Author Topic: how much cash to have on hand, is rainy day fund/emergency fund  (Read 3031 times)

PencilThinMustache

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my wife and I are new members of this forum in have recently started living a much more mustache and lifestyle. We are working towards saving but starting with tax-advantaged counts but I understand the importance of keeping some cash on hand that is not tied up in any sort of investment, apart from maybe an ING account or something easily liquidated like that.

 So I guess my general question is how much cash should I have on hand. I don't want to have excess money on hand because when allocated to my student loan debt at 6.8%, it could be working as lot harder for me. I have heard things from 3 months to 8 months living expenses.  I'm sure I could find gainful employment sooner than 3 months if I lose or leave my job.

Appreciate advice

homeymomma

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Re: how much cash to have on hand, is rainy day fund/emergency fund
« Reply #1 on: June 01, 2014, 05:30:22 PM »
Some say $1000, some say 3-6 months income, some say 3-6 months bare bones expenses, some say the deductibles of your insurance policies. Of you're on a single income, I'd err on the higher side. But with student loans definitely not too much. Whatever makes you comfortable, knowing your own circumstances of job security, availability of family help, if you have a mortgage, etc. It will also depend on how long you'll be throwing all your money at student loans (4 months? 4 years? 14 years?) - you may have higher risk tolerance if the time frame is shorter. Also consider how much excess monthly cash flow you have to cover an emergency on  a month to month basis. If you're putting 2,000/mo extra toward loans, you could kind of see that like a built in 2,000 emergency fund, because if something happened (other than losing your job), you'd have 2,000 spare cash within 30 days.
We went down to 3K in our emergency fund in the last 6 months of paying off debt (our monthly expenses total 2K). It felt a little low but we had a lot of extra cash flow each month and family available to help if it came to that. We also had no mortgage. Now that we are debt free we keep it at 10K.
Basically there's no one-size-fits-all answer. Keep an amount that makes you feel comfortable and secure.

boarder42

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Re: how much cash to have on hand, is rainy day fund/emergency fund
« Reply #2 on: June 01, 2014, 05:34:54 PM »
Its really what your comfortable with... i'm comfy with 4-5k sitting around.  remember also that if huge medical emergency's do arise you can pull money out of you retirement accounts penalty free.. also once you've been loading a Roth IRA for 5 years that now becomes a rainy day account b/c you can with draw principal. 

how stable are your jobs and other things go into this.  In my case if my wife or i lost our job the other could stop maxing their 401k and we could cut back on some of our expenses.  this question comes up alot and you havent really supplied much information to determine where you're at.  I lean towards the riskier side.  my wife and i have good jobs and no kids.  all my rainy day money is invested.  if the market tanks and i hit a big expense i can just stop maxing my 401k and roth ... i really keep 1k "on hand" that isnt owed to my credit cards that get paid off each month .. the rest just gets invested in an etrade account into VTI ... why keep excess around.. what is this armaggedon people with 8 month salary in a saving account are preparing for ... think of each dollar not invested as one less employee not working for you who could be.
« Last Edit: June 01, 2014, 05:37:25 PM by boarder42 »

PencilThinMustache

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Re: how much cash to have on hand, is rainy day fund/emergency fund
« Reply #3 on: June 01, 2014, 06:13:37 PM »
Brief details:
As a specialist physician I'm a relatively high income earner.  for last 6 mos we have been practing a 50% savings rate. We have 20k cash now. my savings rate is currently being funneled to max 401 and Ira. We will soon max those out for the year.  For fhr rest of thr year i plan to funnel 50% of my salary to my 200k student loan debt (and maybe buy out my lease car)

I know that in a tough time we could live on about 5k ( current month expenses are higher...and I'll be looking for advice on how to trim that in a separate post). So is 20k enough?

Alectejas

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Re: how much cash to have on hand, is rainy day fund/emergency fund
« Reply #4 on: June 01, 2014, 07:13:02 PM »
There is some argument for a small emergency fund if you have good credit.  You could always charge up a credit card for a dire emergency.  Physicians qualify for "signature" loans also.  Suntrust, for example, used to offer them.  I imagine that you have pretty good job security also and disability insurance.