Author Topic: In Praise of Big, Fat Emergency Funds  (Read 25996 times)

Dicey

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In Praise of Big, Fat Emergency Funds
« on: March 19, 2020, 12:13:41 AM »
I have never supported MMM's position on EFs. Contrarian that I am, I've always ignored his direction suggestions on this topic and done my own thing. I did this because: 1) I've had cancer, 2) Some tiny part of me always believes that the sky might fall again, 3) I was never a huge wage earner, 4) Most of my income was derived from commission sales, which were almost always lumpy, and 5) I like to sleep at night without fretting about bills.

Now, even though the sky seems to be falling, we are not worried. We have plenty of cash and supplies to last a very long time.

So, now that the cat is out of the bag, tell me about your Emergency Fund...
« Last Edit: March 24, 2020, 07:28:53 AM by Dicey »

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Re: In Praise of Big, Fat Emergency Funds
« Reply #1 on: March 19, 2020, 12:41:47 AM »
Yes I agree. Attitudes to Emergency Funds really help put the ‘personal’ in personal finance. There is a lot of wriggle room to ensure our own level of comfort. I personally have two years worth of lean/essential expenses in cash.

I don’t think things like a boiler breaking down, expensive car service etc are emergencies. These things will all occur from time to time. It’s the cost of owning stuff. So I have a separate home maintenance/repairs fund. My emergency fund is for when I lose my income source I.e my job. I need to eat, pay for fuel, tax, internet I.e to cover essentials.

Although we tend to think of an Emergency Fund as a pile of cash (which it is) I also like to combine it with other Emergency Measures. These consist of no consumer debt, the ability to cut expenses right back without feeling deprived plus the knowledge that virtually any job will cover my essentials. If I lost my job I haven’t got to chase high paying positions which may be difficult in times where the emergency fund is called on.

When I FIRE I am likely to have an awkward six or seven year gap before a pension comes on line. I am likely to have all of these six or seven years in cash. That may seem cautious and I appreciate is more than likely to be suboptimal in terms of returns. However it is times like this when it is really a positive thing to realise what is enough. I don’t need to chase high returns when I have enough.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #2 on: March 19, 2020, 06:53:05 AM »
The Covid-19 situation has caused me to re-evaluate my position on cash emergency funds.

I had been following MMM's suggestion of ~$2000 cash in a checking account to handle monthly credit card payments/expenses and cash flow any large purchases, and keeping the rest of your money invested in taxable/retirement accounts. This position is contingent on maintaining cashflow. Now that my W2 job is at risk AND the market has simultaneously dropped, I don't want to pull from my accounts right now to cover living expenses if I lose my W2, so I'm saving additional cash for now. Going forward I'd like to maintain a 3-6 month cash balance as an emergency fund in a high-yield savings account to protect against this situation. My bare living expenses are low so this shouldn't be a huge amount of money to keep out of the market but will give peace of mind.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #3 on: March 19, 2020, 07:06:26 AM »
I was planning on putting new siding on my house this Spring/Summer, so I happen to have a lot of extra cash on hand. While not intentional, I will admit it is nice having the extra buffer right now.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #4 on: March 19, 2020, 08:10:49 AM »
I was just thinking about this. I have 3 months expenses in cash so I should be fine. However, although my job is not laying me off, we are going to a 50/50 schedule where half of the office works one week, half works the other week, and repeat. The weeks not working are to either be covered by PTO or LWOP. When my leave bank gets too low I am going to switch to the LWOP option so I am glad for my 3 month emergency fund. However now I’m wishing I had a 6 month fund!!! 6 months was always my goal but it was hard for me not to invest my “excess” cash. But after this is over, my first order of business will be to refund that emergency fund and bring it up to 6 months.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #5 on: March 19, 2020, 08:14:14 AM »
I've had an embarrassingly big cash position. Over the holidays, my husband & I agreed to put some of it in the market, and the majority of it into our house. (Double face punches, but we are trying to reduce mortgage size, as we're in the bay area.) We still have a large cash position, but now of course I wish we'd kept the money that we put into the market & the house.

A colleague of mine has always cringed/joked about my cash hoarding strategy, and has recently reversed his position and mentioned repeatedly how he wished he'd adopted a similar approach.

Like you, I prioritize sleeping at night. Getting a mortgage under $1m helps me sleep at night, and having a huge cash flow to ride out challenges given the HCOL are both important to me.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #6 on: March 19, 2020, 08:32:42 AM »
I'm still a newbe to MMM and have spent quite a few hours planning my financial future and what steps I need to take to get there. This corona crisis convinced me I want a big, fat EF. I worked it out in excel and if I'm able to execute it and don't have to spent it along the way it turns into a retirement fund on which I can retire 9 years earlier compared to my current situation.

ctuser1

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Re: In Praise of Big, Fat Emergency Funds
« Reply #7 on: March 19, 2020, 08:58:44 AM »
I have $40k cash emergency fund - sufficient for 6 months (I live in a HCOL area).

I do have $44.5k in HSA right now (down from $55k+ a month ago), and $20k+ in old receipts, that can act as emergency fund in a crunch. But I would hate to liquidate that during the downturn. So I am re-evaluating me earlier thought process of treating that as an emergency fund.

I have discovered that my risk tolerance is now lower than it was during the 2008 crisis because market downturns are much much bigger than I can make up for by simply saving. So the market drops have started bothering me more now than the (bigger) drops did during 2008.

Given the above, I've decided to try to:
1. Bump up my emergency fund to $100k within the next 4/5 years. It will take me 4 to 5 years because I will do that only with spare cash left *after* maxing all tax advantaged space - including 529.

2. Make my asset allocation a little more conservative - 90/10 or so, from the current "put everything in stocks" mindset. Right now, I'm thinking that the emergency fund would count within the "10%" non-stock part. Any feedback/suggestions on this point?


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Re: In Praise of Big, Fat Emergency Funds
« Reply #8 on: March 19, 2020, 09:14:20 AM »
I don’t personally count my EF in my asset allocation. I appreciate it is an asset allocated to cash, but I think of it as completely separate. So if I then want to be 80:20 that makes it easier to calculate within my investment accounts. I haven’t got to worry about factoring in the completely separate cash account. I don’t think there is any right or wrong way of doing this. It’s whatever suits you really.

I guess at the time of FIRE I may be 50:40:10 or something as the EF joins the rest of my stash. All of it is effectively an EF at that point as I’m living off of it, and the cash part has now become part of the overall allocation.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #9 on: March 19, 2020, 01:18:59 PM »
Funny that I should come across this thread because we just tallied our cash holdings in my house this afternoon. We have about 2.5 years of expenses in cash. Mortgage to be paid off by end of this year with $10k balance currently remaining, so cash will then cover 3+ years expenses. Over the course of recent events, I've learned a lot about my risk tolerance and am relieved that I've always been in favor of a large e-fund and also in favor of paying the mortgage off early. I went part-time last year with intention to semi-FIRE so have been feeling more uneasy than if I was still working full-time. Spouse is still working full-time so that helps ease my mind.

So OP, I agree with you in singing the praises of big emergency funds!

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Re: In Praise of Big, Fat Emergency Funds
« Reply #10 on: March 19, 2020, 01:46:33 PM »
I've maintained a large EF over the last few years - several years of expenses covered without cutting back at all. It seems like until recently, people on this forum thought that was just a ridiculous proposition - "Why aren't you 100% equities? It's the only rational asset allocation especially with such low interest rates."

And yet the responses in this topic generally suggest a reasoned response to the current crisis - no one has mentioned panic selling or other market timing ideas like every third new post since the market meltdown (probably from people who were 100% equities). It's almost like the "irrational" EF is a hedge against irrationality!

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Re: In Praise of Big, Fat Emergency Funds
« Reply #11 on: March 19, 2020, 01:56:38 PM »
I have never supported MMM's position on EFs. Contrarian that I am, I've always ignored his direction suggestions on this topic and done my own thing. I did this because: 1) I've had cancer, 2) Some tiny part of me always believes that the sky might fall again, 3) I was never a huge wage earner, 4) Most of my income was derived from commission sales, which were almost always lumpy, and 5) I like to sleep at night without fretting about bills.

Now, even though the sky seems to be falling, we are not worried. We have plenty of cash and supplies to last a very long time.

So, now that the cat is out of the bag, tell me about your Emergency Fund..

We have had an exceedingly large Emergency fund becasue of  1), 2), and 5) above

Especially the part about the sky might fall again. At our house the cancer treatments coincided with the market crash in 2008. 

This fearing for our health at the same time as worries for financial well being feels like deja vu all over again.


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Re: In Praise of Big, Fat Emergency Funds
« Reply #12 on: March 19, 2020, 02:22:02 PM »
We have a few full months of expenses in a "high"-yield savings account, and we will keep adding to it unless our financial circumstances change drastically. It is a huge comfort right now to know that our emergency fund isn't tanking along with the stock market. I'm worried about the health of older family and friends, but not about needing to sell investments at a loss to keep our house or pay our bills.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #13 on: March 19, 2020, 07:25:21 PM »
I’ve got enough enough in cash that I can sleep at night and I feel confident I will get through this crisis. Most of it is in a high interest savings account and a small percentage of it is in CDs.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #14 on: March 19, 2020, 07:42:33 PM »
I have a hybrid approach. Like to keep ~2-3 months expenses in savings (no mortgage, so not that much), and then quite a bit more (~1 year of expenses) in an investment grade short term bond fund. The bond fund yields better than a savings account but with way less risk than stocks.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #15 on: March 19, 2020, 07:48:25 PM »
We have a big, fat cash fund.  Enough to live off of comfortably without drawing down retirement funds for 8-10 years.  Though now it is likely much of it will get invested as things pick back up.  Sure glad we don't have to sell anything right now.

Dicey

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Re: In Praise of Big, Fat Emergency Funds
« Reply #16 on: March 19, 2020, 08:08:39 PM »
We have a big, fat cash fund.  Enough to live off of comfortably without drawing down retirement funds for 8-10 years.  Though now it is likely much of it will get invested as things pick back up.  Sure glad we don't have to sell anything right now.
Hey, @lhamo, I was thinking of you when I started this thread. You and I were always believers, because our IBLs have strong mojo. We did what we need to, no matter what anyone else was preaching. And you know what? I'm grateful that we both listened to our inner voices way back when, because it sure is paying off now.

Lol, as I wrote,  "I was thinking of you when I started..." my not-an-ipad thingy autofilled "volunteering at the library". Good thing I wasn't drinking anything at the time. And now, I think I will. Drink, that is. "To your health, lhamo!"
« Last Edit: March 19, 2020, 10:01:27 PM by Dicey »

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Re: In Praise of Big, Fat Emergency Funds
« Reply #17 on: March 19, 2020, 08:24:44 PM »
Having multiple rentals = big, fat emergency fund.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #18 on: March 19, 2020, 08:32:04 PM »
We are close to two years worth of cash right now.

About half of that is going into a house purchase but even after that, we're going to be close to a full year worth of expenses.

It's kinda surreal. This economic situation would definitely feel worse if we didn't have that.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #19 on: March 19, 2020, 08:37:37 PM »
Our cash position is lower than I would prefer it to be, but we should be fine as long as we don't have huge medical bills.   

We have 4 different kinds of income:

1) Social Security, which in theory won't be affected.
2) Farm income, who knows.
3) Rental income, bound to drop a bit if relief for regular folks isn't put into place.
4) Stock/bond income, which is obviously down.

Funding sources #1, #2 and #3 are $15k short of covering our planned spending.

Right now we have two mortgages.   We are going to sell 3 houses (1 with a mortgage).   Two of them still need some renovation money put into them.
Subtracting the renovation costs from our cash reserves and we've got about 3 years worth of cash to cover that shortage, without having to resort to selling stock.

Once we sell the house with a mortgage we'll be running a surplus on funding sources #1, #2 and #3.   We have lots of equity in it and it could be rented if it doesn't sell.  (Not as a desirable long term rental property, but enough to cover most out-of-pocket costs and build some equity.)

We'll either pour the proceeds from the house sales into the market or our current mortgage.  Just depends on current prices and the timing of when the money shows up.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #20 on: March 19, 2020, 08:41:45 PM »
I've followed MMM's advice and usually only carry around $4k in my emergency cash fund at any point in time, including now.

I recently purchased $2k in VTI at current prices, and if I have a little excess cash from my next paycheck, I'm going to use my excess cash to make another purchase at whatever price the market is at on the day I get the cash and put it in.

The way I see it, a purchase at this new low just brings down the overall cost basis of any investments I currently hold. If I do have a small emergency later on and need to sell, I will have bought lower so selling means I will have taken a smaller loss. Plus if I can manage to hold it through this recession, I'll get a huge gain.

If I get wind that my job might end, I'll hold a little more cash than usual, so there's room for adjustment.

I also think a decision not to buy in is basically the same as deciding to sell at the current price for the same amount. The only difference is in how you frame it psychologically. Selling from a high to a low is framed as a loss. Not buying in and avoiding a gain is framed as missing an opportunity.

Human beings are wired for loss aversion, so the herd will tend to panic and avoid the loss while a more psychologically grounded individual will go against her emotions and buy in at the lower price. Going against the herd can be extremely lucrative, especially when its reasoning is based on a flaw in human nature.

The real loss is capital not being put to work and the potential devaluation of cash that might happen as inflation ramps up and asset prices rise. Given the government's recent actions, I suspect we'll see some inflation so the more assets the better in my opinion.
« Last Edit: March 19, 2020, 08:43:41 PM by bendixso123 »

Villanelle

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Re: In Praise of Big, Fat Emergency Funds
« Reply #21 on: March 19, 2020, 08:49:37 PM »
Still no meaningful EF.  Still feeling comfortable with that.

DH's job is about as secure as they come.   If he were let go (which would likely mean the situation is more dire than perhaps ever), his pension and our healthcare kick in immediately.  The would be enough to support most of our bare bones spending.  We still have money in our taxable accounts (and retirement accounts).  We still have nearly 6 figures in HELOC (which is roughly 1/5 of the actual equity, so very little chance of it being canceled). 

And we have a few other things we could pull out of the hat if necessary. 

It's not 100%, but few things are.  Of all the things keeping me up at night these days, this is not one. 

So I still think the answer to the EF depends on so many personal factors. 

Dicey

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Re: In Praise of Big, Fat Emergency Funds
« Reply #22 on: March 19, 2020, 10:03:29 PM »
Having multiple rentals = big, fat emergency fund.
We are so grateful that all of our tenants are Seniors on "fixed" incomes. None of them is going to have problems paying the rent. Now, if they can all just stay healthy...

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Re: In Praise of Big, Fat Emergency Funds
« Reply #23 on: March 19, 2020, 10:12:14 PM »
I have $200k sitting in my offset. Worst case scenario, that can pay for about 5.5 years of my living expenses. If I am presumptuous enough to think that I can still count on passive income from investments, it can pay for about 10 years of my expenses less passive income. If I really had to, I could sell my paid-off property and gain another 10-15 years of living expenses. So I think if I was really forced to I could eke about 15-25 years of living expenses from liquidating most of my assets, though I wouldn't want to do that and it would be more of a leanFIRE than the fatFIRE I am actually aiming towards.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #24 on: March 20, 2020, 05:21:38 AM »
Even though I am personally RE'd, my spouse continues to work. And being in the healthcare industry luckily we don't have to worry about a layoff. I do a bit of side work so we can continue to stash money and I actually built up about 2 years worth of mortgage payments. So there is that for times like this.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #25 on: March 20, 2020, 07:56:00 AM »
Having multiple rentals = big, fat emergency fund.
We are so grateful that all of our tenants are Seniors on "fixed" incomes. None of them is going to have problems paying the rent. Now, if they can all just stay healthy...

How many of them are on SS only?  I suspect two decent SS incomes might be ok to squeak by, one not so much.  Pension payments may become a problem as conditions deteriorate.  Not sure the PBGC can handle massive defaults.  And some of your tenants may be relying on paper asset withdrawals.  Those people could be in trouble.

Owning property free and clear is the safest way to get through this situation.  I think you are good there.

Dicey

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Re: In Praise of Big, Fat Emergency Funds
« Reply #26 on: March 20, 2020, 08:19:27 AM »
Having multiple rentals = big, fat emergency fund.
We are so grateful that all of our tenants are Seniors on "fixed" incomes. None of them is going to have problems paying the rent. Now, if they can all just stay healthy...

How many of them are on SS only?  I suspect two decent SS incomes might be ok to squeak by, one not so much.  Pension payments may become a problem as conditions deteriorate.  Not sure the PBGC can handle massive defaults.  And some of your tenants may be relying on paper asset withdrawals.  Those people could be in trouble.

Owning property free and clear is the safest way to get through this situation.  I think you are good there.
None are on SS only.  In 2008, one of my tenants was heavily invested in US automakers, Lehman Bros. and Goldman Sachs. He was also terminally ill. He didn't run out of money, but it did cause him a lot of stress. Since then, I pay closer attention to prospective tenant's financials and look for diversification. For their sakes, I hope they have all stayed that way since they moved in. All of our rentals have mortgages, but the LTV's are around 50%. We don't rely on the rental income and we have enough cash reserves that we'd never have to evict someone if they came up short. That probably means we're shitty landlords but decent human beings.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #27 on: March 20, 2020, 08:28:13 AM »

How many of them are on SS only?  I suspect two decent SS incomes might be ok to squeak by, one not so much.  Pension payments may become a problem as conditions deteriorate.  Not sure the PBGC can handle massive defaults.  And some of your tenants may be relying on paper asset withdrawals.  Those people could be in trouble.

Owning property free and clear is the safest way to get through this situation.  I think you are good there.
None are on SS only.  In 2008, one of my tenants was heavily invested in US automakers, Lehman Bros. and Goldman Sachs. He was also terminally ill. He didn't run out of money, but it did cause him a lot of stress. Since then, I pay closer attention to prospective tenant's financials and look for diversification. For their sakes, I hope they have all stayed that way since they moved in. All of our rentals have mortgages, but the LTV's are around 50%. We don't rely on the rental income and we have enough cash reserves that we'd never have to evict someone if they came up short. That probably means we're shitty landlords but decent human beings.

Maybe I don't understand it correctly.... but why does it make you a shitty landlord?? In my humble opinion it makes you a very decent, caring landlord and a great human being.

Dicey

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Re: In Praise of Big, Fat Emergency Funds
« Reply #28 on: March 20, 2020, 01:25:28 PM »

How many of them are on SS only?  I suspect two decent SS incomes might be ok to squeak by, one not so much.  Pension payments may become a problem as conditions deteriorate.  Not sure the PBGC can handle massive defaults.  And some of your tenants may be relying on paper asset withdrawals.  Those people could be in trouble.

Owning property free and clear is the safest way to get through this situation.  I think you are good there.
None are on SS only.  In 2008, one of my tenants was heavily invested in US automakers, Lehman Bros. and Goldman Sachs. He was also terminally ill. He didn't run out of money, but it did cause him a lot of stress. Since then, I pay closer attention to prospective tenant's financials and look for diversification. For their sakes, I hope they have all stayed that way since they moved in. All of our rentals have mortgages, but the LTV's are around 50%. We don't rely on the rental income and we have enough cash reserves that we'd never have to evict someone if they came up short. That probably means we're shitty landlords but decent human beings.

Maybe I don't understand it correctly.... but why does it make you a shitty landlord?? In my humble opinion it makes you a very decent, caring landlord and a great human being.
Thanks. I probably should have provided some background. AR is a serious, badass landlord. DH and I are rank amateurs in comparison. We suck as far as being professional at it. Example: (Don't shoot me, AR) Last year the HOA negotiated a new contract with a cable provider. It included bulk cable with premium channels and internet, for a really great price. Except that most of it is paid through HOA dues now. Before, just the basic cable was in the dues and upgrades and internet were paid directly by the tenants. Which means that our costs went up about $40/month per property. Did we raise the rents? No. Should we have? Of course! That's why we suck as landlords.

Footnote: Happily, one tenant raised his own rent by $100 this year. Another property vacated and we raised the rent substantially. The third one, the tenant is a sweetheart living on not a lot and we just left the rent alone. We told her we're going to raise it, but we still haven't done it yet. In the face of what's happening, we probably won't this year. See what I mean? We'd be laughed off the internet if this was bigger pockets.

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Re: In Praise of Big, Fat Emergency Funds
« Reply #29 on: March 20, 2020, 01:42:19 PM »
I am not a landlord, at least not yet!!

In general, however, I don't exactly understand mixing charity with business.

Firstly, having a situation where buying is more advantageous (i.e. the only situation where land-lording ever make sense economically) is a problem. It indicates economic inefficiency.

But assuming you are just exploiting an existing inefficiency (and not actively perpetuating and exacerbating that inefficiency, i.e. doing economic "rent seeking"), I don't get mixing business with charity.

Why should you not extract every bit of rent you can? It's likely more economically efficient, and is better for everyone involved. If a render on fixed income can't afford the market rent, then letting her rent below market is under-utilization of resources.

Now, if you do that because tenant turnover is costly ("who knows how good my next tenant will be? I know 20% of my tenants are shitty, which translates to $X as cost for turnover, which makes it much more advantageous to rent $y below market") - then that is a different matter!!

If I was in the land-lording business - I'd conduct the business as a business, and then do charity outside that, and advocate for better and more welfare spending by the city/state/country.

Now, the irony is that this line of thinking is probably why I will never get to become a landlord. DW basically told me "you become heartless and cold when you do business transactions. So I don't want us to become landlords. I don't like what that will make us become.".

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Re: In Praise of Big, Fat Emergency Funds
« Reply #30 on: March 20, 2020, 02:07:05 PM »
We keep a lot of money liquid.  But this year's plan was to spend it down due to the massive cost of daycare for a 2-year old and a baby. 

I'm glad to have it though.  The drop to our investments has been brutal. 


Dicey

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Re: In Praise of Big, Fat Emergency Funds
« Reply #31 on: March 20, 2020, 02:08:54 PM »
I am not a landlord, at least not yet!!

In general, however, I don't exactly understand mixing charity with business.

Firstly, having a situation where buying is more advantageous (i.e. the only situation where land-lording ever make sense economically) is a problem. It indicates economic inefficiency.

But assuming you are just exploiting an existing inefficiency (and not actively perpetuating and exacerbating that inefficiency, i.e. doing economic "rent seeking"), I don't get mixing business with charity.

Why should you not extract every bit of rent you can? It's likely more economically efficient, and is better for everyone involved. If a render on fixed income can't afford the market rent, then letting her rent below market is under-utilization of resources.

Now, if you do that because tenant turnover is costly ("who knows how good my next tenant will be? I know 20% of my tenants are shitty, which translates to $X as cost for turnover, which makes it much more advantageous to rent $y below market") - then that is a different matter!!

If I was in the land-lording business - I'd conduct the business as a business, and then do charity outside that, and advocate for better and more welfare spending by the city/state/country.

Now, the irony is that this line of thinking is probably why I will never get to become a landlord. DW basically told me "you become heartless and cold when you do business transactions. So I don't want us to become landlords. I don't like what that will make us become.".
Because tenants are human beings and that should be enough said, especially considering your level of experience. And your DW is clearly wise, but not all LL's are as heartless as she presumes, which was kind of my point.

Shall we all get back on topic now, please? I apologize for my part in this digression. I started this thread and it applied to my personal situation and my EF status, but I don't think we need to continue in this vein any more.

If any other inexperienced non-landlords want to discuss "economic inefficiencies", please consider starting another thread. Or go create an account at bigger pockets. Thank you.

crispy

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Re: In Praise of Big, Fat Emergency Funds
« Reply #32 on: March 20, 2020, 02:20:21 PM »
And for a paid off mortgage!  My stress level has been so much less than many people I know because even if my DH and I both lose our job, we have a home and an emergency fund.

Queen Frugal

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Re: In Praise of Big, Fat Emergency Funds
« Reply #33 on: March 20, 2020, 04:24:55 PM »
I had been feeling a bit ridiculous for the last year or so about my EF. I've just been through enough "stuff" that having a stash of cash does help me sleep at night. I keep my personal and business accounts stocked with enough cash to cover 6 months of expenses and when clients pay me, I don't pay myself until the work is done. That adds up to at least another 6 months worth of expenses. So, I probably have a year's worth built up.

I don't feel ridiculous any more! And maybe I'll have to use it all up, I don't know, but for now, I don't have to worry about it - and that is SOOOO nice. Although I'm still worrying - about all my friends, neighbors, and loved ones who I know don't have an EF. And all the small businesses that have just been crushed almost overnight through no fault of their own. It's awful.






LWYRUP

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Re: In Praise of Big, Fat Emergency Funds
« Reply #34 on: March 20, 2020, 05:22:44 PM »
I have never supported MMM's position on EFs. Contrarian that I am, I've always ignored his direction suggestions on this topic and done my own thing. I did this because: 1) I've had cancer, 2) Some tiny part of me always believes that the sky might fall again, 3) I was never a huge wage earner, 4) Most of my income was derived from commission sales, which were almost always lumpy, and 5) I like to sleep at night without fretting about bills.

Now, even though the sky seems to be falling, we are not worried. We have plenty of cash and supplies to last a very long time.

So, now that the cat is out of the bag, tell me about your Emergency Fund..

I try to always keep six months.  That recently dwindled down towards 5.  I recently sold a bunch of bonds in my retirement account and bought stocks, and then sold stock in my taxable account and kept the proceeds.  So net I went into the market rather than out, but in the process I beefed up my straight cash emergency fund to closer to 9 months.

Vanguard total bond is yielding 1.9 right now so not much difference between that and an FDIC-insured CD, so as an individual investor I increasingly don't see the point.  So I might continue this further, going all stock in my retirement accounts, taking some stock in taxable off the table, and just straight up having a year of cash in CDs and savings accounts.

Also have some Ibonds, may get some more of those too.  They are also currently yielding more than Vanguard total bond. 

diapasoun

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Re: In Praise of Big, Fat Emergency Funds
« Reply #35 on: March 20, 2020, 05:48:00 PM »
I've got about five months of Avaricious Spending in cash, more like 8 months if I spend on necessities only. My boyfriend has about three times that in cash. We are definitely lowering our spending right now (goodbye restaurant spending, for sure!), which will help.

I have some upcoming medical expenses and so will not be adding further to my Roth IRA until those are dealt with; I'll continue to max my HSA and 401k. I'm not sure if I want to pad my EF further or not; I have zero desire to sell stocks but I am worried enough about how viable my job is going to be in 3-6 months that I'm considering laying away a little extra cash from my upcoming paychecks.

Bloop Bloop

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Re: In Praise of Big, Fat Emergency Funds
« Reply #36 on: March 20, 2020, 06:54:42 PM »
I am not a landlord, at least not yet!!

In general, however, I don't exactly understand mixing charity with business.

Firstly, having a situation where buying is more advantageous (i.e. the only situation where land-lording ever make sense economically) is a problem. It indicates economic inefficiency.

But assuming you are just exploiting an existing inefficiency (and not actively perpetuating and exacerbating that inefficiency, i.e. doing economic "rent seeking"), I don't get mixing business with charity.

Why should you not extract every bit of rent you can? It's likely more economically efficient, and is better for everyone involved. If a render on fixed income can't afford the market rent, then letting her rent below market is under-utilization of resources.

Now, if you do that because tenant turnover is costly ("who knows how good my next tenant will be? I know 20% of my tenants are shitty, which translates to $X as cost for turnover, which makes it much more advantageous to rent $y below market") - then that is a different matter!!

If I was in the land-lording business - I'd conduct the business as a business, and then do charity outside that, and advocate for better and more welfare spending by the city/state/country.

Now, the irony is that this line of thinking is probably why I will never get to become a landlord. DW basically told me "you become heartless and cold when you do business transactions. So I don't want us to become landlords. I don't like what that will make us become.".
Because tenants are human beings and that should be enough said, especially considering your level of experience. And your DW is clearly wise, but not all LL's are as heartless as she presumes, which was kind of my point.

Shall we all get back on topic now, please? I apologize for my part in this digression. I started this thread and it applied to my personal situation and my EF status, but I don't think we need to continue in this vein any more.

If any other inexperienced non-landlords want to discuss "economic inefficiencies", please consider starting another thread. Or go create an account at bigger pockets. Thank you.

Tenants are human beings, but so are landlords. As a landlord, I give as much consideration as the particular tenant returns to me.

Beardog

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Re: In Praise of Big, Fat Emergency Funds
« Reply #37 on: March 21, 2020, 11:43:36 AM »
We have a big, fat cash fund.  Enough to live off of comfortably without drawing down retirement funds for 8-10 years.  ...

Same here!  That's what I need to sleep at night.  And I'm so glad b/c I haven't had any worries, financially at least!  But I'm investing 100% in the stock market (Vanguard Total Stock Market Index Fund) right now with my 403b contributions.

jpdx

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Re: In Praise of Big, Fat Emergency Funds
« Reply #38 on: March 21, 2020, 09:58:13 PM »
I keep 12 months worth of living expenses in my EF. Partially because my income fluctuates so much, but mostly because life is unpredictable.

Over the next few months, we are going to hear a lot of moaning from people saying "we never saw this coming." 

Well, everyone should expect the unexpected. Jobs evaporate, houses burn down, people get hit by busses -- if you anticipate that challenging evens are bound to occur over your lifetime, you'll be a little more ready.


2Birds1Stone

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Re: In Praise of Big, Fat Emergency Funds
« Reply #39 on: March 21, 2020, 10:13:39 PM »
Five years of historical spending in a 5 year CD ladder.

CupcakeGuru

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Re: In Praise of Big, Fat Emergency Funds
« Reply #40 on: March 22, 2020, 09:12:21 AM »
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.

Dicey

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Re: In Praise of Big, Fat Emergency Funds
« Reply #41 on: March 22, 2020, 09:36:10 AM »
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.

OtherJen

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Re: In Praise of Big, Fat Emergency Funds
« Reply #42 on: March 22, 2020, 10:02:53 AM »
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.

Bird In Hand

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Re: In Praise of Big, Fat Emergency Funds
« Reply #43 on: March 22, 2020, 01:44:47 PM »
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.
« Last Edit: March 23, 2020, 07:01:23 PM by Bird In Hand »

Kris

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Re: In Praise of Big, Fat Emergency Funds
« Reply #44 on: March 22, 2020, 04:01:53 PM »
Yeah, we have.... a large emergency fund.

As a result, we are not at all stressed about money during this chaos, as there is basically no chance we will have to dip into investments, no matter how long the coronavirus chaos lasts.

dcheesi

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Re: In Praise of Big, Fat Emergency Funds
« Reply #45 on: March 22, 2020, 04:11:55 PM »
Honestly, I wish my EF was still as 'fat' as it used to be. It's been dwindling slowly since I was transferred to a HCoL area a few years ago1. While it's still bigger than MMM's suggestion, I can't help but think that if I was laid off right now2, I'd eventually have to tap into my (taxable) investments, in the middle of a bear market.

1 Due in part to a massive error in my home-grown budget-monitoring spreadsheet for the last year or so. I thought I should be holding steady, excepting the unexpected one-time events, but really I was drawing down a little every month. Slow enough to be lost in the 'noise', but still negative cash flow in that account over time.

2 Unlikely in the short term, as I'm in a salaried office job. OTOH, while our customers are "essential", we ourselves aren't, and I'm not sure how this event is going to effect our customers' buying habits for our products --could be better, worse, or both on different time-scales...

Sailor Sam

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Re: In Praise of Big, Fat Emergency Funds
« Reply #46 on: March 22, 2020, 04:18:32 PM »
Good thread, @Dicey. Like many, I’ve always gone my own way w.r.t having an emergency fund. Very happy with my choice right now.

I do wonder, in the sprit of just fun, if you’ll be softening your stance on mortgages... ;)

AnxietyFly

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Re: In Praise of Big, Fat Emergency Funds
« Reply #47 on: March 22, 2020, 04:31:22 PM »
Last August I made a decision to save cash instead of allocating money each month to the mortgage company. I planned to save enough until I could make one large payment to payoff the house.  Feels pretty good to have this cash right now. Hopefully, I keep my job and can continue to save for paying off the house.

Zaga

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Re: In Praise of Big, Fat Emergency Funds
« Reply #48 on: March 22, 2020, 04:35:31 PM »
Until a few years back we had just 10K in an emergency fund.  Then DH got laid off and took 3 months to find a new job.  We were able to float on my job plus unemployment, but just barely.  Once he was employed again we spent the year building up the emergency fund to 30K.  Glad right now that we did!  We're both still working and getting paid for now, but that could change at a moment's notice.

elaine amj

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Re: In Praise of Big, Fat Emergency Funds
« Reply #49 on: March 22, 2020, 08:12:16 PM »
I thought this was a brilliant solution to the question of whether to pay off the mortgage early. And wish we had thought of it when we decided to attack our mortgage.

Anyway, now we have a paid off house and enough cash to last a good while I am thankful DH is much more conservative than I. Having the cash really does help me sleep better.
Last August I made a decision to save cash instead of allocating money each month to the mortgage company. I planned to save enough until I could make one large payment to payoff the house.  Feels pretty good to have this cash right now. Hopefully, I keep my job and can continue to save for paying off the house.

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