Author Topic: Thoughts on a Safety Net (cash) account?  (Read 2061 times)

Gringo in Rio

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Thoughts on a Safety Net (cash) account?
« on: January 09, 2017, 07:20:38 AM »
A bit warm hello from Rio de Janerio!

I was curious on the mustachian approach to the traditional "safety net", of 6 months of cash in a savings account for a rainy day.  With net worth over $200K and my spouse and I both working, this safety net seems not as necessary as it once was, and not working for us as best as it could in an investment account, or even a low risk bond index account.

If anyone has some modern day thoughts on the ol' safety net and where best to bank it, i'm all ears.

-Gringo

Heroes821

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Re: Thoughts on a Safety Net (cash) account?
« Reply #1 on: January 09, 2017, 07:23:43 AM »
Well personally, if you have a taxable investment account and a line of credit that is relatively high (10k+) I don't see why you would need to keep your emergency fund in cash.

You have an emergency use the card, then sell the required funds which can take 2 weeks from what I've seen on this forum and pay the card or other credit line down before it gets hit with any interest.

Also you might want to check out the MMM post about net worth.

Laura33

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Re: Thoughts on a Safety Net (cash) account?
« Reply #2 on: January 09, 2017, 08:49:29 AM »

I was curious on the mustachian approach to the traditional "safety net", of 6 months of cash in a savings account for a rainy day.  With net worth over $200K and my spouse and I both working, this safety net seems not as necessary as it once was, and not working for us as best as it could in an investment account, or even a low risk bond index account.

Net worth doesn't matter as much as income vs. expenses.  What's the reasonable worst-case scenario you're planning for?  If one of you lost a job, is the other job secure, and could you live indefinitely on that single salary?  If so, ITA, you may not need much cash on hand.  OTOH, you may want more if you both may lose your jobs, if you'd need to move and cover big expenses, if a job search may take a long time, etc.

In terms of cash vs. other alternatives, I prefer plain, accessible bank accounts/money market accounts, because the horrible things that make jobs go away also tend to make the stock market and real estate markets crash.  For us, the first tech crash led to DH's plant closing when I was 8 mos. pregnant and working very, very part-time; we didn't have any choice but to take whatever new job he found, but when that was in a new state, we couldn't sell our old house, because all the layoffs killed the local RE market (stupid, stupid, stupid - never, ever again will I buy before selling).  Our E-fund covered the @$1000/month gap until the old house sold.   Line of credit/CCs?  Sure -- but, you know, those tend to get pulled/frozen, too, and at the worst possible time (our HELOC was capped/frozen in the most recent crisis, in the middle of a home remodel; again, we were lucky we had savings to pay the rest of the bills). 

To me, the whole point of an E-fund is to protect my downside if things really go in the shitter, so I don't see any reason to risk that in the hope of upside returns.  Give me cold, hard cash.

money beard

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Re: Thoughts on a Safety Net (cash) account?
« Reply #3 on: January 09, 2017, 12:26:47 PM »
Laura33's post lists all of the very sound reasons your emergency fund can't be a line of credit and the fact that you can pull roth contributions or taxable investments....

We keep about three months in a money market fund that we can write checks on.  We have another four months of available credit, and probably another four-six months in taxable accounts.  The credit and taxable accounts just let us keep the emergency fund at a three month expenses amount instead of a full six months.


Retire-Canada

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Re: Thoughts on a Safety Net (cash) account?
« Reply #4 on: January 09, 2017, 04:15:52 PM »
If anyone has some modern day thoughts on the ol' safety net and where best to bank it, i'm all ears.

I've got ~$650K invested, $0 cash emergency fund and a $30K line of credit [1yr of expenses with no luxuries]. I'm not rich enough to have cash sitting around being eaten away by inflation when there are other solutions that cost nothing until you use them and then very little.

Ryland

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Re: Thoughts on a Safety Net (cash) account?
« Reply #5 on: January 09, 2017, 05:31:30 PM »
The "emergency fund" loses it's weight/usefulness as your net worth increases. Once you have +5x your annual spending save, I think you can feel comfortable with less than 6mo of spending in a savings account. Your risk here is in the volatility of your $200k. If you can stomach a +50% downturn, and not have to pull money from your portfolio, then the emergency fund doesn't feel necessary. I also like what Retire-Canada said about using a line of credit for your back up/emergency fund.