The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Kiwi Mustache on May 26, 2016, 11:05:33 PM
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I've never been sold on the idea of an emergency fund. People say they use it for medical bills (had these recently, paid $2000 for them, no problem), unexpected car bills (had several $500-1000 bills over last decade, no problem) or job loss (haven't had one of these so can't comment).
I figure why put money aside if you have it sitting there for decades? I'm thinking of putting it into index funds if I did have one so at least I'm keeping up with inflation, my other savings all go into paying back mortgages and buying further rental properties.
Thoughts?
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Me either. I've always had either savings sitting around (in a to-be-invested or a to-be-house-deposit fund or a mortgage offset) or at worst had to pay for something on credit card and pay it off in full the next month. I've paid for 2 periods of several months' unemployment from mortgage offset.
If you're paying back the mortgages faster than required anyway, and you have any offset accounts, chuck an emergency fund in there. In your case you might need cash fast to cover for tenant damage / vacancy, and that kind of emergency fund can double for any other kind of emergency.
And, yikes, think seriously about diversification, you sound like you may be very tied to a local residential property market.
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Just like any form of insurance it's a complete waste of money, until you need it.
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A few of the biggest reasons are catastrophe (i.e. natural disaster or house fire), job loss and medical expenses.
When I had cancer at age 22, I was damn glad I had one. After I finished treatment, I took a vacation before I returned to work, because I needed to feel like myself again. My EF allowed me to do that, even after I'd paid my 20% share of the medical costs. So unbelievably, incredibly worth it.
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I'm more concerned about having access to more than one current account with a typical month's bills and spending in it than having a single account with months of bills and spending in it. I've been blocked from my accounts due to fraud, hacks and my own errors multiple times, but never needed an efund since I've been on the mmm train. If something big needs funding I'll sell some investments.
If I was only saving in a retirement plan and wouldn't have access to the money immediately, I'd have a separate investment fund that I could access any time.
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We needed a new roof one time, that was a big expense we weren't anticipating (home inspector said it looked good but maybe needed a few patches... but after living there a few months we realized it was actually really old and a few patches wouldn't fix it).
Otherwise I think we have generally cash-flowed everything else or had a sinking fund for expected expenses (planned home renovations, travel, etc)
But- we've never had job loss, a catastrophe/natural disaster of any kind, our parents are all still alive (so no last-minute funeral/medical/estate expenses to deal with), have been relatively healthy with no major medical events in the past 10 yrs except childbirth - fully covered by insurance, etc. Haven't lost a spouse. I feel like that would be a big one. Loss of a 2nd income permanently would be pretty detrimental especially because one would probably need to take a (unpaid) leave of absence from work for a while. Our siblings are financially stable so we don't have them asking us for money either. Lucky overall I guess!
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Baby's unexpected hospital bill - $1000 after insurance
Our efund is just our cash savings, about 3 months worth at any given time. We could have easily pulled money directly from the checking account to cover it, but it was nice to just take it from the savings and not even have to think about whether the checking account balance could cover it ontop of our usual expenses.
While we are lucky that we can just cover major issues like this no problem in our general cash flow, it is important to remember not everyone has an income so high/expenses so low that they can do that. I would hazard to guess most people have incomes that would require some type of emergency savings for a $1000 unexpected expense. So in general, the efund is probably one of the smartest generalized saving strategies for people of all income levels.
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Car accident- had to buy a new one before the insurance company paid out the claim.
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This is something I've thought about. We are buying a house, which will drop our actual cash on hand a lot - when you have $60k cash around you don't really even think about uses for your emergency fund since.. well you have multiple years of living expenses saved, in cash.
But now, we're going to have a much more normal 3-6 months emergency fund (well, we could pull tons of Roth principle too if we had to). We have quite a bit in HSAs which covers medical and have been building a car fund, which means the emergency fund will cover basically major home repairs and job loss (that we think of at least :o). And job loss is partially offset by unemployment, assuming I would not get fired.
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- Debit card got hacked and I had to wait on a new one to arrive in the mail. In this case my emergency fund meant being able to easily withdraw cash to get me by for a few days. (This was before I had a decent credit line going so I only had one other card with a low limit.)
- The dog hurt her paw requiring stitches and staples (and therefore anesthesia) forty-eight hours before our cat passed away (which we had the vet perform since the cat would have had a long, painful death at home otherwise). That was a fun week.
- As others have said, hospital bills and plane tickets for a funeral. With hospital bills the billing system takes so long to get its act together that you do at least have some warning that it's coming, so depending on your cashflow you can immediately start putting some aside after the hospital stay and hopefully will have accumulated enough by the time the invoice rolls in. (Be sure to call and ask if the invoice really truly reflects all charges, I recently called and was told some stuff was still pending with insurance so I opted to wait and pay later when they had the full total. They had no problem with this.)
- Car issues less than a month after replacing our roof, which itself was a semi-emergency situation since a hole developed and it wasn't worth patching the hole just to replace the roof in a couple years like we had originally planned.
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i dont have a typical E fund. i have all my money invested - my roth is now 6 years old so i will have 5500 this year and that will grow annually. i have an HSA for all medical bills as most americans on this forum should have maxed out. i have taxable investments i can tap prior to tapping my roth if something devastation came up. the opportunity cost to not invest this money on the outside chance something MIGHT happen isnt worth it to me. I would invest it in indexes if i were you. you may have to sell for a loss (THE HORROR) but more than likely you will come out ahead b/c you'll never tap it, our jobs are very secure and if one of us lost our job we can survive on the other's salary. everyone is different and we have high enough incomes that allow the luxury of not keeping a typical E fund.
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Never actually. I have multiple available sources of credit should I need it - cc, line of credit and capacity to redraw from mortgage.
Last "emergency" my son totalled my car. I made sure the replacement car equalled the insurance payout. The only need for money was bridging whilst awaiting the cheque from the insurance - used cc, then paid that off with low interest line of credit… then the cheque came within a week or two. Cost me way less than $100 in interest.
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We have an emergency fund for two reasons: 1. Job loss or 2. Catastrophic medical event (cancer and heart disease, which runs in both of our families). Luckily we've never had to pull anything significant out of it yet.
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I think about what kind of emergencies could happen to me, and how do I handle each? My E Fund isn't one pile of cash. It's spread across a few accounts.
For one, we have an HSA. The first $2000 of which is cash, the remaining balance is invested. But all of it is for medical emergencies. We pay routine co-pays out of cash flow, and will reimburse ourselves out of the HSA in retirement, treating it like an IRA. But if we had a sudden medical event that eclipsed our ability to use cash flow, we're covered.
Then there is the "stuff happens" fund. This is for the new tires, transmissions, felled trees, bail money (jk) kind of unplanned expenses that only in retrospect are actually irregular life expenses and not genuine emergencies.
We have a HELOC that we would tap for big housing emergencies. I bought my first house the year Andrew hit Florida. I remember news reports about how the homeowners with HELOCs were able to get work started a whole lot sooner than those who had to wait for insurance or FEMA money. So when I could, I protected myself the same way. Now that we have income property, this has proved quite useful. Hurricane Sandy hit my state very hard. I know of a few homeowners who had their insurance money within days, and others who are still waiting. They couldn't use their EF to rebuild because they needed it to rent somewhere else.
Lastly, there is my spouse's IRA. Much of it is cash equivalent. His risk tolerance is different from mine. Our total portfolio is balanced, but his is at least 50% cash. If we had to, we'd draw that down.
Besides natural disasters and medical events, we faced the other likely need for an EF. Job loss.
I had a job loss in 2008 that was unexpected and lasted 13 months. Unemployment benefits covered the mortgage and health insurance, but nothing else. Faced with uncertainty about how long the 2008 market implosion would last, we wanted to ensure our savings and investments lasted as long as possible. I'd thought I was frugal before, but this experience caused me to rethink and challenge assumptions, to see just how little we could live on. Broken appliances didn't get replaced out of the shit happens fund, because we needed that money to eat. 8 years later with a very full economic recovery, we still have not replaced the microwave or dishwasher. No problem. Easy to live without. The other thing we learned was that buying in bulk revealed itself to be a folly for our situation. Do I take money out of the market, at the bottom, to invest it in rice, chicken parts or toilet paper that I won't use for weeks or months? On a small scale, this is trading equities for commodities. Commodities, in the case of perishable foods, that cost money (running a freezer) to own.
Having been an adult thru a few extended market downturns, including the one that took my job, I see what's wrong with thinking index funds will always go up, up, up. They don't. The worst position to be in is to face several unexpected expenses all at once in a market bottom, where not only is the value down, you've also wiped out your own recovery potential.
Finally, and most importantly, my most valuable emergency resource is personal relationships. Friends and extended family members who'll know when i've faced an emergency and help with a chainsaw, shop vac, cash advance, meal or shoulder to cry on. It's not all about the money.
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I've never really had an E fund and have not had the need for one. I have a lot of resources I can pull from if need be. Roth IRA, 401k Loan, credit cards, investments, significant other, family, etc. Granted, I have only been out of college 4 years and my job is very,very secure so I am fortunate in many aspects. I still have student loan debt so I don't feel the need to have money sitting on the sidelines.
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Since I've actually had an ER fund, 0 times.
Before I had an ER fund I can think of 4 "emergencies" where I could have really used one:
1) hot water tank blew in the middle of winter, didn't have money in the budget for a replacement
2) one of my parents had a stroke, was in ICU (they are fine now), but needed a plane ticket and rental car asap
3) Money for car insurance deductible
4) Debit card was stolen and checking account was wiped out. I had to borrow money from my parents until I could get everything reinstated.
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We DO have an emergency fund. At the moment, we budget to keep only revolving monthly expenses in our checking account and have most of our savings in retirement accounts that are hard to touch if we need cash quickly. (Because we have yet to fully max out the tax advantaged accounts.) We also live at least a $1200 plane ticket away from family in an emergency, and while we are only temporary residents of the country we're living in so if the excrement hit the rotating blades for any reason (natural disaster, civil unrest, medical crisis for one of us), we would need to front the costs an evacuation until my work benefits kicked in. We also have kids, aging cars, and other unexpected crises.
We have a general line of credit with our bank for $20,000. That occasionally gets used for big purchases, travel, etc. and so isn't always at a $0 balance. (and really isn't right now, ugh. Home leave and international moves are expensive, and I am only a padawan here.)
We have a $1000 cash emergency fund for things like dental work, large car repairs (the day my aging but beloved car blew a head gasket... *sigh*) that are beyond what we can manage within our regular budget. This gets 'refilled' the next payday, and we just live with lower means that month, so it's kind of an over-flow cash on hand. If we budgeted differently, we wouldn't need this, but it prevents us from not meeting our savings/debt payment goals that month. I suppose we could use the card for this, too... but a) cash makes me feel safer and b) it's kind of a cash economy out here in the wilds.
Ideally, I would also have one high limit credit card stashed in our evacuation bags that is never, ever, ever touched and ready to go if Putin rolls through here with a tank or a volcano randomly explodes. Sadly, the card I was using for this has an unexpected 'feature' that it puts a hold on the account if it isn't used for a swipe purchase for 30 consecutive days. So I am card shopping.
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I've dipped into emergency savings a couple of times. In 2008, I was rear ended by drunk driver on the interstate and my car was totalled. I lived 25 miles away from work at the time so I had to replace my car. The amount of money I got for my old car was not quite enough to cover the comparable car to replace it, so I took like $3,000 out to cover the difference. No worries. The car I bought was a year newer and had half the miles of the one it was replacing. It seemed like a good deal.
I also lost my mind at the job I had in 2009 and walked out the door in frustration never to return again. Part of that was probably from the head injury I got from the drunk driver hitting me in 2008. I didn't have any backup plan or job lined up so I dipped in to my funds again. It only took me about a month to find a new job, but having a couple of years worth of expenses in the bank made the decision to leave that stressful job much easier. I have no regrets.
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The hubris from some of you very lucky folks is remarkable. Job loss and extended unemployment can and does happen, to highly credentialed, experienced professionals. Until you've gone through it personally, you can understand just how vital an e-fund is. And if you have children to feed and clothe, during said downtime, that fiscal lifeline takes on a whole new dimension of value.
Where you place your e-fund is up to you, but insuring yourself against catastrophe is important.
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Sewer or water line breakage on properties you own. Our water lateral burst, right on the edge of our property, and was ~3k to fix. Not a big deal, but if the sewer line went, it'd be >~8k to fix, which would definitely be efund time. In general, you don't have much warning for these breaking, and they need to be fixed ASAP.
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WE have had one our entire lives. WE have used for medical bills, job loss, plane tickets to visit sick parent, expensive vet bills and probably more that I can't remember from the past 40 years.
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I've noticed a recent surge in FIRE articles coming out against emergency funds. I don't get it. Their argument usually boils down to they would just take the money from one of their taxable investment accounts or something if they needed it - to which I say you're just splitting hairs at that point. I don't care where it comes from so long as it's relatively liquid.
Others argue they'll just use a HELOC or even consumer debt (cc), which seems counter-intuitive if you are including job losses, incapacitation, death of a spouse, etc. in your emergency fund contingencies.
I have not had to use mine yet, but I'm currently facing an uncertain job situation along with many of my co-workers. While most of them are anxious I basically just shrug, because I have plenty of margin until the next job if a layoff came tomorrow.
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The problem with selling investments is that you are likely to need the money in an economic downturn, therefore selling at depressed prices. Tax efficiency typically dictates that you place bonds, who are less subject to steep declines, in the tax-advantaged accounts, where they are less accessible.
I envy homeowners who have access to a no-fee or low-fee HELOC at rates barely above inflation. For the rest of us, the prudent move is to keep a couple thousands in a high yield savings account.
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Yes, we blew through ours.
A new job wound up being a bad fit. We had no income for about 6 months before we got the momentum to get another job. Using the EF meant that we DIDN'T have to borrow money from relatives so I had the right to politely tell them to fuck off whenever people wanted to get in our business. We figured it out for ourselves eventually. THAT was the real value of an EF.
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I keep ~2k in a regular savings account, which I uses as slush fund. That's where events like car repair and floating bills from business travel comes from.
I keep another 50k in a money market fund. I recognize that keeping that much cash is an emotional decision, and that my feeling of security is nothing but a perception. However, the cash does make me feel secure. I don't feel the same level of comfort when I think of my cushion being a HELOC or credit cards.
As a kid, the septic field attached to my parents house failed about 2 weeks after they purchased the house. The city demanded they pay 9k for some sort of bill, that very day, or face the Health Department declaring the house unlivable. They ponied up, and it made an impression on me. I've used my personal fund to provide lost wages to a family member who's laid up due to pregnancy. I'm happy to help, and very happy I didn't have to sell any securities to cover the expense.
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I keep a lot of cash in savings/checking. I don't usually think of it as an e-fund and things that have come up (car accident, home repair items, etc) have been covered out of savings. I think of them as common things that happen in life.
I haven't had a major medical expense ($1500 was my tops) and if I did have long-term unemployment or major medical catastrophe, I would be devastated to lose that money, because I think of it as part of my stash. I cash flow my life out of those accounts. Once something's in one of my retirement or investment accounts, it's not coming out until FIRE unless something very very very bad were to happen.
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We're currently using part of an emergency fund to give ourselves a chance to realign income streams after job losses. We've been able to have some extra freedom to take lower paying but low stress jobs while we try to reset what we are doing. Not saying life is ideal but it would suck badly without a cushion of easily accessible savings.
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Do his and hers motorcycles count? ;)
Seriously, I don't think we've ever used our emergency fund for anything that felt like an emergency. Maybe that's the point...if you have the money available, any valid expense is just that--an expense. I guess when you don't have the money available, then it could feel like an emergency.
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I have a "Bills" account that doubles as an emergency fund - I transfer cash into it at the start of every month, itemised for the monthly equivalent of every monthly, quarterly or annual bill. The transfers are automatic deductions from my main account and I update these whenever the bill comes in higher than previously. Over time this leads to a significant sum sitting there against future bills and this provides an emergency cushion.
If I need to dip into the bills account for an unforeseen cost, then I retain the sum as a negative figure in whatever account has required it - for example, I paid my father's funeral costs last month by credit card and was able to pay off the card by transferring from the bills account. Although the card company have my balance as zero, my finances show a -£4,500 sum on the card account until that is either paid back out of his estate or I have it paid off by increased monthly savings. Crucially, though, it helps me concentrate my mind on the fact that I still have a debt that needs repaid from somewhere and that my bills account is owed the money.
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The only times I have had some large bills come up were all related to home repairs.
Needed a new a/c was around $3800
Some wood repair for house $2,000+
Some $400-500 car repair issues over the years but these are the ones I can remember...will at one point
need a new roof that will be around $5,000+
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Just recently had transmission rebuilt in one car, new rear end in another car, emergency tree work all within 6 weeks.
$6000. I'm sure glad I had an E fund.
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Loved one had a house electrical fire start while at work during the day, lost pretty much all possessions, didn't have renter's insurance, and didn't have an e-fund. The shear emotional trauma kept him from thinking straight, and the financial stress wasn't helping. I was very glad I had an emergency fund then, as it was nice to be able to help out.
I only keep a few thousand completely liquid in savings but have 6+ months in my Roth that I could tap. Besides medical, unemployment, and car accidents, things that could happen:
1. On the plus side, someone could suddenly need money for a good reason, like qualifying for world championships or some kind of awesome opportunity abroad. Usually there is some lead time for getting this money, but it's nice to just have it.
2. Another family or personal catastrophe, like the fire.
3. Someone I love could end up in jail and need to be bailed out. Don't be too high horsey about this: sometimes completely innocent people end up in jail.
4. Zombie apocalypse.
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I wonder how much much people keep in checking and savings for "emergency fund". I only put it in quotes because it may not be called an ef but if it's in the bank doing close to nothing, it's really all that it is. I know this would vary greatly based on lifestyle, kids, job stability etc. for example, we have around 6 months in savings which I think is way too much as wife and I both have jobs we love and we would have to commit criminal acts to lose.
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I wonder how much much people keep in checking and savings for "emergency fund". I only put it in quotes because it may not be called an ef but if it's in the bank doing close to nothing, it's really all that it is. I know this would vary greatly based on lifestyle, kids, job stability etc. for example, we have around 6 months in savings which I think is way too much as wife and I both have jobs we love and we would have to commit criminal acts to lose.
I think you're on to something here and that what we think of as our Emergency Fund is just what other people keep as slush money in their checking accounts. Perhaps it's semantics... but Mr. Marvie is dealing with some bad money memes from his family of origin and his default is money in checking = money he can (and should!) spend, before it goes away. So for us, anything that is not in the monthly spending budget cannot just hang out in checking as a slush fund for the pay period where we have an unexpected expense. It has to be moved over to an Emergency Fund (that the Mister doesn't have regular access to) so it doesn't get spent on donuts and video games.
Also, liquidity is a BIG issue. If work said "Get your kids on next plane out!", or someone was in a terrible car accident (medical bills must be paid upfront before services are rendered here) I do not have time to wait for it to be business hours in the US, call my broker, put through a stock transaction, and wait for the money to hit my account in 24-48 hours. Our Emergency Funds are things I can access any time, day or night, in under an hour.
If you don't need that sort of thing, great! I'm super glad for you... but I also kind wonder if you've fully and carefully considered the potential for unexpected peril to strike your life. ;)
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Realistically you can also use a credit card pretty trivially to float most expenses for the few days while you do the transfer, should you have to sell/withdraw from a taxable account.
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We've been lucky in that we never needed to use ours. But I was glad to have it, primarily in case we ever experienced an extended period of unemployment. A lot of friends lost jobs back in 01 when the stock market was crashing. That wouldn't be a good time to withdraw from retirement accounts.
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We've been lucky in that we never needed to use ours. But I was glad to have it, primarily in case we ever experienced an extended period of unemployment. A lot of friends lost jobs back in 01 when the stock market was crashing. That wouldn't be a good time to withdraw from retirement accounts.
One thing to keep in mind, you can put money into retirement and leave it cash (or highly stable).
For example we might not be able to fill our IRA space this year but have talked about putting some money from our emergency savings into a Roth IRA and leaving it in a money market account. This lets us "borrow" from ourselves sort of, in that we can pay back that emergency fund in the future while still taking advantage of the 2015 retirement space. Or withdraw it if needed.
This feels like complete hackery but... hey the rules say you can withdraw Roth IRA principle at anytime.
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I keep $2500 in savings. I had to use $2k of it this month (timing belt replacement on my car and a new roof on the house). I have ALL my other money in 401k, Roth IRA, and Vanguard VTSAX. Keeping $2500 allows me to deal with these hiccups without having to sell off any of the investments.
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Food, gas and lodging when the credit card got cut off due to fraud when I was travelling.
Have replaced 3 cars with cash when their time came. Some were accidents, some were just at the end of their natural lifespan.
Just replaced 1 car and a double-unit HVAC system in the same week, all for cash. The emergency fund took a hit on those two items!
And we've also used it to purchase distressed rental properties for cash at a good price.
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I keep $2500 in savings. I had to use $2k of it this month (timing belt replacement on my car and a new roof on the house). I have ALL my other money in 401k, Roth IRA, and Vanguard VTSAX. Keeping $2500 allows me to deal with these hiccups without having to sell off any of the investments.
Realistically that makes way more sense than what I'm doing as we have 30K sitting there doing absolutely nothing when it could be working for us... I may have to reevaluate. Do you have wife? kids? Sorry to pry, Thanks!
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I keep $2500 in savings. I had to use $2k of it this month (timing belt replacement on my car and a new roof on the house). I have ALL my other money in 401k, Roth IRA, and Vanguard VTSAX. Keeping $2500 allows me to deal with these hiccups without having to sell off any of the investments.
Realistically that makes way more sense than what I'm doing as we have 30K sitting there doing absolutely nothing when it could be working for us... I may have to reevaluate. Do you have wife? kids? Sorry to pry, Thanks!
I have wife and daughter. I've also gone through long term unemployment twice, despite being highly skilled (but specialized) in the IT industry. So I know what it's like to have to scrape by for a long time. The main thing I found was we could make it on unemployment for a long time. But we as a family had to be honest about the fact that we would have to dial down our lifestyle a lot. This was before I found MMM. Once I got working again, I found MMM and we just kept the lifestyle dialed down because we'd already acclimated to it and were just as happy as before. Started stashing the extra $$ at an accelerated rate.
I don't worry about another long term layoff, at least not for a while. Might as well have those $$ working hard for me. One thing that I did learn - it's better to have a lot of savings/investments versus paying off your mortgage if you have job instability. No matter how much extra you pay to your mortgage, they can still take your house if you lose your job and miss a few payments. With savings/investments its a lot more secure because you can just pay stuff off by selling investments. Having $175k in investments (with $20k easily accessible), makes keeping only $2500 in cash a lot easier to live with. OK, here's the actual breakdown:
401k - $150,000
Roth IRA - $12,000
Taxable - $8,000
Cash - $2500
So I can raid my $2500 very easily, then hit the taxable for $8k after that. The IRA's you can access the principal at any time without penalty, so that's another $12,000. That's about $22,000 that's fairly easily accessible.
Note, I was very bad at saving anything before my layoff and before MMM, so all the Roth, Taxable, and Cash I have saved up in the last 11 months. I expect every one of those numbers to double next year, and so on.
Apologies if that was more detail than you were looking for...
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I don't call it an emergency fund - but we keep about 2% of our total liquid assets in a 1% yield savings account at the same bank as our primary checking accounts. The savings account serves as a very-needed buffer. My wife and I both frequently float several thousand dollars of work travel expenses, and while we usually get reimbursed before the CC is due, sometimes things get delayed, so I don't try to be too aggressive about pushing everything into longer-term investments.
But in general I'm with the others in this thread who figure that a real emergency is a good reason to sell stock. Can't really time it anyway or we'd all be rich. :) I can't think of too many emergencies that would require me to spend more than, say, $20k without enough time to transfer funds from Vanguard, so the savings account + credit cards serve as a useful buffer for the ~3 business days it might take to get access to real amounts of money.
(Maybe I'm missing the hypothetical emergency that's check-only, same-day, and exceeds, say, $10k. Major appliance replacement -> credit card; car towed -> under $1k usually, cash only; ???).
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I have a large EF and we have never had to use it so far. But it helps me sleep at night and feel no risk whatsoever about what the market does. I could help out family in a time of need, buy our next vehicle when ours dies, or sustain a job loss or recession. I'll probably never be one who goes without an EF.
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(Maybe I'm missing the hypothetical emergency that's check-only, same-day, and exceeds, say, $10k. Major appliance replacement -> credit card; car towed -> under $1k usually, cash only; ???).
I don't think there are a lot, especially if you live in the US, where credit cards are accepted just about everywhere. I'm not in the US, and am often in developing countries where credit card acceptance is spotty (currently, that's mostly because of the huge card cloning/skimming problem in this country.) I actually keep a separate cash emergency fund in Euros and local currency in our emergency bags, specifically in case there's an earthquake or civil unrest, in addition to a cash emergency fund in the bank which I could access through work in a pinch. I am not the norm, and don't suggest everyone take this up!
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I used my cash savings/emergency fund to bridge the 6 months between graduating from grad school and the paperwork/payroll finally going through on the new (public university, I negotiated my salary up to the next 'tier', so they had to do a ton of paperwork to change the job listing/description) job that I accepted in month 4.
Technically, I probably could have pulled money from my Roth, but I don't know that I knew that at the time, and I'm glad I didn't have to. That money can never go back!
I continue to keep an emergency fund/cash cushion for a) another extended period of unemployment or b) emergency house repairs or c) house repairs that cost more than I can cashflow in a month/credit card grace period.
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In 2012 and 2013 we had a series of situations that resulted in my then-fiancé and I having to fly across the country multiple times, ultimately moving across the country and setting up a new apartment. All together we spent about $15,000 between flights, hotels, funeral clothes, a pushed up wedding, a moving company, etc.
The way I have our "funds" set up is as virtual sinking funds on top of our actual savings and checking accounts that get debited when transactions match a certain pattern. I can't tell you how much of that we were able to cashflow vs how much we actually dipped into savings for, but I do know that having a chunk of money around has been invaluable, both for piece of mind and for being able to, for example, pay for my in-college sister's plane ticket home without blinking.
In the past we've also used it as a source of cash for opportunities like paying off a car or killing my wife's student loan, or for optional medical things that insurance doesn't cover. We're always careful to not draw down past 3 months of expenses, because it's also our job loss fund.
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Never. But I agree with others that I keep it for big things like job loss rather than for little things like buying a new water heater or doing other repairs. Pretty much the only way I'd need to use it would be if I ended up in the hospital for awhile or losing my job, which has not happened yet!
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We don't have an emergency fund as such, but we keep a reasonably large amount of savings in liquid form.
Things we have used our fund for include:
1. Investing in solarpanels.
2. Buying cars cash
3. Home renovation projects
4. Helping other people in need.
We have been spared major emergencies luckily. But it's nice to have funds available at a moments notice.
We don't keep cash lying around though, it's all in bank accounts.
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My emergency fund is a line of credit of 5,000$ at a rate of prime + 0,5% (my investments make more, which is why I don't keep cash and instead have a LOC).
I have never used it yet. I've been unemployed from my field for several months before, and during those times, I have picked up freelance work (and temporarily was a waitress and working in a gym) while looking for full-time work. In my defence though, I don't have children, and my personal costs are around 1,000$ a month. If I had any dependants, I would absolutely either increase my LOC, or have more in easily accessible cash. I can allow myself to be more "on the edge" so to speak, since I have only myself to fend for at the moment.
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We used ours after a car accident to help with the purchase of a used car.
The best thing about our eFund, which is sitting in a Prime Reserve fund, is that it helps me sleep at night. It would cover 2 years of our ground level expenses. I mean it would cover property tax, utilities, and the food and clothing we would need to get by. No luxuries, obviously.
Everyone is different, and I know there are people who don't even need an eFund, but having mine makes me feel more secure.
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The hubris from some of you very lucky folks is remarkable. Job loss and extended unemployment can and does happen, to highly credentialed, experienced professionals. Until you've gone through it personally, you can understand just how vital an e-fund is. And if you have children to feed and clothe, during said downtime, that fiscal lifeline takes on a whole new dimension of value.
Where you place your e-fund is up to you, but insuring yourself against catastrophe is important.
To be fair, the forum was founded off a blog that encourages boundless optimism in a country with rampant inequality, lauds technology as the solution to social ills, calls safety an expensive illusion, etc, etc. It's only natural that it tends to attract a lot of people who've been lucky enough to believe they're invincible.
And yup, we've used ours several times...cars, medical bills, home repairs, etc. And I'd still consider us exceptionally lucky people.
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We don't have a separate e-fund, but DH feels more comfortable with a significant cash buffer - so we keep a lot of cash in our checking account. Usually around $10k at least (sometimes this creeps up to $20+k). We also have another $10-20k in fairly liquid investments. Hmmm...I guess it's not that much when our expenses are a hefty $4-5k/month.
That said, I don't consider home repairs/car repairs/unexpected tax bills as emergencies. To me, they are just life expenses and we have never had issues with them as part of our daily budgets.
Large unexpected expenses (this year alone):
January - tax reassessment; had to pay back $7k+
April - medical treatment: $5k
May - water damage in our basement guest room; used the "opportunity" to update entire room: $3k+
The above are things I wouldn't have even thought of budgeting for (I did start a sinking fund for home maintenance). And the year's not over yet....
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We have a ridiculous cash cushion - 7% of our NW. Why? If my husband lost his job, he would not qualify for unemployment benefits. And we're living in provided housing through the job, so we'd have to either buy or rent if he lost his job.
We have cash-flow in a checking account, a year's expenses in a 1.2% PenFed CD, and 6 months expenses in a 1% credit union money market savings account.
The way I'm looking at it, everything but the cash-flow checking may end up getting used for college expenses for our only kid. We should have more options (in HCOL, but could relocate to LCOL, for example) after she's launched, and at that point we may not feel like we need quite so much cash on hand to feel secure.
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I used it a number of times when I needed cash on hand to take advantage of a good flight deal for one of my vacations. Eventually I just started calling it liquid savings rather than emergency fund, because I realized I'm not the kind of person who has emergencies that need large sums of cash quickly.
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I keep a ridiculously large emergency fund of 1 years expenses in a low yield (1%) savings account (a month in physical cash). Intellectually I know this is a waste, I've haven't once tapped it for actual emergencies. However, emotionally it's a big win. It allows me to:
a) Stick to my long term AA with the rest of my money, knowing I have a year in easily accessible reserves that won't tank in value at the exact wrong moment is priceless.
b) Similar to above, but I will occasionally use some (20-30%) Efunds during market dips to buy more stocks than my normal lump sum averaging would allow, then I slowly replace as values recover. I know, I know, evil market timer, but it just FEELS so good to get a deal.
c) It gives me a huge sense of freedom knowing I could quit work at any point and have a year before I have to touch any of my "real" FI savings. Many bad work situations that may have resulted in an emotional explosions instead turned to an inward smile.
d) It gives me immediate flexibility for major purchases. If I have a well thought out major purchase, I still tend to put it off as long as possible. If the near perfect deal pops up on CL or wherever, I can quickly take advantage without worries about the timing of asset sales (ie tax issues, etc).
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I don't have an emergency fund, and have never had to use one. If something unexpected comes up and I desperately need cash, I'll sell off some of my investments (bonds or stocks).
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yes- unexpected heating unit repair. Other than that, we keep it in case of job loss or an unexpected medical expense (e.g., cancer diagnosis).
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Hubris eh?.. by nature I'm ultra cautious and conservative so I take that as something of a compliment. In this case though I'm Ok with MMMs concept of springy debt.
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for those of you talking about E-Funds for medical expenses do you not use an HSA? you're HSA just turns into an IRA after 59.5 and if you use it on medical its tax free. the lack of people using these for medical expenses here baffles me to no end.
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I only keep a couple $K laying around. From most of the posts on this thread, that seems about right.
Last year, one of my horses incurred about $4,500 in vet bills in about six weeks. That's the biggest emergency I can think of. But the biggest chunk of that was surgery, which I had a couple weeks to prepare for, so I actually used it for a bit of credit card churning. In the case of an immediate veterinary emergency, the equine hospital requires payment "when rendered" but really allows 30 days from billing. This amount actually exceeds the EF I had in place at the time, but it wasn't too difficult to hoard some cash to get it payed off by the time the CC payment came due.
The paradox of EFs is that, in general, the easier it is to build one, the less you really need it . As a Mustachian with a 50% savings rate (and assuming job stability), most small emergencies would just mean saving less in a given month. I don't want to go in and monkey with my pre-tax deductions to cover a $1,000 unexpected expense, but would do so to refill my EF after a rare $5K expense that zero-ed out my EF and my savings rate for a month. If you're already spending nearly everything you make, those $1K unexpected car repairs or plane tickets or whatever create a much bigger speed bump.
Another piece of the puzzle for me is that I'm a mid-career fed, so job stability is great and I have a shitload of sick leave saved up. I've also got a few assets that would be sold off in the case of a severe emergency like a major medical problem (e.g. if I get cancer, I'd need to sell my horse, truck and trailer, which would liquidate around $25K or more). DH is also a mid-career fed, and he likes to keep more liquid cash around, so if our septic fails or our roof caves in, he could just write a check for it.
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We don't have anything earmarked emergency fund, as part of our asset allocation is our checking account. But we also have assets beyond what most Americans do.
Last year I had a $15K emergency medical procedure that was schedule with a weekend's notice and had to be paid upfront before the doctor would proceed. (Insurance later reimbursed $2k). Things like this are generally what they are for. Most people couldn't produce that kind of money on that notice. We are frugal, and strong savers, but it's still privelage most people don't have. That's why people set aside emergency funds. For emergencies.
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for those of you talking about E-Funds for medical expenses do you not use an HSA? you're HSA just turns into an IRA after 59.5 and if you use it on medical its tax free. the lack of people using these for medical expenses here baffles me to no end.
Not everyone qualifies for an HSA. My insurance has never had this as an option.
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We don't have anything earmarked emergency fund, as part of our asset allocation is our checking account. But we also have assets beyond what most Americans do.
Last year I had a $15K emergency medical procedure that was schedule with a weekend's notice and had to be paid upfront before the doctor would proceed. (Insurance later reimbursed $2k). Things like this are generally what they are for. Most people couldn't produce that kind of money on that notice. We are frugal, and strong savers, but it's still privelage most people don't have. That's why people set aside emergency funds. For emergencies.
what emergency medical procedure isnt covered by typical insurances in the US that have OOP maximums and require payment up front? were you out of market? this seems odd to me
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We don't have anything earmarked emergency fund, as part of our asset allocation is our checking account. But we also have assets beyond what most Americans do.
Last year I had a $15K emergency medical procedure that was schedule with a weekend's notice and had to be paid upfront before the doctor would proceed. (Insurance later reimbursed $2k). Things like this are generally what they are for. Most people couldn't produce that kind of money on that notice. We are frugal, and strong savers, but it's still privelage most people don't have. That's why people set aside emergency funds. For emergencies.
what emergency medical procedure isnt covered by typical insurances in the US that have OOP maximums and require payment up front? were you out of market? this seems odd to me
It is not a common procedure so it required me to go out of network. It was difficult to locate any doctor at all, there were about 4 options inside the country. It was in the US, I was referred by multiple doctors in my network, and had no other options. The true meaning of emergency whether I earmark the fund that way or not.
The procedure was covered by my insurance but what they decided were allowable charges were well below the actual costs to me. My out of pocket max out of network is $6k, but that's in "allowable" not billed, apparently. The allowable charges were deemed only about $5k, which based on what the itemized bill shows is kinda bullshit, the fee actually wasn't that unreasonable for what was done.
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Do his and hers motorcycles count? ;)
Seriously, I don't think we've ever used our emergency fund for anything that felt like an emergency. Maybe that's the point...if you have the money available, any valid expense is just that--an expense. I guess when you don't have the money available, then it could feel like an emergency.
This is a good point. DBF's car transmission died at the end of last year. While the mechanic was looking at it, he discovered enough other major issues that it made more sense to scrap the car than repair it. No biggie, we just shared my car while looking on CL for a replacement. Then, a few weeks later, my car was totaled by a hit-and-run driver (no injuries, thank God). We end up finding two Toyotas at great prices a week apart, sold by individuals (so no CC use possible), and were able to buy both with cash. I didn't think of any of this as an emergency, just an inconvenience to need to replace my car years ahead of schedule, but it certainly would have been an emergency without the savings to cover it.
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I keep a ridiculously large emergency fund of 1 years expenses in a low yield (1%) savings account (a month in physical cash). Intellectually I know this is a waste, I've haven't once tapped it for actual emergencies. However, emotionally it's a big win. It allows me to:
a) Stick to my long term AA with the rest of my money, knowing I have a year in easily accessible reserves that won't tank in value at the exact wrong moment is priceless.
b) Similar to above, but I will occasionally use some (20-30%) Efunds during market dips to buy more stocks than my normal lump sum averaging would allow, then I slowly replace as values recover. I know, I know, evil market timer, but it just FEELS so good to get a deal.
c) It gives me a huge sense of freedom knowing I could quit work at any point and have a year before I have to touch any of my "real" FI savings. Many bad work situations that may have resulted in an emotional explosions instead turned to an inward smile.
d) It gives me immediate flexibility for major purchases. If I have a well thought out major purchase, I still tend to put it off as long as possible. If the near perfect deal pops up on CL or wherever, I can quickly take advantage without worries about the timing of asset sales (ie tax issues, etc).
Actually 1 year of expenses is my goal as well for a lot of the same reasons. Frankly, I don't want the kids to suffer if I lose my job, so they can keep up their activities and whatnot while I look for a new job. It would also cover relocation expenses if need be.
I figure if we make it to one year of expenses by the time I retire, those funds will augment our SS and pension to allow us to better time when to tap the 401ks and Roths.
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The problem with selling investments is that you are likely to need the money in an economic downturn, therefore selling at depressed prices.
That is correct, but it is only a problem in the early years of your portfolio. Using the rule of 72, your stocks should double every 12 years or so.* So even in the event of a larger than normal stock market decline, you still should get access to most of your original dollars. The only exception is at the very beginning, but at that point you don't have much money anyway, and it is certainly reasonable to keep a bit extra in cash at first in case something happens, and then transition into stocks as your portfolio grows.
On the flip side, the cash drag over time on your portfolio is enormous. In most scenarios, even at the beginning, you're simply better off being in stocks and selling them if you need to. In the later years, you are definitely better suited to handle any emergency if you had stayed mostly out of cash.
*usual caveats apply
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for those of you talking about E-Funds for medical expenses do you not use an HSA? you're HSA just turns into an IRA after 59.5 and if you use it on medical its tax free. the lack of people using these for medical expenses here baffles me to no end.
I do now. Last employer did not have a high deductible plan that could be paired with an HSA. Not even an FSA. They offered an HMO. It was pretty low paying so I took the "free" medical and put more into my 401k.
I was hospitalized in a different state visiting family and the entire bill was out of network except for the ambulance ride. $17k + medical bill and the discovery of a previously unknown lifelong condition.
Based on that, and an industry with a lot of turnover & unemployment, I believe in a nice large slush fund.
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In January when our dog suddenly collapsed and the examinations to work out what was wrong plus overnight at the vets plus putting him down and cremating him cost us 1000€ in 36 hours.
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I was going to say "never" but reading through this thread, I realize I've had several of the things others mention. I had to buy a last minute plane ticket from Japan to the States to evacuate myself. I'd have to pay car accident deductibles and once a Homeowners deductible for some wind damage.
All of these were handled with the monthly slush and/or the month long credit card carrying period. We cut unnecessary expenses and shifted things (like pantry eating to push a grocery trip out a few weeks), and that was it. On one occasion, I stopped one of our monthly investments for a couple months. I've also stopped or decreased our monthly HELOC payment, if our balances are looking lower than usual, either due to an emergency or just extra small things. (HELOC was used to pay off tradition mortgage.)
We keep a slush of a couple thousand in our checking account simply so we don't have to worry about overdrawing, especially because we can't always communicate and if DH is paying for 4 nights in a hotel in Singapore on the same day I do a big grocery shop and pay a credit card bill, that could get ugly. I've never considered it an E fund, but perhaps it is.
We also have non-retirement accounts, a large HELOC (that isn't even 1/4 of the equity in the home, so even a drop in values likely wouldn't affect it), various types of retirement accounts (Roths, TSP, traditional IRA) and if things got truly awful, parents who have plenty and would be willing to help in a true disaster. And Dh's job is exceptionally secure and our health insurance amazing (if frustrating). He also has essentially unlimited sick time and I am not currently working.
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Paying for water damage repair when our upstairs neighbor flooded us. Twice. (Her insurance ended up covering it as it was her fault, but it took a bit to get reimbursed and meanwhile the nice men who were tearing apart and de-moldifying our bathroom and bedroom closet* wanted their payment at the time of service.)
Emergency vet bills. Our last cat always got sick on major holidays - urinary blockage on Xmas Day, explosive diarrhea along with obvious pain on Memorial Day - and also enjoyed eating things that are not food.
Travel expenses during family health crisis.
Covering bills/mortgage after a job loss.
I mean, stuff like that is what an e-fund is for, right?
* She had an illegal washer hookup in her bedroom closet, which was directly above our closet. No idea where it was draining to. well, I mean, obviously once the thing finally shit the bed it was draining to OUR closet.... ;)
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My wife and I had only been married for 1 month when Hurricane Katrina put a foot of water in our house. Fortunately, we had some cash we hadn't deposited from our wedding. Power was out for an extended period of time and many businesses were cash only. It helped us survive. Now we keep 1k in cash in the house. We do keep a better funded emergency fund in the bank should the emergency call for more than 1k. We had to utilize this after a minor hurricane a few years ago caused some roof leakage that was better to fix out of our pocket then make an insurance claim and pay the hurricane deductible.
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Last year. Within the space of a week:
My work contract was not renewed.
I had to move house at no notice requiring stumping up for a bond while paying on a mortgage for a house I couldn't yet live in.
My mother had open heart surgery.
And everything else in my life just seemed to explode at the same time. Car trouble etc, it never rains but it pours kinda thing.
But after all that, I only had 4 weeks off work and due to that gap I could take time to sort everything else out. Because I had an emergency fund, I (unemployed and homeless) could fly across the country to visit my mother at very short notice which made her so happy I don't regret paying through the nose for a last minute flight. I have enough brownie points to last me for decades now.
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Your emergency fund doesn't have to sit in cash. I keep mine in my roth IRA, growing in mutual funds. The trick is that I can't draw out more than my contributions, but since my total balance is significantly beyond my contributions, it's really unlikely (at this point) to drop below my contributions should I suddenly find a real need for crisis funds.
On a related note, my oldest daughter has turned 16 and gotten her first job. I told her my plan to open a custodial roth IRA on her behalf, and fund it for the first two years (until 18) up to the limits. After that, I expect her to try to max it out every year til she is 25, for a total of 9 years of contributions. If successful, this would amount to about $50K in contributions that she could use as a real emergency fund if she ever needed it, or as a basis for an early retirement if she did not. I don't care who you are, for the kinds of crises that can be mitigated with money, $50K will go a long way.
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My emergency fund has evolved over time as the amount has grown and I have learned what is and is not a true emergency. I would expect that is commonplace here in this forum.
Evolution of my emergency fund - it has transitioned to a basic savings account to fee and tax free available money in my HSA and Roth IRA accounts plus the cash portion of my taxable investment accounts (ie. take advantage of large market dips money).
Evolution of what is an emergency for me - it has transitioned from any little hiccup in my life to near catastrophic events like natural disaster, major prolonged medical issue, etc.
But to answer OP's question - I have not used money from my emergency fund in over 10 years. I consider myself very fortunate for that and hope that my luck holds out for a long time to come.
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I don't have a traditional sort of emergency fund anymore because I realized I never used it.
Unexpected expenses like car repairs, a tree limb falling and causing damage to my house, needing to buy a new x because the old one failed beyond repair, etc were still things I could afford and didn't even find myself using my emergency fund for. Sure, it was annoying to have to pay for these things, but I could still easily pay it immediately. The biggest expense I can think of was the tree problem. The tree had some sort of tree disease and was just starting to fall apart. I had to have some things on my house repaired (the deck, part of the roof) and I had the tree itself cut down to a stump so it wouldn't cause any more damage. I can't remember the exact figure now, but I want to say everything total cost nearly $5k. Not cheap. But I didn't end up using the emergency fund for even that.
I guess to me an emergency would literally be something much more catastrophic than those things. Like some major weather caused damage (flooding? hurricane-level winds causing a whole tree to fall on my house? things like that I suppose) or major medical expenses that my health insurance would have no or not enough coverage for. But even for those things I could probably cover some initial expenses with my cash on hand or a credit card temporarily while I am getting funds out of their accounts.
My old emergency fund sat in a safe savings account and never grew. I kinda regret having it in savings for so long just because I never did use it and it just sat there.
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Emergency funds seem to mean different things at different stages. Here are some descriptions:
Dave Ramsey Baby Step efund: Initial cash buffer.
You've previously been spending more than your income and putting extraordinary expenses on credit. Save a small cash buffer so that the next time you have a larger-than-monthly-discretionary-spending expense you can pay for it with money rather than credit. For people in the early baby steps, Christmas and annual car insurance are considered emergencies, later these are paid from a sinking fund.
Minor sinking fund - sometimes called an efund
Put money away each month so that annual one off expenses can be paid from this rather than credit.
Major sinking fund - sometimes called an efund
Put money away for major expenses like a car replacement or house repairs.
Shoe box/mattress efund
Actual cash/paper/coin money that is accessible for when a card won't work.
Job loss/huge expense efund: parachute fund
Three/six/twelve/x months' salary or expenses to cover you for something brutal. Can be either held in an instant access account or in investments. Some people have a preference for instant savings so that they don't have to pull money out of investments when the market is down. Some people like to designate this separately from other savings.
Springy credit efund
Access to a line of credit for expenses which can't be paid out of this month's salary, either to pay back over a couple of months from salary or to bridge the gap between requesting the sale of investments and getting the cleared funds to make a payment.
Who has something different?
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I don't understand why you wouldn't just keep your money in investments and then take the money out if you need it. That way there's never any emergency, because you have multiples of your yearly salary available for withdrawal whenever you want.
Keeping thousands of dollars sitting around doing nothing for your entire life seems like a much worse thing to do than risking the slight chance of having to take a tiny portion of your life savings out when markets and bonds are both down.
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I don't understand why you wouldn't just keep your money in investments and then take the money out if you need it. That way there's never any emergency, because you have multiples of your yearly salary available for withdrawal whenever you want.
Keeping thousands of dollars sitting around doing nothing for your entire life seems like a much worse thing to do than risking the slight chance of having to take a tiny portion of your life savings out when markets and bonds are both down.
agree i keep enough on hand to pay the bills the rest is in taxable after maxing tax preferred accounts. i dont even own bonds is it slightly riskier sure. but i mean we're talking about adding what a year to FIRE if you have to liquidate a few grand in a down market.
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I don't understand why you wouldn't just keep your money in investments and then take the money out if you need it. That way there's never any emergency, because you have multiples of your yearly salary available for withdrawal whenever you want.
Keeping thousands of dollars sitting around doing nothing for your entire life seems like a much worse thing to do than risking the slight chance of having to take a tiny portion of your life savings out when markets and bonds are both down.
I like Playing With Fire UK's breakdown. It all depends on where you are at in your financial journey. When you're just starting out, I think it is very helpful to have extra cash in a no/low risk account. If all you have is $1000, you don't want to risk depreciation (plus you couldn't have deversified much). Once you have several hundred thousand, this is no longer necessary.
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We didn't really call it an emergency fund, just kept a few thousand extra in a low-interest saving account. Then, we got 7 feet of water in the house after Katrina. That cash plus credit card space provided living expenses and replacement housing until the insurance proceeds were received. We were also able to give a $1000 gift to a friend who owned a small business to get him back running quicker.
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Emergency funds seem to mean different things at different stages. Here are some descriptions:
Dave Ramsey Baby Step efund: Initial cash buffer.
You've previously been spending more than your income and putting extraordinary expenses on credit. Save a small cash buffer so that the next time you have a larger-than-monthly-discretionary-spending expense you can pay for it with money rather than credit. For people in the early baby steps, Christmas and annual car insurance are considered emergencies, later these are paid from a sinking fund.
Minor sinking fund - sometimes called an efund
Put money away each month so that annual one off expenses can be paid from this rather than credit.
Major sinking fund - sometimes called an efund
Put money away for major expenses like a car replacement or house repairs.
Shoe box/mattress efund
Actual cash/paper/coin money that is accessible for when a card won't work.
Job loss/huge expense efund: parachute fund
Three/six/twelve/x months' salary or expenses to cover you for something brutal. Can be either held in an instant access account or in investments. Some people have a preference for instant savings so that they don't have to pull money out of investments when the market is down. Some people like to designate this separately from other savings.
Springy credit efund
Access to a line of credit for expenses which can't be paid out of this month's salary, either to pay back over a couple of months from salary or to bridge the gap between requesting the sale of investments and getting the cleared funds to make a payment.
Who has something different?
This has been my E-Fund evolution.
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One thing I have learned when I had to tap my emergency fund is that I do not have nerves of steel. Looking back, the month following my emergency was downright unpleasant.
Sure, I could have sold investments to cover the expenses, but I was already stressed out not knowing how much this event was going to cost me and the potential ramifications. The last thing I would have wanted is trying to figure out a way to minimize the impact to the portfolio and potentially my tax situation for the year on top of everything else.
My emergency fund is in a high yield savings account that so far (!) has kept up with inflation in all 3 years that I've had it, so it's not like I am really losing money by keeping a few thousands in there.
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I don't understand why you wouldn't just keep your money in investments and then take the money out if you need it. That way there's never any emergency, because you have multiples of your yearly salary available for withdrawal whenever you want.
Keeping thousands of dollars sitting around doing nothing for your entire life seems like a much worse thing to do than risking the slight chance of having to take a tiny portion of your life savings out when markets and bonds are both down.
It's like any part of asset allocation - it comes down to an emotional decision.
I fall in line with Paul der Krake. As we gain assets, I think the definition of an emergency changes from finance-based, to emotion-based. If your cash strapped, a broken car or a job loss are huge financial stresses, which cause emotional stress. If you're a saver, the cost of a broken car or a new roof can be absorbed without financial trouble, but there's still some emotional stress.
As a thought exercise, try to make the emotional stress big enough. Imagine one of your kids dead, a second gravely injured in the hospital, and your wife suddenly living two hours away to be at the hospital. Consider your ability to make rational financial decisions during that time period in your life. If you truly think you can be rational (or you don't mind taking an extra hit for selling 'good' securities), then there's no reason to keep a cash e-fund. If you think one extra responsibility would cause you some sort of emotional breakdown, then have cash.
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As a thought exercise, try to make the emotional stress big enough. Imagine one of your kids dead, a second gravely injured in the hospital, and your wife suddenly living two hours away to be at the hospital. Consider your ability to make rational financial decisions during that time period in your life. If you truly think you can be rational (or you don't mind taking an extra hit for selling 'good' securities), then there's no reason to keep a cash e-fund. If you think one extra responsibility would cause you some sort of emotional breakdown, then have cash.
To follow on, ask if your not into finances spouse would be able to handle (or even know how to) liquidating some investments to deal with it. If I was in a coma for a couple of weeks, I know my wife can handle getting money out of a bank account. Knowing how to correctly pull money out of a Roth would be a whole ordeal for her.
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Typically, my checking account/saving accounts are less than 1 day of spending. My emergency funds are my LOC, Credit Cards, Cash out a Roth, take a loan from a 401k, sell a car, and then friends, family, etc. I could probably draw $300,000 on CC and $50k on my LOC if needed. Typically every time I get paid it goes to pay down my LOC or investments. My account on payday has $0. Every check I write goes against my LOC which is at 4.25%. I could liquidate my investments and pay off my debt and still have a few million left over outside of my 401k and houses.
I also support using debt as a tool to increase your net worth, so I may live a bit on the wild side. I have taken out an 18 month zero interest credit card for $50k to invest at 18% with $500k of collateral. Unfortunately, I was paid back after 13 months. I was hoping to milk that for years. Took out two $50k loans on my 401k to buy a rental during the economic down turn three years ago. The value of the house increased by $200k in the past three years. Numerous other $50k credit card zero interest loans for investments or loans to friends with good returns or at least good karma for helping out.
I have had to keep a balance on my credit card at 7.65% on a number of occasions. I feel great about it as by not tying up dollars in a zero or low interest account I have been averaging 20%+ over all of those years. If a few times I can't pay off the credit card, I feel that is all positive. I get very anxious when money is sitting in my account earning less than 1%. Then I am on the hunt for an investment that will have a good risk/reward.
Debt is not evil. It is a tool to be used like any other tool. It can be dangerous if it is used poorly. My LTV is less than 20%, so I am not crazy but my million plus of debt could give some on these boards a heart attack.
Of course, when people pay off their sub 4% 30 year fixed mortgage it drive me crazy that they are wasting a gift from the government. Everyone does what helps them sleep at night.
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To follow on, ask if your not into finances spouse would be able to handle (or even know how to) liquidating some investments to deal with it. If I was in a coma for a couple of weeks, I know my wife can handle getting money out of a bank account. Knowing how to correctly pull money out of a Roth would be a whole ordeal for her.
This is an exceptionally good point and one that I hadn't considered. I have a 'life records' printout with all account numbers and customer service numbers. I update this at tax time and my parents and my husband know where it is should I die (or we both die)...but my husband wouldn't know the difference between our untouchable TSP balance and the Roth balance, and the Roth contributions vs. earnings difference. Yikes. I must ponder the best way to write out these instructions.
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I nicknamed my e-fund of several months of expenses as "The 9/11 Fund" after the last time I experienced job loss. Having that around genuinely helps me sleep better.
Yes, I'm probably missing out on some investment gains but that's the case with any type of insurance. Knowing that 97% of my assets are outside the e-fund helps me sleep better about that pesky problem. :)
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To follow on, ask if your not into finances spouse would be able to handle (or even know how to) liquidating some investments to deal with it. If I was in a coma for a couple of weeks, I know my wife can handle getting money out of a bank account. Knowing how to correctly pull money out of a Roth would be a whole ordeal for her.
This is an exceptionally good point and one that I hadn't considered. I have a 'life records' printout with all account numbers and customer service numbers. I update this at tax time and my parents and my husband know where it is should I die (or we both die)...but my husband wouldn't know the difference between our untouchable TSP balance and the Roth balance, and the Roth contributions vs. earnings difference. Yikes. I must ponder the best way to write out these instructions.
great thought i should probably write up how to manage our finances and show my wife how to do it. much better than putting a bandaid of an E-Fund out there. i dont like to bandaid problems i'm an engineer i like to have solutions to them.
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Baby's unexpected hospital bill - $1000 after insurance
Our efund is just our cash savings, about 3 months worth at any given time. We could have easily pulled money directly from the checking account to cover it, but it was nice to just take it from the savings and not even have to think about whether the checking account balance could cover it ontop of our usual expenses.
While we are lucky that we can just cover major issues like this no problem in our general cash flow, it is important to remember not everyone has an income so high/expenses so low that they can do that. I would hazard to guess most people have incomes that would require some type of emergency savings for a $1000 unexpected expense. So in general, the efund is probably one of the smartest generalized saving strategies for people of all income levels.
Don't most hospitals allow you to make payments though?
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Baby's unexpected hospital bill - $1000 after insurance
Our efund is just our cash savings, about 3 months worth at any given time. We could have easily pulled money directly from the checking account to cover it, but it was nice to just take it from the savings and not even have to think about whether the checking account balance could cover it ontop of our usual expenses.
While we are lucky that we can just cover major issues like this no problem in our general cash flow, it is important to remember not everyone has an income so high/expenses so low that they can do that. I would hazard to guess most people have incomes that would require some type of emergency savings for a $1000 unexpected expense. So in general, the efund is probably one of the smartest generalized saving strategies for people of all income levels.
Don't most hospitals allow you to make payments though?
As a matter of law, yes.
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I think that this thread has is going to make me slash my emergency fund. Check back in 10 years to see if it was a terrible mistake.
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I think that this thread has is going to make me slash my emergency fund. Check back in 10 years to see if it was a terrible mistake.
awesome breakthru!! you're 10 year self will thank current self for having extra money to fund FUN!
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Count us in the "when it rains it pours camp." I was always worried that we overfunded our emergency fund (I have a strong tendency towards anxiety issues so I worry about not having enough and also that I have too much) but then:
- I had pancreatitis and emergency gall bladder removal a week after giving birth and hit my max out of pocket for the year. also dug into my separate out of network deductible.
- A week after our new insurance year started my husband had an emergency appendectomy and we hit the max out of pocket again.
- Because he missed classes (adjuncting at the time) for his appendectomy he had all of his spring classes cancelled at one institution cutting his projected income in half. His contract said he couldn't miss any days of teaching and there was no exception for emergency health issues.
- Fridge died, water heater gave up and leaked everywhere so we had to buy a new water heater and pay for industrial fan rental etc., then a huge storm came and a tree came through our roof and we had to take out several 80-100 foot trees.
- Husband had his summer class cancelled because a tenured prof wanted the class - he had already taught it for a day when they cancelled his contract.
- And then finally we had an awesome turnaround but it still cost a bunch of money - DH found out he got his full time job but we had ten days to move. They ulimately reimbursed us for about 80% of the move but it took several months to get the money.
In the end I'd say we drew down our emergency savings by about 25k over three years (that is in addition to cash flowing to the best of our ability). 2013-2015 were really rough for us.
I know there are those on here who will say "well your DH shouldn't have tried to be a prof." - but that is ultimately one of the reasons we had saved a huge emergency fund and we ended up needing it - so there ya go :)
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This is a good thread! It seems that folks decision on Efunds breaks down to a couple of factors. How far one is along the FI path, more assets = less risk in holding more volatile assets for emergencies. Secondly, how much emotional benefit holding an Efund provides.
In my anecdotal experience, Efund has evolved over time and may well continue to do so. This seems very valid and only time will tell if it evolves further.
The logic of posters who argue the Efund drag on returns is very sound, but I also find it hard to ignore the emotional impact of other posts (I am one of those). If one logically recognizes these losses on returns as an exchange for security/emotional benefit, I don't see this decision any different than AA arguments. I also think it's fair to point out each person's situation is significantly different. Many people pay off a house, have future pensions, ect. These things add to security and emotional benefits, while dragging returns as well. If one does not own, doesn't expect pensions, single income, knows that help from family/inheritances to be unlikely, has an aggressive AA, ect. It is fair to say such a person has little backup for large scale emergencies, outside of asset sales at the worst emotional (and perhaps financial) time. A person like this probably gets more emotional return from a large Efund.
In financial matters I usually listen to my internal Mr Spock, but sometimes my internal Captain Kirk wants to party with green chicks, hence the emergency fund.
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The logic of posters who argue the Efund drag on returns is very sound, but I also find it hard to ignore the emotional impact of other posts (I am one of those).
There is a way to have your cake and eat it too, in this regard. A Permanent Portfolio, a simple allocation plan designed by the late Harry Browne, is designed to be well defended against losses in any market conditions. It has only had two or three down years since 1970, and never concurrent years. It includes a significant cash or cash equivalents portion, which is the main reason that most advisers don't like it, because it gives up gains in favor of protecting against losses; but it has still averaged about 7% annually since 1970. So if you keep your e-fund in a mix like the PP, odds are very high that it will all be available to you should you need it, but your e-funds won't be missing out on all the gains either. Most people who use the PP, just consider a portion of it their big e-fund anyway. I mentioned before that I consider the contributions amounts to my Roth IRA to be my e-fund, and this is how 90% of my Roth IRA is allocated.
The PP is 25% domestic stock equity fund (S&P 500 fund works), 25% Long term bonds, 25% precious metals; 25% short term bonds, money market, etc. It is rebalanced once each year or sooner, or anytime one of the allocations is off by more than 10% (drops below 15% or rises above 35%). It's simple, rules based & designed to protect the capital from any kind of down market losses, so it's ideal for funds that you might need at any time.
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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.
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I answered this upthread, but realized I forgot something. We flipped a house last year for fun and profit. Come tax time, my dad had just passed away and we were busy with all that entails. Our tax bill was $12k. It was so nice to be able to just write a check and stay focused on the important family things. Blows my mind that a twelve thousand dollar tax bill was just a blip on the radar and not a hair-on-fire emergency.
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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).
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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?
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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.
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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>
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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.
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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. :)
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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.
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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.
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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.
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Against all advice- my Roth IRA is my 'emergency fund'
Along with 100k of open credit.
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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.
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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.
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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.
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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.
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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.
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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?
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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.