general feel more relaxed. I know according to MMM and the math, this is not rational, but I don't care.

Cheers to a big fat emergency fund!

[BeautifulDay]

DH went to the dentist this week. And in his case this often results in follow up visits for drilling, crown repair, etc. He is so particular about his dental health but bad genes I guess.

The dentist listed out the work he needs now and in the near future and it totals a couple thousand. Doctor was so apologetic and concerned about the cost (which is appreciated). But DH just said no worries we save for this. We have money set aside specifically for medical. We shouldn’t need to replenish the account for maybe 3 years. So, we can prioritize his dental health and just take care of it.

This feels so good. There was a time when we couldn’t and I never want to go back.

[norajean]

We don’t like the cash drag of emergency funds. Credit cards work short term and stock sales mid term.  I’m not bothered by selling at a market low at some stage. Saves on cap gains! There used to be an argument that jobs would be gone at the same time as a market crash but we aren’t seeing that at the moment.

That said, we keep enough cash on hand to fund daily needs plus lumpy discretionary needs. I hate selling stock and try not to do it except for real estate purchases.

[Dicey]

We don’t like the cash drag of emergency funds. Credit cards work short term and stock sales mid term.  I’m not bothered by selling at a market low at some stage. Saves on cap gains! There used to be an argument that jobs would be gone at the same time as a market crash but we aren’t seeing that at the moment.

That said, we keep enough cash on hand to fund daily needs plus lumpy discretionary needs. I hate selling stock and try not to do it except for real estate purchases.

Hey, norajean! That's great that you do what works for you, but this thread isn't really about ways to circumvent big, fat EFs. There is plenty of that throughout MMM's writing and on this forum. This thread is explicitly clear in the title that it's about exploring a different point of view. Interestingly, a number of the posts thus far have been about the ways/times having a "Big, Fat EF" has saved someone's ass, which is exactly the point of this thread.

[Another Reader]

We don’t like the cash drag of emergency funds. Credit cards work short term and stock sales mid term.  I’m not bothered by selling at a market low at some stage. Saves on cap gains! There used to be an argument that jobs would be gone at the same time as a market crash but we aren’t seeing that at the moment.

That said, we keep enough cash on hand to fund daily needs plus lumpy discretionary needs. I hate selling stock and try not to do it except for real estate purchases.

Just because the correlation did not work in a one time, event-driven crash that was immediately followed by a recovery, doesn't mean that won't happen.  If your income is directly or indirectly (e.g. rentals) determined by employment, eventually it will happen.  Perhaps you have forgotten 2009-2013?

[LWYRUP]

We don’t like the cash drag of emergency funds. Credit cards work short term and stock sales mid term.  I’m not bothered by selling at a market low at some stage. Saves on cap gains! There used to be an argument that jobs would be gone at the same time as a market crash but we aren’t seeing that at the moment.

That said, we keep enough cash on hand to fund daily needs plus lumpy discretionary needs. I hate selling stock and try not to do it except for real estate purchases.

Just because the correlation did not work in a one time, event-driven crash that was immediately followed by a recovery, doesn't mean that won't happen.  If your income is directly or indirectly (e.g. rentals) determined by employment, eventually it will happen.  Perhaps you have forgotten 2009-2013?

Plus we are still in the early innings of this pandemic.  Who knows?  That's why a cash buffer is always helpful.