Author Topic: When have you actually had to use emergency fund?  (Read 21365 times)

boarder42

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Re: When have you actually had to use emergency fund?
« Reply #100 on: June 06, 2016, 07:38:48 AM »
I guess that the very frugal lifestyle most on this board lives makes for fewer expensive "emergencies". I mean if you go snowboarding/wakeboarding every weekend, drives a $100k sports car and lives in very expensive home you just find yourself in more situations where expensive emergencies could come up. Personally I keep a $7.600 emergency fund just in case. Simply makes me feel more secure. But I understand the frustration.

I wakeboard every weekend I have no typical e fund in a safe interest account all my money is invested in index funds . I think it's a risk profile thing.  And I would argue the snowboarders and wakeboarders probably don't have large e funds here on this forum as they are more extreme risk taking sports but that's besides the point that people here are too risk averse to a fault of the dollars that could be earned with your dollars working for you. Doesn't matter how much you bike to work if you keep 30k in the checking account "just in case".  You are costing yourself 95k in gains at 10% (since your safe account likely doesn't keep up with inflation I'm using market avg minus 1%) over 15 years (my assumption on the avg time to fire on these forums).

I figure you don't have any kind of insurance then - as the money is better spent invested?

its an opportunity cost the insurance i have is for the large things like home owners and health but at high deductibles.  the difference here is that and E fund in its typical sense doesnt make sense to me when you have taxable accounts and roth accounts .  once you've reached this step on the ladder of FIRE its just a poor choice for your money.  people on this site are far too risk averse in my mind.

csprof

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Re: When have you actually had to use emergency fund?
« Reply #101 on: June 06, 2016, 01:46:46 PM »
its an opportunity cost the insurance i have is for the large things like home owners and health but at high deductibles.  the difference here is that and E fund in its typical sense doesnt make sense to me when you have taxable accounts and roth accounts .  once you've reached this step on the ladder of FIRE its just a poor choice for your money.  people on this site are far too risk averse in my mind.

I'm going to concur with this (and I'm obviously more risk-averse and spendypants than boarder. :).

I'd argue a few things:

(1)  The concept of an emergency fund predates ~3 business day ACH transfers from Vanguard to your checking account.
(2)  It predates the popularity of Vanguard and others' no purchase or redemption fee funds.
(3)  It applies mostly to people who have no large existing savings buffer, as boarder42 notes above.

For someone who:
(a)  Has their budget under control and has sufficient cash buffer to handle the monthly ups and downs experienced by their checking account to balance the time between income and expense, and for whom having their paycheck deposit be delayed by half a month would not be a problem in any sense other than messing up their automatic transfers;
(b)  Has a decent amount of credit available (let's say $10k) in any form - credit cards are fine;
(c)  Has a positive savings balance in their taxable or roth accounts of > 3x the typical "emergency fund" amount;

it doesn't make any sense to have a separate emergency fund, because you've already got the funds to cover any emergency.  It *does* make sense to maintain a certain minimum balance available at no delay in your checking+savings accounts, because you might have to withdraw, say, $1k cash on very little notice.  (Can you tell I'm still grumpy about the time our car got towed?  Yes.  I'm grumpy.)  But beyond that, credit cards can handle everything that exceeds that amount for the 3-5 days it might take to liquidate some of your investments.  The odds of your investments dropping to under 30% of their value is very, very small -- and a crash of such a magnitude might well just eat your bank too, so it's probably not worth fretting much about.

In other words:  Once you're financially healthy and have a decent surplus available to you, you already have access to the cash you'd need to handle an emergency.

If you don't have enough money in taxable/roth or available in some other way to handle a few months income loss, you're probably not yet financially healthy. :)  <puts on his flame-retardant suit>

MoonShadow

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Re: When have you actually had to use emergency fund?
« Reply #102 on: June 06, 2016, 05:12:43 PM »

I agree with the entire post except this point...


(b)  Has a decent amount of credit available (let's say $10k) in any form - credit cards are fine;


I don't agree that available (unsecured) credit is quite comparable to an actual e-fund, because the accessibility of the credit line can be canceled 1) if you lose your job and your creditors get wind of this somehow or 2) if your creditor runs into real fiscal trouble and ends up filing bankruptcy themselves.

Since #1 is one of the most likely scenarios wherein an e-fund would prove useful, it's not entirely a substitute for a well funded e-fund; but seems reasonable as a supplement for a bit-too-small e-fund and/or paired with a larger invested fund that one could get to in a week or so, such as the contributions in a Roth.

#2 is rather unlikely, but in a severe economic downturn, such as might follow a widespread natural disaster (Think Katrina in most recent memory), is still somewhat of a greater risk than a true e-fund.

However, a secured line of credit (i.e. a low interest rate credit card that your bank/investment firm provide on condition that your investments are pledged as collateral) is only at risk for #2, since proof of an ongoing income stream is irrelevant; but since you have the same risk since you bank/invest there anyway, it's not greater just because you have a standing line-of-credit as well.

csprof

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Re: When have you actually had to use emergency fund?
« Reply #103 on: June 06, 2016, 05:26:29 PM »

I agree with the entire post except this point...


(b)  Has a decent amount of credit available (let's say $10k) in any form - credit cards are fine;


I don't agree that available (unsecured) credit is quite comparable to an actual e-fund, because the accessibility of the credit line can be canceled 1) if you lose your job and your creditors get wind of this somehow or 2) if your creditor runs into real fiscal trouble and ends up filing bankruptcy themselves.

Since #1 is one of the most likely scenarios wherein an e-fund would prove useful, it's not entirely a substitute for a well funded e-fund; but seems reasonable as a supplement for a bit-too-small e-fund and/or paired with a larger invested fund that one could get to in a week or so, such as the contributions in a Roth.

#2 is rather unlikely, but in a severe economic downturn, such as might follow a widespread natural disaster (Think Katrina in most recent memory), is still somewhat of a greater risk than a true e-fund.

However, a secured line of credit (i.e. a low interest rate credit card that your bank/investment firm provide on condition that your investments are pledged as collateral) is only at risk for #2, since proof of an ongoing income stream is irrelevant; but since you have the same risk since you bank/invest there anyway, it's not greater just because you have a standing line-of-credit as well.

To be clear, I meant that (a, b, and c) were all requirements.  The ~$10k of instantly-available credit is just to buffer during the few days it takes to get money flowing from your investments to your bank account in the case of unexpected and larger expenses that need to be paid up-front.  I concur that there are more and less reliable forms of credit, but I'm not as worried about it since I figure there's only about a 3 business day window where it would really be a concern.  After that, the ACH transfer of $20k arrives from Vanguard and you're back to operating with a traditional emergency reserve. :)

MoonShadow

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Re: When have you actually had to use emergency fund?
« Reply #104 on: June 06, 2016, 07:22:03 PM »

I agree with the entire post except this point...


(b)  Has a decent amount of credit available (let's say $10k) in any form - credit cards are fine;


I don't agree that available (unsecured) credit is quite comparable to an actual e-fund, because the accessibility of the credit line can be canceled 1) if you lose your job and your creditors get wind of this somehow or 2) if your creditor runs into real fiscal trouble and ends up filing bankruptcy themselves.

Since #1 is one of the most likely scenarios wherein an e-fund would prove useful, it's not entirely a substitute for a well funded e-fund; but seems reasonable as a supplement for a bit-too-small e-fund and/or paired with a larger invested fund that one could get to in a week or so, such as the contributions in a Roth.

#2 is rather unlikely, but in a severe economic downturn, such as might follow a widespread natural disaster (Think Katrina in most recent memory), is still somewhat of a greater risk than a true e-fund.

However, a secured line of credit (i.e. a low interest rate credit card that your bank/investment firm provide on condition that your investments are pledged as collateral) is only at risk for #2, since proof of an ongoing income stream is irrelevant; but since you have the same risk since you bank/invest there anyway, it's not greater just because you have a standing line-of-credit as well.

To be clear, I meant that (a, b, and c) were all requirements.  The ~$10k of instantly-available credit is just to buffer during the few days it takes to get money flowing from your investments to your bank account in the case of unexpected and larger expenses that need to be paid up-front.  I concur that there are more and less reliable forms of credit, but I'm not as worried about it since I figure there's only about a 3 business day window where it would really be a concern.  After that, the ACH transfer of $20k arrives from Vanguard and you're back to operating with a traditional emergency reserve. :)

Okay, I can see that now.

kite

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Re: When have you actually had to use emergency fund?
« Reply #105 on: June 07, 2016, 05:43:43 AM »
One of my occasions to draw from my emergency fund was in a protracted down market, from late 2008 thru early 2010. It was the worst time to be taking money out of the equities.  I was out of work for 13 months and needed to supplement what I was getting in Unemployment benefits.  So it wasn't a sudden $10,000 expense, but a steady amount to supplement living expenses for an indefinite period. 
I have a HELOC, but that's the sort of access to credit that can be cancelled when a borrower's circumstances change, like being out of work during a credit crunch. 

There's a fair amount of willful ignorance on these boards.  A balanced portfolio includes cash equivalent investments for a reason.  Whatever portion you need in cash is dependent upon your circumstances, but to be all-in with equities, even index funds, is riskier than a balanced mix.  A hedge isn't "sitting there doing nothing" but actually serves a function. 

boarder42

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Re: When have you actually had to use emergency fund?
« Reply #106 on: June 07, 2016, 05:57:30 AM »
One of my occasions to draw from my emergency fund was in a protracted down market, from late 2008 thru early 2010. It was the worst time to be taking money out of the equities.  I was out of work for 13 months and needed to supplement what I was getting in Unemployment benefits.  So it wasn't a sudden $10,000 expense, but a steady amount to supplement living expenses for an indefinite period. 
I have a HELOC, but that's the sort of access to credit that can be cancelled when a borrower's circumstances change, like being out of work during a credit crunch. 

There's a fair amount of willful ignorance on these boards.  A balanced portfolio includes cash equivalent investments for a reason.  Whatever portion you need in cash is dependent upon your circumstances, but to be all-in with equities, even index funds, is riskier than a balanced mix.  A hedge isn't "sitting there doing nothing" but actually serves a function.

so how long was this money sitting in cash - it likely would have been worth much more if it had been invested from the git go.  everyone here likes to cherry pick bad markets and talks about it like "if you'd invested it in 2008"  - yeah there you go one instance - small sample size in a broad market and for a majority of people with stable jobs even in downturns that money would have made more money invested than where it was at when it would have to be pulled out of the market in a downturn.  you're looking on such a mircoscale at such a micro event and not the opportunity cost of that money over time. 

peppaz

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Re: When have you actually had to use emergency fund?
« Reply #107 on: June 07, 2016, 11:00:48 AM »
Against all advice- my Roth IRA is my 'emergency fund'

Along with 100k of open credit.


Gerard

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Re: When have you actually had to use emergency fund?
« Reply #108 on: June 07, 2016, 11:44:31 AM »
As a couple of posters have mentioned, having a lower-risk lifestyle (in my case, in a low-risk country) reduces the likelihood of needing emergency money.

For example:
Big medical expenses? Canadian healthcare, health insurance from work.
Big car repairs? I don't have a car.
Tree falls on house? Crash with friends till house insurance comes through, and/or access credit card. Or burn house down and sell land for more than house is worth. -)
Laid off during downturn? I have a highly secure job in a counter-cyclical industry. If I do get laid off, Canada's employment insurance would pay more than I spend, for a year.
Anything else? Float it on a credit card for a month or more, then pay that off from savings or the difference between what I earn and what I spend.

I don't think this is hubris. Just a reasonable evaluation of my life, in which catastrophic events are highly unlikely and not worth preparing for via a guaranteed permanent constant loss of investment income.

Dicey

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Re: When have you actually had to use emergency fund?
« Reply #109 on: June 07, 2016, 12:40:04 PM »
As a couple of posters have mentioned, having a lower-risk lifestyle (in my case, in a low-risk country) reduces the likelihood of needing emergency money.

For example:
Big medical expenses? Canadian healthcare, health insurance from work.
Big car repairs? I don't have a car.
Tree falls on house? Crash with friends till house insurance comes through, and/or access credit card. Or burn house down and sell land for more than house is worth. -)
Laid off during downturn? I have a highly secure job in a counter-cyclical industry. If I do get laid off, Canada's employment insurance would pay more than I spend, for a year.
Anything else? Float it on a credit card for a month or more, then pay that off from savings or the difference between what I earn and what I spend.

I don't think this is hubris. Just a reasonable evaluation of my life, in which catastrophic events are highly unlikely and not worth preparing for via a guaranteed permanent constant loss of investment income.
All this makes me want to move to Canada. But wait! It snows there. No, no, can't do it. Guess I'll just have to keep my big-ass EF and visit occasionally during the summer.

Zikoris

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Re: When have you actually had to use emergency fund?
« Reply #110 on: June 07, 2016, 12:53:13 PM »
As a couple of posters have mentioned, having a lower-risk lifestyle (in my case, in a low-risk country) reduces the likelihood of needing emergency money.

For example:
Big medical expenses? Canadian healthcare, health insurance from work.
Big car repairs? I don't have a car.
Tree falls on house? Crash with friends till house insurance comes through, and/or access credit card. Or burn house down and sell land for more than house is worth. -)
Laid off during downturn? I have a highly secure job in a counter-cyclical industry. If I do get laid off, Canada's employment insurance would pay more than I spend, for a year.
Anything else? Float it on a credit card for a month or more, then pay that off from savings or the difference between what I earn and what I spend.

I don't think this is hubris. Just a reasonable evaluation of my life, in which catastrophic events are highly unlikely and not worth preparing for via a guaranteed permanent constant loss of investment income.

Yeah, that sums up my situation pretty much as well - No house, no car, no medical expenses. Layoffs? I do office clerical work, and there are no shortage of clerk/receptionist positions in my city - I'd probably temp a bit for fun until I found something permanent. I'm struggling to even think of a possible emergency that could clean me out.

MoonShadow

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Re: When have you actually had to use emergency fund?
« Reply #111 on: June 07, 2016, 02:38:31 PM »
One of my occasions to draw from my emergency fund was in a protracted down market, from late 2008 thru early 2010. It was the worst time to be taking money out of the equities.  I was out of work for 13 months and needed to supplement what I was getting in Unemployment benefits.  So it wasn't a sudden $10,000 expense, but a steady amount to supplement living expenses for an indefinite period. 
I have a HELOC, but that's the sort of access to credit that can be cancelled when a borrower's circumstances change, like being out of work during a credit crunch. 

There's a fair amount of willful ignorance on these boards.  A balanced portfolio includes cash equivalent investments for a reason.  Whatever portion you need in cash is dependent upon your circumstances, but to be all-in with equities, even index funds, is riskier than a balanced mix.  A hedge isn't "sitting there doing nothing" but actually serves a function.

so how long was this money sitting in cash - it likely would have been worth much more if it had been invested from the git go.  everyone here likes to cherry pick bad markets and talks about it like "if you'd invested it in 2008"  - yeah there you go one instance - small sample size in a broad market and for a majority of people with stable jobs even in downturns that money would have made more money invested than where it was at when it would have to be pulled out of the market in a downturn.  you're looking on such a mircoscale at such a micro event and not the opportunity cost of that money over time.

That is an irrelevant point, really.  The idea of an e-fund, however it is invested, is to function as a reserve during the 'unlikely'.  So the idea that it would have likely earned more money as a straight stock fund is a bit silly, since a straight stock fund would also be just as likely to give those gains back during a crash, right when it's needed.  Which is what happened.

Khaetra

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Re: When have you actually had to use emergency fund?
« Reply #112 on: June 08, 2016, 12:23:55 PM »
Today actually.  Went to pick up an ice cream cake for a birthday party and my car died (of course after I bought the cake!), had to have it towed home.  Later when one of my friends get's off work he'll take me to the parts store (I know what's wrong and can fix it myself) and total cost will be around $300. 

tomsang

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Re: When have you actually had to use emergency fund?
« Reply #113 on: June 13, 2016, 12:43:41 PM »
Today actually.  Went to pick up an ice cream cake for a birthday party and my car died (of course after I bought the cake!), had to have it towed home.  Later when one of my friends get's off work he'll take me to the parts store (I know what's wrong and can fix it myself) and total cost will be around $300.

They would not take a credit card? 

Khaetra

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Re: When have you actually had to use emergency fund?
« Reply #114 on: June 13, 2016, 12:55:58 PM »
I put it on my cash-back card and paid it off the next day.  I only use my card if I have to, otherwise it's cash.  Much easier to keep track of.