How much "emergency fund" do you keep liquid?

[frugalfoothills]

Hi all,

Been lurking for months and have been systematically implementing the lessons learned here into my life. Had a bit of a credit card mess that I've been tackling head-on, and thanks to MMM (and you Forum-dwellers!) I've paid my debt emergency down from $11,700 to $4,600 in four short months (woo hoo!) If all goes according to plan, that balance will be ZERO come early April (for the first time since 2011!) Can't thank you all enough.

You all agree on many things around here, but one thing in particular stands out as all over the map among Mustachians. How much cash do you keep on hand as an emergency fund? I see some folks say they only keep $1,000 or $2,000 lying around (in non-investment savings accounts), while I've seen others with over $100,000!

Is this just a matter of personal preference? I am a homeowner but have one of those home warranties that is meant to cover most of the "big stuff" that can go wrong. I've also got a car loan that I'm looking to pay off after my credit card debt is totally wiped out in April. Goal for the car loan to be paid off is January 2019, but I can't shake the feeling that I'm running my "emergency" savings too low in the meantime, so I'm debating whether I should take some time after my credit cards to bulk that up to a larger number.

My financial picture: 28 year old single female grossing $80k a year
ASSETS: $23,000 (real estate); $34,600 (401k); $4,000 (HSA-invested); $3,550 (liquid savings/"emergency fund") = $65,150
LIABILITIES (excluding current credit card as we're talking future after they're paid off): $11,310 (auto loan) @ 4%

Why do I feel uncomfortable with less than $4k in cash on hand? I want to be TRULY debt free and kiss that car loan goodbye, but I am torn with wanting more cushion in my emergency fund. I have a pretty good picture as far as income goes, and I want to really ramp up my savings rate in 2019. If I focus on getting my emergency fund up to 6 months living expenses ($15k or so), I'd still have about $7k left on the car loan come next January.

So, Mustachians, how much cash do you keep on hand? What would you do in my situation, car or more cushion in the emergency fund? Is $3,550 enough? Do I need $15k? Is the auto loan a bigger emergency?

[Khaetra]

Pay off the auto loan first (after CC's).  How much do you pay for the home warranty?  Is it really needed?  Honestly that's one thing I would ditch, as I bet it would cost you much less to replace a fridge/washer/stove (non-fancy) than you pay for that.

I keep around $2K for my EF.  That would cover me in case of emergency and living in Florida it's nice to be able to grab cash before a storm hits in order to buy supplies both before and after.

[Morning Glory]

My answer is "it depends".
What is your rate on the credit card debt? If the rate is very high then you would be better off using the cash to pay it down, even with the risk of having to use the card again in an emergency. You will be saving the amount of interest in the meantime. ERN had a post on this, the title was something about debunking Dave Ramsey.

How stable is your job? Of course it is impossible to know for certain but some industries are more stable than others. Also are you likely to get severance or a vacation payout if you are laid off tomorrow? Are you able to work overtime or sell vacation if you have a large expense?

How much do you save each month? You could redirect this towards a large expense instead of drawing on cash.

I see you don't have any taxable investments yet. I don't keep too much cash around because I have lots of taxable investments I could draw from if SHTF. Yes I am gambling a bit that my car or roof won't need replacing the day after the market crashes.

So in your situation, I would probably pay off the credit card debt with the cash, then rebuild the emergency fund, then work on the car loan. Some would argue that maxing the 401k is more important than paying off a 4% loan, but that is up to you, and it also depends on your income and marginal tax rate. I would at least continue to put in enough to get any employer match.
Edit: I reread the OP and saw you are single/no dependents, so I think maxing out any tax-advantaged investments would be more advantageous than paying off a 4% loan early.

One last thing,  I agree with the previous poster: do not pay to renew the home warranty when it expires. Home warranties are a shitty product and tend to not actually cover much of anything.

[frugalfoothills]

Pay off the auto loan first (after CC's).  How much do you pay for the home warranty?  Is it really needed?  Honestly that's one thing I would ditch, as I bet it would cost you much less to replace a fridge/washer/stove (non-fancy) than you pay for that.

I keep around $2K for my EF.  That would cover me in case of emergency and living in Florida it's nice to be able to grab cash before a storm hits in order to buy supplies both before and after.

Thanks for the response. The home warranty is about $40/month, or $480 a year. I've considered cancelling it in the past but have been torn... I got a year free when I purchased my home in 2013 because my air conditioning unit was 13 years old and they expected it to crap out any day (as did I.) I ran the hell out of it that first year and... nothing. Was still going strong, so I decided to re-up the warranty thinking SURELY 2014 would be the year....

Rolling into 2018 that freakin thing is STILL GOING. Though now I look at the money I've spent on the home warranty (which I have used for a couple other odds and ends over the year, I should add) and look at my now EIGHTEEN YEAR OLD AC unit, and think cancelling it now would be even stupider.

I suppose there's some sunk-cost-fallacy happening here...

[boarder42]

currrently -3k if you compare what i owe CC companies to what is in my checking accounts.

thats negative

[Morning Glory]

Right on the button with the sunk cost fallacy. Also Wal Mart sells window units for not much more than $100. You could get by with a couple of those if your AC crapped out, as long as you don't have a huge house.

[ender]

More than we need. But what we want.

We have it in a ~1% checking account though, so I guess it's not "entirely liquid" because we'd have to transfer it.

We also have around 100k worth of available credit I think give or take a bunch.

[frugaliknowit]

My financial picture: 28 year old single female grossing $80k a year
ASSETS: $23,000 (real estate); $34,600 (401k); $4,000 (HSA-invested); $3,550 (liquid savings/"emergency fund") = $65,150
LIABILITIES (excluding current credit card as we're talking future after they're paid off): $11,310 (auto loan) @ 4%

What the heck do you mean by "excluding current credit card as we're talking future after they're paid off"?

To help you, we need to know your debts versus cash...

[frugalfoothills]

My answer is "it depends".
What is your rate on the credit card debt? If the rate is very high then you would be better off using the cash to pay it down, even with the risk of having to use the card again in an emergency. You will be saving the amount of interest in the meantime. ERN had a post on this, the title was something about debunking Dave Ramsey.

How stable is your job? Of course it is impossible to know for certain but some industries are more stable than others. Also are you likely to get severance or a vacation payout if you are laid off tomorrow? Are you able to work overtime or sell vacation if you have a large expense?

How much do you save each month? You could redirect this towards a large expense instead of drawing on cash.

I see you don't have any taxable investments yet. I don't keep too much cash around because I have lots of taxable investments I could draw from if SHTF. Yes I am gambling a bit that my car or roof won't need replacing the day after the market crashes.

So in your situation, I would probably pay off the credit card debt with the cash, then rebuild the emergency fund, then work on the car loan. Some would argue that maxing the 401k is more important than paying off a 4% loan, but that is up to you, and it also depends on your income and marginal tax rate. I would at least continue to put in enough to get any employer match.

One last thing, do not pay to renew the home warranty when it expires. Home warranties are a shitty product and tend to not actually cover much of anything.

Thanks for the response! The credit card debt is at 0% until November due to a balance transfer I did as part of my payoff plan.

I feel my job is stable, though there is a chance my company could go public within the next few years (not confirmed, just a feeling I've had) and if that happens I'm not sure what the future looks like. That being said, they've been pretty good historically about paying severance to those who've been laid off, and I would also get vacation payout. I also feel good about my ability to secure a new job in relatively short order, though I'm not sure it would match my current $80k income (not that it would need to to meet my annual expenses.)

I think I know that the "I NEED MORE CASH!!" feeling is coming less from a place that makes sense intellectually and more from an emotional place. I just feel... unsettled? about the amount I've currently got on-hand. I can't explain why. Like, I look at my savings account and think "I should have at least $10,000 in there." But that's a totally arbitrary number that my brain has chosen to view as "safe." The reality of the situation is that (knock on wood) I've never needed to dip into my emergency fund for more than a thousand bucks or so.

My general line of thinking for now is:
-Pay off all remaining CCs by April
-Build emergency fund (I can contribute over $800 a month to this effort, which would give me an extra $6400 in there by December)
-Pay aggressively toward my auto loan through December (I didn't mention earlier but I do rent a room in my home to a friend for $400 a month, but she has been.... less than reliable with those payments. Plan is to put all rent payments toward auto loan regardless) to get the remaining balance to around $6k
-I get annual performance based bonuses at work (this year was 15%), so I would use that bonus to pay off the car come next January regardless, so I suppose maybe this is all a moot point....
-Focus on better savings in 2019, which could include bumping my 401k beyond just the employer match, and opening other investment accounts (your taxable account suggestion could fall here?)

[frugalfoothills]

My financial picture: 28 year old single female grossing $80k a year
ASSETS: $23,000 (real estate); $34,600 (401k); $4,000 (HSA-invested); $3,550 (liquid savings/"emergency fund") = $65,150
LIABILITIES (excluding current credit card as we're talking future after they're paid off): $11,310 (auto loan) @ 4%

What the heck do you mean by "excluding current credit card as we're talking future after they're paid off"?

To help you, we need to know your debts versus cash...

I currently have $4,600 in credit card debt that I'm aggressively paying off, and that will be gone April 13 if all goes according to plan. The question to the thread is whether I should immediately move onto focusing on paying off the car loan after that (as it's my only other consumer debt), or whether I should take some time to focus on building my emergency liquid savings up beyond the $3550 I have today. I would still pay more than the minimum on the auto loan in the meantime to try to work the balance down, but this is more of a psychological battle I'm fighting regarding the liquid savings. I wanted to hear from others what THEY consider a safe amount to have on hand.

[specialkayme]

Like everyone else, I'd probably say "it depends."

I've seen some on here that consider an Emergency Fund as straight cash that you need in an emergency that needs to be paid in 24 hours (car gets towed, need to bail son out of jail, things like that). When you consider that most people have credit cards they can make payments on, or push payments off till you liquidate a taxable account, you probably need very little straight cash Emergency Fund. I would imagine $1-2k would probably be more than sufficient for most people.

I've seen others on here that consider an Emergency Fund as funds needed to pay for an emergency, but not necessarily immediately and not necessarily in cash. If your car throws a rod and you need a new engine, using a credit card and paying from a taxable account you liquidate in 14 days, for example. Or if you lose your job and need to go a period of time without a source of income. These are usually referred in reference to months worth of expenses (with 1-2 months being the small end, and probably 12 being the high end of reasonable).

The difference between seeing some who say their EF is $1k, and others who say it's $60k, may be the difference in mentality between the two definitions above.

But assuming you're viewing it as the second, it comes down to a personal preference. Are you more risk adverse? Would 2 months of expenses sitting in an account make you feel safer? Less? More?

From there, you can take your EF and spread it out among a few different accounts. In part to create some form of return. I have some straight cash (more than I should), some money sitting in a savings account (getting an incredibly low 1.4% interest), some sitting in a Betterment account (fairly low level risk exposure), and some sitting in a taxable Scottrade account with broad index funds. I'm heavily situated on the account side, and less so on the cash/savings side. But I'm a nervous person. Knowing that I can lose my job and probably make it 10 months without having to stress helps me sleep at night.

Some wouldn't consider all of that an emergency fund. But I do. To each their own.

As my expenses decrease, and as my savings grows, I either need less EF (meaning I can take higher risks and roll more into retirement), or my EF can last me longer (12 months instead of 10, for example).

It's all a personal choice.

[frugaliknowit]

Kill the auto loan NOW (4% return, ZERO RISK, pull the trigger!!).  Pay the zero c/c either now or whenever the 0% ends (really, why not just be done with it...less than 3 months away...).

Estimate how long it would take you to find a job if you were "kicked to the curb".  Multiply by 2.  That's how many months expenses in EF you should hold.

[specialkayme]

The question to the thread is whether I should immediately move onto focusing on paying off the car loan after that (as it's my only other consumer debt), or whether I should take some time to focus on building my emergency liquid savings up beyond the $3550 I have today.

So it looks like you have three choices on where to put your extra money:

1. Pay off the car faster
2. Build up your "liquid" EF
3. Build up your "illiquid" EF (or your taxable account EF)

You'll hear many on here tell you to hit $1-2k of #2 and then aggressively attack #1. It probably isn't wrong advice. But I would (and do) instead chose to hit $1-2k of #2, then aggressively attack #3 until your'e at 5 or so months worth of expenses, then switch and aggressively attack #1.

Why? Your car interest rate is 4%. The stock market did ~20% last year (and historically does 7.5% a year). You'll be in a better financial position if you pay the interest on the car and invest the extra payments. But that comes with risk (your car is a guaranteed 4%, the stock market isn't a guaranteed anything, you could lose money). But the flip is that you feel safer, even if it is for irrational reasons.

[Laura33]

Personally - and this is always very personal - I find it helpful to think of the EF as two separate pots.

Pot #1 is the “sinking fund” - this is what you contribute to every month to cover expenses that you know are going to happen, even if you can’t know when.  So things like AC replacement, car replacement, gee the house will need a new roof/washer/hot water heater/whatever.  This should be sufficient to cover whatever that expense is likely to be, so that you don’t find yourself pinched when the inevitable happens.  As you note with the AC, had you been putting the warranty money into this kind of account, you’d have cost of a new AC in cash already.  This pot varies depending on your needs but can generally be in the $1-2k range, especially when you have debt.

Pot #2 is what I think of as the “real” EF, i.e., the fund that keeps you solvent until you can find a new job.  This is ideally the “x months’ expenses” fund, although some are more willing than I am to use CCs as a fallback to cover all or part of this.*  The figure here can vary depending on how stable your job is and how sharply you can cut costs if the shit hits the fan.  To me, this is a critical long-term component of your plan, but something you probably have to hold off on really building up while you have debt, because it just makes no sense to have wads of cash sitting there earning nothing while you are paying debt at a much higher interest rate.

So in your situation, once you get the CC paid, I would recommend:

1.  ID a figure you need available to get you through a likely short-term crisis, like a car repair or roof leak - on the order of $1-2k - and hang on to that (the rest should be going to the CC debt, now).

2.  Contribute to your 401(k).  The thing to remember here is that every dollar you contribute lowers the amount of tax you pay, right now.  That means you can put more cash into your 401(k) than you can pay on the car loan for the same hit to your monthly budget.  The other things to remember are: (1) 401(k) contribution limits are annual - if you don’t take advantage of it this year, you can’t make up for it by contributing more later; and (2) the earlier years of your contributions are much more powerful than later years because of the power of compounding.**

I say this largely because historically speaking, 4% is pretty cheap money.  That means you are very likely to do much better over the next 20-30 years by putting those overpayments into the market than into prepaying your debt - especially when you consider how much more money that tax deduction allows you to put into your 401(k).

3.  Once you are making out your 401(k) and still have stuff left to start building that longer-term EF, that’s when it makes more sense to pay off the car loan, because math (why pay 4% interest just to keep that money in the bank at 1%?).

Oh:  cancel the home insurance policy.  Read the fine print: I bet you $20 that if the AC fails, they do not pay the cost of a brand-new system (it’s usually pro-rated based on the age of the unit). It is a waste of money. 

And finally: the way to avoid having to choose whether to prepay an $11k car loan is not to buy a car that requires an $11k loan.  ;-)

*Let’s just say that my own personal experience has taught me that I don’t want to fuck with this, because bad things like job losses tend to occur around the same time as other bad things, like housing market crashes and stock market crashes and credit being cut off, so I am willing to take the hit on loss of potential growth in order to never be that financially vulnerable.  But YMMV.

** Rule of 72 says if you get a 7% return, your money will double every decade.  So if you have $10k invested now, that would be worth $20k in 10 years, $40k in 20, and $80k in $30.  But if you wait for that first decade to start, 30 years from now your money will be worth only $40k — half as much, because you lose an entire doubling.

[Laserjet3051]

Kill the auto loan NOW (4% return, ZERO RISK, pull the trigger!!).  Pay the zero c/c either now or whenever the 0% ends (really, why not just be done with it...less than 3 months away...).

Estimate how long it would take you to find a job if you were "kicked to the curb".  Multiply by 2.  That's how many months expenses in EF you should hold.

I certainly can appreciate your conservative recommendation of "Multiply by 2" as we never know the future. But in some cases (such as mine), taking this conservative approach could lead to an unrealistic, mega-sized EF. With 3 dependents living in a vHCOL area, my cut-to-the-bone minimum monthly spend would be $5,000.  I was laid off at the onset of the great recession and despite being highly credentialed with over a decade of experience, it still took me 15 months to find a job. Thus $5,000/month X 15 months x "multiply by 2" = $150,000 EF. This is not a practical EF for me, and I'm guessing many other people in my situation (vHCOL/3 or more dependents).

I realize OP is in a different situation, perhaps the "multiply by 2" is practical.

[Michael in ABQ]

$1,000 in cash on hand (plus the cash we use for day to day purchases)
$10,000 in a savings account - will be transferring to a higher yielding savings account soon so at least inflation is kept partially at bay.

I'd like to have maybe $15k but we need to start saving up for a new (used) vehicle for my wife so $10k is good enough for now as that would easily last 3-4 months if I got fired tomorrow and we cut back on some stuff during that time (i.e. no new clothing or household purchases, less spent on gas without a daily commute, etc.) I'd still have my monthly income from the National Guard which is about $700.

I'm the sole income for our family of seven so I like to have that healthy buffer just in case something happened like I was injured and unable to work for a while, but not long enough for long-term disability to kick in.

We could always start putting stuff on credit cards but it's been pretty nice being debt free the last year and the only reason I haven't closed them all is just to maintain a decent credit score until we need to go get a mortgage to buy a house.

[boarder42]

** Rule of 72 says if you get a 7% return, your money will double every decade.  So if you have $10k invested now, that would be worth $20k in 10 years, $40k in 20, and $80k in $30.  But if you wait for that first decade to start, 30 years from now your money will be worth only $40k — half as much, because you lose an entire doubling.

this is my exact arguement as to why you should try to get your assets up enough in taxable accounts - after maxing all tax deferred accounts as soon as possible so you can feel more comfortable with 0 E-fund.  Having an EFund is ok starting out but once you build up assets it should gradually go away.  I'd actually like to see the math on taking the penalty on withdrawal from a 401k vs keeping an EFund around - everyones situation is different and our jobs have different levels of security but i'd guess most are more secure than people think.  So now to keep cashed side lined in lieu of the tax savings of the 401k could actually create less wealth and more long term risk but again i'd have to do the math.

[Morning Glory]

Here is the math on the penalty:

http://fi180.com/2017/07/28/dont-fear-penalty/

Also remember you can withdraw Roth contributions (not the earnings) penalty free. Just make sure it is a true emergency because you can never put them back. Some employers also allow you to take a loan from your 401k but I am not sure how those work.

[nexus]

Similar-ish to you...
My financial picture: 28 M, grossing $85k a year. Current NW around $89k. Not married.

At any given time I probably have between $4k-$5k in cash. I have about $2,600 in savings right now, and am not actively adding anything to it. I'm sure I'll eventually use it for a vacation, or start aggressively saving when house buying is on the horizon. On paydays I replenish my checking to $2,500, then stash the rest, making sure to have $2,500 in it after the rent check clears. Gas, groceries, auto-payments, bills, etc. chip away at the $2,500 between paychecks but I honestly can't remember the last time my checking balance was anywhere near $1,500 or lower.

Most of my investments are in a taxable brokerage account, so if I ever had a huge emergency I could sell some shares* and transfer the money to my checking account within a couple of business days, no big deal. ($10k between 401k, IRA, HSA. $4-5k in cash, $75k in taxable. I realize this may be odd, but have only been in my current position ~1yr and prior to that had not utilized tax efficient vehicles). Either way, I could live off my taxable account for 3-4 years before it was depleted

*I'd probably use a cash back credit card and then pay that off before being charged interest. I really don't want to touch my portfolio until it's FI time.

[2Birds1Stone]

$100k, which is earning ~1.4% APY.

Stupid stupid me. I should really invest it, but mentally I can't pull the trigger right now.

[tyrannostache]

Wow, 2birds, I thought we had a lot sitting in the EF at $24k!

Y'all, I really appreciate this discussion, and I still need help with the basic math of where is best for us to keep our EF. I'm 40, married, parent of 2 kids. 1 is still in full-time daycare, 1 in elementary school. Both parents work. We are new to MMM.

We currently have approx. 8 months of bare bones expenses (mortgage, daycare, food, utilities, etc.) in EF: $24k
Sinking fund: $5k
(Very happy to have the sinking pot--last month our garage door and washing machine both died beyond our ability to repair.)

I see the emergency fund as what we need to keep the family afloat if one or both of us loses a job or has a sudden illness that keeps us from working. Obviously, it would stretch a lot farther if one of us were still working--it could keep us going for a year or more. So the benefit of having this amount in savings is that it isn't likely to be impacted by a market downturn. We're losing out on investment gains in order to have  security in case of a market drop, which I keep hearing is likely to happen soon. Still, I'm wondering if we're being too conservative.



Background:
Our only debt is mortgage, 150K on a house worth approx 250K in current market.
Both vehicles are approaching the end of their safe driving life, and we are saving for 1 new-to-us vehicle in the sinking fund.

I have a stable job and will gross $60k this year (2017 was lower, pre-promotion).
DH likely to gross about $50k between job and independent contracting. This is variable and not stable.

Other savings:
Me: $75k in 401k.
DH: $70k in  401K.
Roth IRAs: Approx $25K between 2

In 2017, we have only contributed $4k out of $11k between the 2 accounts. Still deciding what to do about the Roth for this year--pull from sinking and/or emergency funds to top them off? Leave them alone and get back to it this year, as this year's income will be higher?
Currently dumping 9% of my salary + 8% employer match in 401K, aiming to start reaching max contribution in 2019.

[Michael in ABQ]

Wow, 2birds, I thought we had a lot sitting in the EF at $24k!

Y'all, I really appreciate this discussion, and I still need help with the basic math of where is best for us to keep our EF. I'm 40, married, parent of 2 kids. 1 is still in full-time daycare, 1 in elementary school. Both parents work. We are new to MMM.

We currently have approx. 8 months of bare bones expenses (mortgage, daycare, food, utilities, etc.) in EF: $24k
Sinking fund: $5k
(Very happy to have the sinking pot--last month our garage door and washing machine both died beyond our ability to repair.)

I see the emergency fund as what we need to keep the family afloat if one or both of us loses a job or has a sudden illness that keeps us from working. Obviously, it would stretch a lot farther if one of us were still working--it could keep us going for a year or more. So the benefit of having this amount in savings is that it isn't likely to be impacted by a market downturn. We're losing out on investment gains in order to have  security in case of a market drop, which I keep hearing is likely to happen soon. Still, I'm wondering if we're being too conservative.



Background:
Our only debt is mortgage, 150K on a house worth approx 250K in current market.
Both vehicles are approaching the end of their safe driving life, and we are saving for 1 new-to-us vehicle in the sinking fund.

I have a stable job and will gross $60k this year (2017 was lower, pre-promotion).
DH likely to gross about $50k between job and independent contracting. This is variable and not stable.

Other savings:
Me: $75k in 401k.
DH: $70k in  401K.
Roth IRAs: Approx $25K between 2

In 2017, we have only contributed $4k out of $11k between the 2 accounts. Still deciding what to do about the Roth for this year--pull from sinking and/or emergency funds to top them off? Leave them alone and get back to it this year, as this year's income will be higher?
Currently dumping 9% of my salary + 8% employer match in 401K, aiming to start reaching max contribution in 2019.

Sounds like you could probably drop it to $10-15k and still be able to cover minimum expenses for several months. Fill up one or both of your Roth IRAs for the year. 3-6 Months of expenses is the typical advice for an emergency fund and we're at about that three month mark, maybe four if we stretched things and had no other income coming in.

[big_owl]

I keep 70-100k in cash savings.   Anything less than 50k and I'd be uncomfortable. 

[boarder42]

$100k, which is earning ~1.4% APY.

Stupid stupid me. I should really invest it, but mentally I can't pull the trigger right now.

holy shit dude really.  - i assume you're trying to market time with this and left it there for all of last year and lost out on 20k in profit so now its still just being squandered.  shit this year you've missed almost 5k already

[2Birds1Stone]

$100k, which is earning ~1.4% APY.

Stupid stupid me. I should really invest it, but mentally I can't pull the trigger right now.

holy shit dude really.  - i assume you're trying to market time with this and left it there for all of last year and lost out on 20k in profit so now its still just being squandered.  shit this year you've missed almost 5k already

Pretty close to reality.

I started off 2017 with about $66k in "cash" and finished with a solid $117k. I dumped $5,500 into taxable and $5,500 into Roth IRA on January 2nd this year.

I did use a good portion of the $66k+ to churn Savings, Money Market, and Checking account bonuses, earning a little over $3,500, but my ROI was much less than equities.

Still holding way too much cash, but for now I guess it helps me sleep at night with my super unstable job situation.

[swinginbeef]

We keep around $20k in a damn near zero percent savings account at our CU. I'm completely comfortable with keeping $2-3k and using credit as the buffer until we can make transfers. My wife, on the other hand, feels that she needs the $20k number (which she pulled out of thin air, btw) to feel warm and fuzzy. I mentally write off the lost returns as an investment in her warm fuzzys, which definitely pays dividends at home.

[boarder42]

$100k, which is earning ~1.4% APY.

Stupid stupid me. I should really invest it, but mentally I can't pull the trigger right now.

holy shit dude really.  - i assume you're trying to market time with this and left it there for all of last year and lost out on 20k in profit so now its still just being squandered.  shit this year you've missed almost 5k already

Pretty close to reality.

I started off 2017 with about $66k in "cash" and finished with a solid $117k. I dumped $5,500 into taxable and $5,500 into Roth IRA on January 2nd this year.

I did use a good portion of the $66k+ to churn Savings, Money Market, and Checking account bonuses, earning a little over $3,500, but my ROI was much less than equities.

Still holding way too much cash, but for now I guess it helps me sleep at night with my super unstable job situation.

i know you're already maxing tax advantaged space but this all harkens back to my comment above.  fear drives people to make sub rational decisions.  i mean you're FI in 2 years.  you have enough dollars hanging around that all of that money should be invested.  regardless of if you're laid off or not.  with 2 years till fire you could support yourself and find odd jobs to make ends meet rather than leaving piles of money on the side line. 

[COEE]

holy shit dude really.  - i assume you're trying to market time with this and left it there for all of last year and lost out on 20k in profit so now its still just being squandered.  shit this year you've missed almost 5k already

Easy there - take a deep breath - 2birds1stone could have just as easily lost half of it in that time frame as well.  Whatever lets him/her sleep at night.  Everbody's emergency fund tolerance is different.  I've read enough to know that you're pretty aggressive with your savings and investment methods, but not everyone is.

We sleep well with 1 year in the bank.  That's about $30k for us*.  That's more than I'd like to see in an Ally account earning ~1% so I asked around the boglehead forums about what I should do with the rest.  They suggested iBonds.  These are individual savings bonds that track inflation (CPI) and has a small rate of return on top of that.  I've started buying some every three months, and I plan to convert about $20k to ibonds over the course of two years.  I've laddered them because once you buy, you can't touch them for one year.

I am still struggling with whether I should count these iBonds as part of my investment portfolio or if I should count it towards my emergency fund or both... this edges on investing my emergency fund (in bonds) in my mind.

And to your (boarder42) point earlier - as my portfolio grows I see investing in a taxable account in my future - does the taxable account then end up being another emergency fund?  I think so.  When I see my taxable account grow to 2x my yearly emergency fund + some taxes, I may just pull the plug on cash savings all together.  But until then, I'm playing it more safe.

* Our bare minimum yearly expenses is about $45k, but unemployment (should I lose my job) pays about $15k in our state.  If your biggest loss will come from unemployment, don't forget to find out how much you'll qualify for in unemployment and count this in your emergency fund.   I recently took advantage of this during a layoff that I had for 6 months and 11 days.  We never touched the $30k in emergency savings during that time frame - my wife supplemented what unemployment didn't pay.

[Retire-Canada]

So, Mustachians, how much cash do you keep on hand? What would you do in my situation, car or more cushion in the emergency fund? Is $3,550 enough? Do I need $15k? Is the auto loan a bigger emergency?

My EF = $0 in cash or cash like products.

I do have:

- $10K+ of credit card space I could use to cashflow an expense over ~2 months
- $30K line of credit [not tied to home equity]
- ~$850K of investments I could tap into

Holding anything like is just too expensive when I have cheaper and just as effective ways to deal with an emergency.

[Lady SA]

We keep our EF and sinking fund/car replacement fund in the same high-yield savings account at our CU earning 2.5% interest.

The first $12k is the EF, enough to last us for 4 months if both DH and I lost our jobs, or almost a year if one of us were able to keep working. On top of that (~$2k) is a sinking fund for bigger things that come up (car repair, medical bills, tax bills, etc) -- most of these items we actually pay with a cc to gain points but pay off immediately with these funds. We rent so we don't need a huge sinking fund for house repairs. And finally, on top of THAT, is the car replacement fund; we are adding $500/mo to this as we know we will need to get a new-to-us car within the next 2 or 3 years. We are setting our car budget at $10k.

At it's peak, this savings account will have about $25k in it, but then we will take $10k out to replace our current beater. Then to sleep a little better at night, I might continue to add $500 per month to this to get back up to $20k (no reason, just that $15k seems a bit too small for my comfort level... also, this would get us to a 6 mo EF instead of 4 mo) and then it can stay there indefinitely, earning 2.5%.

[boarder42]

holy shit dude really.  - i assume you're trying to market time with this and left it there for all of last year and lost out on 20k in profit so now its still just being squandered.  shit this year you've missed almost 5k already

Easy there - take a deep breath - 2birds1stone could have just as easily lost half of it in that time frame as well.  Whatever lets him/her sleep at night.  Everbody's emergency fund tolerance is different.  I've read enough to know that you're pretty aggressive with your savings and investment methods, but not everyone is.

We sleep well with 1 year in the bank.  That's about $30k for us*.  That's more than I'd like to see in an Ally account earning ~1% so I asked around the boglehead forums about what I should do with the rest.  They suggested iBonds.  These are individual savings bonds that track inflation (CPI) and has a small rate of return on top of that.  I've started buying some every three months, and I plan to convert about $20k to ibonds over the course of two years.  I've laddered them because once you buy, you can't touch them for one year.

I am still struggling with whether I should count these iBonds as part of my investment portfolio or if I should count it towards my emergency fund or both... this edges on investing my emergency fund (in bonds) in my mind.

And to your (boarder42) point earlier - as my portfolio grows I see investing in a taxable account in my future - does the taxable account then end up being another emergency fund?  I think so.  When I see my taxable account grow to 2x my yearly emergency fund + some taxes, I may just pull the plug on cash savings all together.  But until then, I'm playing it more safe.

* Our bare minimum yearly expenses is about $45k, but unemployment (should I lose my job) pays about $15k in our state.  If your biggest loss will come from unemployment, don't forget to find out how much you'll qualify for in unemployment and count this in your emergency fund.   I recently took advantage of this during a layoff that I had for 6 months and 11 days.  We never touched the $30k in emergency savings during that time frame - my wife supplemented what unemployment didn't pay.

it could not just as easily have lost 50% of its value - have you looked at how many times the market has made money in a year vs lost.  this is not an equivalence the market goes up much much more than it goes down - sidelining cash in an effort to what can only be an emotional attachment to time the market b/c its at an all time high is a losers game.

[2Birds1Stone]

holy shit dude really.  - i assume you're trying to market time with this and left it there for all of last year and lost out on 20k in profit so now its still just being squandered.  shit this year you've missed almost 5k already

Easy there - take a deep breath - 2birds1stone could have just as easily lost half of it in that time frame as well.  Whatever lets him/her sleep at night.  Everbody's emergency fund tolerance is different.  I've read enough to know that you're pretty aggressive with your savings and investment methods, but not everyone is.

Thanks for the feedback and perspective.

For me it's a mental block. When I discovered FIRE in January of 2012 I never ever imagined I would be earning close to the income I had over the past 3 years. Originally I planned on FIRE at 50, since I was under the impression my income would be around $50k/year gross for my entire career.

I started investing, rather conservatively at first, and then got more aggressive. I made a number of mistakes that investors tend to make. Picking sectors, trying to time the market, buying gold/silver close to their peaks in 2011-2013, etc.

I slowly trained myself to take a 3 fund approach in my investment account, and have been maxing them (401k, Roth IRA, and HSA) for the past 3 years, with an allocation of 80/20.

My income exploded due to some right place, right time career moves and opportunities, and in 2016-2017 I was able to save ~$100k outside of my retirement accounts, as well as grow a $40k taxable position with vanguard.

My career took a nosedive, and my income and job security could be gone without notice at any moment. My fiance, is in the same boat in terms of job right now.

I continue to invest $1725/month into 401k at 80/20, and $533/month into HSA, she does $458 to roth and $1500/month to 401k at 90/10.......but for some reason I keep holding onto my pile of cash.

I guess I'm afraid of throwing it into taxable and having the market correct strongly, I know my tolerance for volatility is low. If it weren't for my large cash pile, I don't think I would have the stomach for an 80/20 portfolio in my investment accounts.

@boarder42 is right, it's definitely suboptimal, and I will have to work longer for the same return, but I'm also way ahead of where I expected to be financially at this age, and I can't seem to bring myself to dump large amounts into my taxable account.

My strategy moving forward is however to keep the $100k in liquid MM/CD/etc accounts, and anything I make moving forward above and beyond my retirement accounts, will get DCA'd into my taxable account. Slowly reducing the cash position as a % of my net worth...which right now is absurdly high (28.7%)

[boarder42]

holy shit dude really.  - i assume you're trying to market time with this and left it there for all of last year and lost out on 20k in profit so now its still just being squandered.  shit this year you've missed almost 5k already

Easy there - take a deep breath - 2birds1stone could have just as easily lost half of it in that time frame as well.  Whatever lets him/her sleep at night.  Everbody's emergency fund tolerance is different.  I've read enough to know that you're pretty aggressive with your savings and investment methods, but not everyone is.

Thanks for the feedback and perspective.

For me it's a mental block. When I discovered FIRE in January of 2012 I never ever imagined I would be earning close to the income I had over the past 3 years. Originally I planned on FIRE at 50, since I was under the impression my income would be around $50k/year gross for my entire career.

I started investing, rather conservatively at first, and then got more aggressive. I made a number of mistakes that investors tend to make. Picking sectors, trying to time the market, buying gold/silver close to their peaks in 2011-2013, etc.

I slowly trained myself to take a 3 fund approach in my investment account, and have been maxing them (401k, Roth IRA, and HSA) for the past 3 years, with an allocation of 80/20.

My income exploded due to some right place, right time career moves and opportunities, and in 2016-2017 I was able to save ~$100k outside of my retirement accounts, as well as grow a $40k taxable position with vanguard.

My career took a nosedive, and my income and job security could be gone without notice at any moment. My fiance, is in the same boat in terms of job right now.

I continue to invest $1725/month into 401k at 80/20, and $533/month into HSA, she does $458 to roth and $1500/month to 401k at 90/10.......but for some reason I keep holding onto my pile of cash.

I guess I'm afraid of throwing it into taxable and having the market correct strongly, I know my tolerance for volatility is low. If it weren't for my large cash pile, I don't think I would have the stomach for an 80/20 portfolio in my investment accounts.

@boarder42 is right, it's definitely suboptimal, and I will have to work longer for the same return, but I'm also way ahead of where I expected to be financially at this age, and I can't seem to bring myself to dump large amounts into my taxable account.

My strategy moving forward is however to keep the $100k in liquid MM/CD/etc accounts, and anything I make moving forward above and beyond my retirement accounts, will get DCA'd into my taxable account. Slowly reducing the cash position as a % of my net worth...which right now is absurdly high (28.7%)

have you done the math to see what your comfort level is to move your AA - i hear this comment alot and i know you've got it figured out for yourself and dont plan to change but a 60/40 stock to bonds may be better than an 80/20 with 100k sitting in an asset that historically loses to inflation.  just another question i've been pondering when people make comments similar to the one you made.

[BrightFIRE]

Through the magic of tracking what I call "unexpected expenses" in the last 6 or 7 years, I know that historically, we've never needed more than about ~$5000 to cover multiple emergencies in a year (all types: medical, auto, pet, parent), so we're comfortable holding that amount in a savings account in addition to a ~$1000 "slush fund" that I move over to cover any unusual bill fluctations.

That's not really the same as an EF to cover job loss, but my job is super stable (I've been here 12 years) and we could cut expenses and stop retirement contributions if necessary, so I'm not really worried about job loss as a separate type of emergency.

[Rosy]

Cash - $10K - (1% and 2%)
CD - $11K - (3% and 2.25%)
I would like to see min $36K - one year min living expenses for the two of us, if Mr. R. lost his job. There is a fair chance he may lose his job, before he is ready to retire.
I'm already retired so my income is secure.
This could pay the bills, car pmts and regular household expenses and still handle minor emergencies for a year. House is paid.

I am not a fan of pulling out monies from the 401K or his investments and would like to avoid that if at all possible. We are counting on his 401K and his investments to be sufficient to live on when he retires - pulling out significant sums this close to retirement is a scary thought.

If your gut tells you an arbitrary number of $10K to feel secure, then you might still want to take Laura's advice and once you are done with that slowly build up to 10K - you'll sleep better:)

I also like and have a slush fund of $2K for minor emergencies and Mr. R. keeps $4K for minor emergencies in a 2% savings acct. - for house, car and medical expenses.

If it were not for the possibility of Mr. R. losing his job, I'd be fine with $15 to $25K in total, slush fund incl.

[COEE]

My strategy moving forward is however to keep the $100k in liquid MM/CD/etc accounts, and anything I make moving forward above and beyond my retirement accounts, will get DCA'd into my taxable account. Slowly reducing the cash position as a % of my net worth...which right now is absurdly high (28.7%)

I get it - I had a job that was high risk for a while.  They laid one of the engineers off one day... I went home that night and asked my wife if we could double our emergency fund.  We had the cash saved, but it wasn't committed to an emergency (we were planning on using it for some other things).  We turned our $20k emergency fund into a $30k overnight.  6 months later they laid off half of the engineering group (myself included).  3 months later the company closed their doors.  Before I found a new job I wished I had $100k in an emergency fund rather than a measly 30k!

I'd suggest looking at ibonds.  They are great savings vehicles for situations like this - where you want your money to be 'safe', but you also don't want it to lose value due to inflation.  After you start buying them, you can actually think of them as both a savings account and a bond, and perhaps reduce your bond position in your other accounts, maintaining your AA.  Alternatively, you could buy ibonds, and slowly convert your cash positions to a larger bond position, changing your AA.

You can only purchase up to $10k of iBonds per SSN each year - so to get half of your EF into iBonds would take 5 years.  A nice slow transition to warm up to the idea - or bail if you decide it's not for you.

If 100k helps you rest easy at night - so be it.

[ohsnap]

...
Thanks for the response. The home warranty is about $40/month, or $480 a year. I've considered cancelling it in the past but have been torn... I got a year free when I purchased my home in 2013 because my air conditioning unit was 13 years old and they expected it to crap out any day (as did I.) I ran the hell out of it that first year and... nothing. Was still going strong, so I decided to re-up the warranty thinking SURELY 2014 would be the year....

Rolling into 2018 that freakin thing is STILL GOING. Though now I look at the money I've spent on the home warranty (which I have used for a couple other odds and ends over the year, I should add) and look at my now EIGHTEEN YEAR OLD AC unit, and think cancelling it now would be even stupider.

I suppose there's some sunk-cost-fallacy happening here...

Keep in mind that you have ZERO control over the repair/replacement of the AC system when you use a home warranty.  Our home came with an older HVAC system which died the first summer - we were covered by a home warranty that the seller had paid for.  The first contracto came out to look at it within a couple of days, but then told us it would be 2-3 weeks before they could get the replacement (yes, the whole condenser needed replacement, and they were also required to replace the furnace/blower, I think because of environmental regs).  3 weeks without AC in the middle of summer was not OK, so I called the warranty company who got another contractor to come out within a week to do the work.  I can't describe to you how truly awful the new system was, and how shoddy the installation.  The unit was supposed to meet the bare minimum for efficiency, but the installation had so many leaks that our AC bill went UP with the new system.

Within a year we had spent $10k+ on a completely new, efficient system.  It is virtually silent and it actually heats and cools our house!  (the other system ran all the time and the upstairs was still an oven).  We are saving enough in electricity and gas that we might make it back over 10 years.

All that to say - I wouldn't keep paying $500/ year just on the hope that they'll pay for a crappy new HVAC system.

[better late]

holy shit dude really.  - i assume you're trying to market time with this and left it there for all of last year and lost out on 20k in profit so now its still just being squandered.  shit this year you've missed almost 5k already

Easy there - take a deep breath - 2birds1stone could have just as easily lost half of it in that time frame as well.  Whatever lets him/her sleep at night.  Everbody's emergency fund tolerance is different.  I've read enough to know that you're pretty aggressive with your savings and investment methods, but not everyone is.

Thanks for the feedback and perspective.

For me it's a mental block. When I discovered FIRE in January of 2012 I never ever imagined I would be earning close to the income I had over the past 3 years. Originally I planned on FIRE at 50, since I was under the impression my income would be around $50k/year gross for my entire career.

I started investing, rather conservatively at first, and then got more aggressive. I made a number of mistakes that investors tend to make. Picking sectors, trying to time the market, buying gold/silver close to their peaks in 2011-2013, etc.

I slowly trained myself to take a 3 fund approach in my investment account, and have been maxing them (401k, Roth IRA, and HSA) for the past 3 years, with an allocation of 80/20.

My income exploded due to some right place, right time career moves and opportunities, and in 2016-2017 I was able to save ~$100k outside of my retirement accounts, as well as grow a $40k taxable position with vanguard.

My career took a nosedive, and my income and job security could be gone without notice at any moment. My fiance, is in the same boat in terms of job right now.

I continue to invest $1725/month into 401k at 80/20, and $533/month into HSA, she does $458 to roth and $1500/month to 401k at 90/10.......but for some reason I keep holding onto my pile of cash.

I guess I'm afraid of throwing it into taxable and having the market correct strongly, I know my tolerance for volatility is low. If it weren't for my large cash pile, I don't think I would have the stomach for an 80/20 portfolio in my investment accounts.

@boarder42 is right, it's definitely suboptimal, and I will have to work longer for the same return, but I'm also way ahead of where I expected to be financially at this age, and I can't seem to bring myself to dump large amounts into my taxable account.

My strategy moving forward is however to keep the $100k in liquid MM/CD/etc accounts, and anything I make moving forward above and beyond my retirement accounts, will get DCA'd into my taxable account. Slowly reducing the cash position as a % of my net worth...which right now is absurdly high (28.7%)

We are at $50k in our emergency fund right now, and it still feels like it isn't enough some days.

But then again we are the family that spent Fall 2008 in the hospital watching DH fight for his life each day while knowing all around us the financial markets were going down the drain. (Remember Lehman Brothers?)  That was followed by months of his recovery - and while DH didn't lose his job, he did go on ST disability (at 66% of income) and of course our home value tanked when a few of our more leveraged neighbors were foreclosed on so we couldn't have sold if we were falling behind.  What I would have given to have had a big pile of cash at that time.

[Rubyvroom]

We have $12K in a CD ladder ($2K per CD, 6 months rolling). It's not really earning much so I go back and forth on how better to invest this portion of the EF. I then keep $6K in a savings account, so we have $18K total EF which is 6 months expenses. I dip into the savings account around mid-month. I use it as an investment sweep account so I can invest earlier in the month before our checks come in, and then I replenish the $6K after we get paid.

We don't keep a separate emergency fund for repairs or other situations. The $6K in savings plus our credit cards would more than cover that.

I also keep our deductibles liquid in our HSA ($2,600 x2), while the rest is invested.

I question whether we have too much money on the sidelines quite often, but I've also never experienced a situation where we'd need to dip into the money, so there's certainly a level of fear that keeps us so conservative.

[Indexer]

10k.   8k of that is in short term bond funds, and the other 2k is at the bank in a high yield savings account.

It's a 6 month emergency fund.

[SpareChange]

None, as such. All my bonds are in tax sheltered accounts. I have about 100k of stocks in taxable, with margin enabled on the account. Margin acts as overdraft protection. Keep roughly 250-500 in cash for transactions. Stable job. Renter.

[Off the Wheel]

I keep it really lean, since should I actually have an emergency I have lots of ways of accessing money without penalty - my husband, my parents, a line of credit with a low interest rate, etc. I also have a very stable job.

That said, I've decided to keep the minimums in my bank accounts to avoid monthly fees, so now I have $2000 + $4000 that I could access for emergencies, theoretically.

[pdxvandal]

After selling my first house in 2007, I had 100k I kept in a high-yield savings account (5% at the time). I've since slowly invested that amount and paid off spouse's big student loans. Now, I'm down to a 7k emergency fund with a 4k tax bill looming. But 50k accessible in Roth contributions and another property I plan to sell in a few months that should net 200k makes a large emergency fund kept in cash seem like a waste.

[Cactus]

"I've paid my debt emergency down from $11,700 to $4,600 in four short months (woo hoo!) If all goes according to plan, that balance will be ZERO come early April (for the first time since 2011!) "

It is so great everytime I see someone is taking charge of his or her money matters. Great work! It can also be tough, so I would like to remind you: keep this up and you will feel so much stronger in six months, and you will feel so much more alive.
I would like to add a psychological perspective on how to prioritize (pay off or not, savings account or not etc), and that is to choose the path that energizes you the most. As you know the difference in returns between paying down 5k student debt immediately versus having 5k in the stock market is likely very very small. Also, with zero CC debt you will be so much more secure than before anyway. So the main point at this point is not to get out of steam. I think also this is why people on this forum choose to have so very different amount of emergency cash. For some just the thought of getting in the negative for amonth in the bank statement drains their energy. If the thought of steadily having 10k in the savimgs account is more uplifting to you than say to pay off 5k faster then  go for that. Visualization is a great boost for most people. Best of luck.

[Villanelle]

Depending on the time of the month, usually between $4k and $10k.  We also have a huge HELOC from which we can instantly transfer money into our checking account.  That's almost $100,000. 

Anything else would take until the market was open and however long it takes to make the trade.

And while this isn't strictly an emergency fund, I don't pay attention to exact limits but I suspect with all my and DH's credit cards we have well over $25k, if not $50k or more.  That would buy us 30 days to figure out some other things. 

[t5inside]

I keep 15k in an LMCU checking account (guaranteed 3% interest), and another 3K in any Ally account. I'll probably up it to 20k then shift subsequent extra into investments

[PNW Lady]

DH and I probably have between $3-5K in our checking account on any given day. Additionally we keep $40K in a savings account, which I plan to bump to $50K this year. This represents one year of current lifestyle living expenses.  Even with a 20%+ investment return this past year, I have no qualms about how much we keep in savings. None. This is our own individual comfort level based on our past experiences and our current situation (with a 10yo kiddo).
 
I don’t necessarily view this as an “emergency” fund, rather an employment loss fund (which has happened twice to DH in our 11 years of marriage; usually lasts around one year). I am an accountant, so my industry/career is very stable; however I have taken the last year off and am not currently working. I view DH’s job as unstable, and in the event he loses his job I want plenty of time to be selective in finding a good employment fit. We would also take the opportunity to do some traveling, so there’s that.

If you have a feeling in your gut that you need $15K in savings, than grow your savings after you pay off your CC debt. There is no magic formula; it’s just an individual comfort level. I can’t tell you the sense of comfort our savings and overall holdings have provided me over the last few years. I have left my last two (six figure) jobs, each at the eight month mark, simply because some of the key people I worked with were jerks. I can do that.
 
@Cactus, I really liked your advice to choose a path that energizes you most.

To OP, great job on making the decision and taking action to eliminate your debt. I too was around 28 when I turned the corner, and I can’t even imagine going back to a life with debt (aside from 3% mortgage with 50% home equity). The auto loan is no doubt an emergency, but in the grand scheme of things it sounds like the additional time prioritizing your savings would add to paying off your car loan is negligible (less than six more months to pay off, correct?). Good luck!

[Dicey]

We have an enormous amount of liquidity, but we are FI and  I am FIRE. It's a whole different scenario. (And yes, B42, I know this won't make you happy, but we're still looking for our next flip or BRRR project, or both, so we do have plans for these soldiers and want to stay nimble.)

I spent most of my career in commission sales. I always lived on last month's (or the month before's) paycheck, just because my checks were unpredictable, and my mortgage was really high. (No hate please, look left for the reason why.) FWIW, I never had any other debt than mortgage. I took a path that was somewhat unconventional. I had a good chunk withheld from my paycheck for my 401k. Then I always tried to spend as little of the rest as possible. This "overflow" became my de facto Emergency Fund. Whenever it got too high, I swept the excess into a Roth, then a taxable account. "Too high" was a moving target. When money was super tight, it was only a few thousand dollars. Eventually I challenged myself to have X amount of months of living expenses, with X being a gradually increasing amount.

The best answer is "it depends". You want to keep your soldiers working hard for you, you want to avoid a financial disaster, and you want to keep your stress to a minimum. It's always a moving target.