A couple months ago I made the (non-mathematically motivated) decision to pay off my mortgage ASAP. I cashed out about $100,000 in mutual funds and threw that + other cash on hand at the mortgage. At the same time I finally completed my tax returns, which I knew would be yielding a large refund. My plan had been to park the refund as the new cash-on-hand emergency fund. It's about $50k, which is roughly 7 months living expenses. Note, one thing motivating the mortgage pay-down goal is that it's a huge payment - $4200 P+I only. There's another $1000 in RE tax.
I've read some advice on the MMM blog to use a HELOC for the e-fund, and invest all cash on hand. I don't know how to wrap my head around this. In a true emergency, I don't want to raise the price of everything I must buy/pay for by tacking HELOC interest on it. I've never carried any debt but a fixed rate mortgage secured by a high-equity residential building, so I'm not used to that living with debt feeling.
I'm a bit more comfortable with investing the e-fund conservatively, but I'm not sure what to do. That feels better, because if I needed the money, most of it should be there if the investments are conservative. I'm torn though, because I recognize that my reasoning is ignoring math once again, and unlike the mortgage pay-off decision, I can't readily articulate why I want to ignore math in this context.
Some biographical details that define my most likely emergency scenarios:
- single parent with no child support
- very stable job with a non-profit; still, a major turn of events in our industry could tank the company
- I'm a 8yr experienced product manager and live in Silicon Valley, so I'm thinking I'm pretty employable
- reliable rental income comprises almost half my take-home
- rental is a 12-unit apt. building, so major mechanical repair could be expensive; fortunately the goddamn driveways and roofs were redone fairly recently; rental is along CA coast, and is not insured for earthquake (cannot be)
-monthly living expenses are about $8500 now, and I'm assuming I could go down to about $7000 in emergency-status; $1200/month is childcare, which I would need less of while job hunting vs. working; also, I think I could rent a bedroom in my house out for ~$1200 in a heartbeat.
Speaking of renting out my own house, I have an unfinished, detached garage I could finish as a little 4-desk tech space or something too. So that's an option for part of the funds that would provide an other emergency cushion.
Ok Mustachians - tell me what you think I should do and why