Author Topic: Can't get excited/motivated about Cash Emergency Fund  (Read 3924 times)

wealthviahealth

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Can't get excited/motivated about Cash Emergency Fund
« on: March 07, 2014, 07:40:05 PM »
I am still a bit newer (1 full year) to the world of investing/saving/ being in the "real world" and have been really enjoying
growing my investments and tucking away as much of my earnings into my Roth IRA, individual stocks, index funds, retirement accounts etc.. but for some reason cannot get motivated to grow my cash emergency fund.

I certainly think that a cash ef is important and realize that I have only really been investing during a bull market so I do not yet know the temporary hardship of a bearish market but find it very uninspiring to contribute to.
Perhaps some of it is the banking service that my ef is in, very outdated and often takes 3-6 days for my deposits to show up, and thus
I do not get much immediate reinforcement from it as I do my other investment vehicles.

I am wondering what strategies others have used to build their cash ef and what has helped motivate + reinforce them to do so.
Could it be a sound approach to keep up with my regular investment habits as usual and periodically sell some of my earrings to transfer to my ef? Any thoughts or ideas are welcome on this topic.

Eric

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Re: Can't get excited/motivated about Cash Emergency Fund
« Reply #1 on: March 07, 2014, 08:03:53 PM »
Maybe it's big enough already.  What would you use it for?

You might need a bigger emergency fund if:
You are a one income household
You own a house
You're self employed
Your job is unstable
You have kids
You have high deductible health insurance

If none/few of those apply, you likely don't need a large Emergency Fund in cash.

Also, what kind of bank takes 6 days to process a transfer?  Maybe instead of a bigger Emergency Fund, you need a new bank.

clifp

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Re: Can't get excited/motivated about Cash Emergency Fund
« Reply #2 on: March 09, 2014, 06:57:12 PM »
I went through my entire life without an "emergency fund". Please nobody tell Suze Orman..
I think the criteria that Wealth used for determining how big of a emergency fund is excellent.  I only had a house and unstable job at times.
I will say that if I was working instead of retired in 2008/09 the lack of emergency fund could have been ugly since I could have lost my job at the same time of experiencing a market crash.

On the other hand the odds of having both events hitting simultaneously in any one year are pretty darn small (probably less than 1%).

Let say option 1 is 6 month emergency fund of your all your expenses of  $25K in cash earning today basically 0%

Option 2 is say $5K in cash, enough to cover a car repair, trip to visit sick parents, or reimbursed illness.  The 20K remaining is invested in equity heavy portfolio making say 7.2% a year..
After 10 years the $20K has doubled to $40K.  So even if you lose your job at the same time the market crashes say 50%.  You'll still have the same $25K as the guy who had a cash emergency fund.  Once you get beyond 10 years you only come out ahead.

Zoot Allures

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Re: Can't get excited/motivated about Cash Emergency Fund
« Reply #3 on: March 09, 2014, 11:58:03 PM »
I consider my Roth IRA to be my emergency fund. I also have a line of credit I can tap if I need to.

My job is stable and I have only myself to support, so I'm comfortable with this.

homehandymum

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Re: Can't get excited/motivated about Cash Emergency Fund
« Reply #4 on: March 10, 2014, 01:31:44 AM »
We use our 'squishy debt' as our emergency fund. 

Some of our mortgage is set up to act like a giant overdraft, whose limit decreases by a set amount each month - basically a standing line of credit on our house.  Because we are aggressively paying down the principal, we have a huge buffer between our actual balance and the lending limit.   

This works for me in terms of 'getting excited about it', because ANY money we have in that account is working, by reducing the interest to pay on the mortgage. 

Without access to a house, any low-interest credit option could work - for amounts that you could readily pay off before the debt stops being low interest.

OR, you could put some larger amounts into some sort of term deposit.  I have no idea about the rates available to you, but 3 amounts put into staggered 3-month deposits would give you access to 1/3 of your emergency fund each month at a (probably) higher interest rate than a standard savings account.  You could cover any immediate emergency on a credit card and plan to draw down the emergency money within the month so the CC isn't carrying a balance.
« Last Edit: March 10, 2014, 01:35:41 AM by homehandymum »

soccerluvof4

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Re: Can't get excited/motivated about Cash Emergency Fund
« Reply #5 on: March 10, 2014, 02:11:07 PM »
Yea i agree with Eric you need a new bank! #1 and secondly kinda hard to know what your EF fund should be when we don't know any more about your situation to speculate/assume scenarios for a value of and EF fund.

James

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Re: Can't get excited/motivated about Cash Emergency Fund
« Reply #6 on: March 10, 2014, 02:18:47 PM »
Life is complicated, so don't let a "one size fits all" emergency fund requirement convince you of what you need. Read through some of the great discussions here regarding emergency funds, read MMM blog post on the topic, and figure out what you need for each stage of your financial life going forward. My need for emergency fund just dropped last year since I sold our big house and downsized to a mortgage 1/4 the size. Our emergency fund is just the money that sits in our checking account before being transferred to other accounts. But maybe your situation demands something else, and we are happy to give our advice if you share specifics. But you are certainly not alone here in being unmotivated by large ef accounts, we tend to see them as an expense to be paid rather than as some wonderful financial feature.

wealthviahealth

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Re: Can't get excited/motivated about Cash Emergency Fund
« Reply #7 on: March 10, 2014, 02:26:16 PM »
Great advice all, thank you. A bit more background:
Stable job, Single, and no dependents.
Currently renting and am potentially looking to buy a home in the next year or two.
At the age where I can still get away with the "college lifestyle" in some respects and
would primarily be looking for an inexpensive house that I could buy and rent a room or two
to my friends/graduate students to cover my mortgage payments + some.