Author Topic: What to do with an "emergency fund"...thoughts?  (Read 12190 times)

MVal

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What to do with an "emergency fund"...thoughts?
« on: June 02, 2015, 09:03:39 PM »
I am just starting out on my journey to FIRE and I am wondering, do most of you keep a 6-12 month emergency fund in liquid? If you do have an "emergency fund," where do you keep it? High interest savings account or elsewhere? I am set to have around $10,000 saved by the end of the year and I'm wondering if I should put it somewhere else besides the online savings account I have where I get close to 1% interest.

How much do you generally keep "on-hand" and what do you do with the rest?

Gin1984

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Re: What to do with an "emergency fund"...thoughts?
« Reply #1 on: June 02, 2015, 09:17:08 PM »
It depends on how many streams of income you have, how reliant you are on any of them, how quickly you could decrease expenses, how much other savings you have and how stable those steams are etc.  Right now we are only on my husband's income as I look for a job but his job is guaranteed until Sept 2016 so when I saw I deal that gave me $200 for putting $3000 in an investment account I took it.  That was my EF (except for about $600) but we have our  moving fund ($6000) in cash plus a bit of other expenses.  We also have a HSA which I could cash some of and we are still saving post tax an additional $200/month so I was not too worried.  Some people prefer to keep a year of expenses but it is all personal.

TheBuddha

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Re: What to do with an "emergency fund"...thoughts?
« Reply #2 on: June 02, 2015, 09:17:26 PM »
I-bonds!

Financial.Velociraptor

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Re: What to do with an "emergency fund"...thoughts?
« Reply #3 on: June 02, 2015, 09:20:07 PM »
I kept 6-9 months in cash pre-FIRE and none post-FIRE.  I no longer fear losing a job...

In the rare instances I need short term cash (such as when a/c unit failed) I put it all on credit card (1.5% cash back) and pay it off immediately with a margin loan from my broker (currently 1.65% at IB).  If I repay the loan in less than a year (every time so far), I actually come out ahead on cash. 

For cash that is thought of as "shortish term" I put in CEF municipal bonds such as NIO or NEA.  Currently yielding a hair under 6% tax free.

forummm

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Re: What to do with an "emergency fund"...thoughts?
« Reply #4 on: June 02, 2015, 09:20:38 PM »
There are debates around here about emergency funds. You'll find the threads if you look/search around. I personally keep about $3k in checking accounts, and then would finance any unexpected expense by saving less from our paychecks, using a credit card, selling some index funds, etc. Every other penny we get goes into our investment accounts. We max out 401ks and IRAs and put the rest into taxable at Vanguard. We have pretty reliable incomes. If you specifically want to keep that much cash on hand, then it will probably get a very low return as long as interest rates are so low.

GGNoob

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Re: What to do with an "emergency fund"...thoughts?
« Reply #5 on: June 02, 2015, 09:33:00 PM »
Just 1 months expenses in cash (checking account) to act as a buffer and help with unexpected or annual expenses. The rest is invested in a conservative stock/bond portfolio. After I hit 6 months expenses, the rest will be invested in 100% stocks.


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Full Beard

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Re: What to do with an "emergency fund"...thoughts?
« Reply #6 on: June 02, 2015, 10:03:36 PM »
I have about 4 months worth of expenses saved in two CDs.  5,000 in one paying 4.88% for a year and 3,000 in another paying 3.25% for a year.  I am single so I only have my income to count on.  I feel pretty comfortable with that amount liquid, and anything more will go towards my Roth IRA at Vanguard.

Frugal_NYC

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Re: What to do with an "emergency fund"...thoughts?
« Reply #7 on: June 02, 2015, 10:16:15 PM »
Emergency fund = insurance = liquid

1% interest should be viewed as price you are paying for liquidity

I keep about $5K in checking/savings earning nothing but I also have plenty in taxable that I could easily withdraw.  Doesn't make much of a difference if you use Big Bank or online bank, on $5K you would only get $50/year @ 1%...who cares

surfhb

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Re: What to do with an "emergency fund"...thoughts?
« Reply #8 on: June 02, 2015, 10:29:52 PM »
I keep $20K in a saving account getting 1%.      If you consider that $20K is such a small amount compared to what my networth will be so I can FIRE.

surfhb

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Re: What to do with an "emergency fund"...thoughts?
« Reply #9 on: June 02, 2015, 10:33:04 PM »
I have about 4 months worth of expenses saved in two CDs.  5,000 in one paying 4.88% for a year and 3,000 in another paying 3.25% for a year.  I am single so I only have my income to count on.  I feel pretty comfortable with that amount liquid, and anything more will go towards my Roth IRA at Vanguard.

Jesus!   Where can I sign up?

Full Beard

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Re: What to do with an "emergency fund"...thoughts?
« Reply #10 on: June 02, 2015, 10:52:38 PM »
They're at Navy Federal Credit Union.  The 4.88% was a special celebratory certificate that was offered around September of last year so it's no longer offered.  The other one is a special easy start certificate that is still being offered at ~3% with a $3,000 max for 1 year.

Jags4186

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Re: What to do with an "emergency fund"...thoughts?
« Reply #11 on: June 03, 2015, 05:20:36 AM »
I think in a savings account is the way to go. Having 10-20k in. Cash for most people shouldn't affect their ability to FIRE. If you're really paranoid consider it part of your bond allocation and keep more of your portfolio in stocks.

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Re: What to do with an "emergency fund"...thoughts?
« Reply #12 on: June 03, 2015, 05:48:39 AM »
Not sure if you guys agree with me or not, but my EF is in a conservative portfolio (30% Stocks, 70% Bonds), I mean historically, the lowest it has ever gone down is at -7% and that was in 2008 during the recession. Keeping it in a high savings account is not interesting for me.

Insanity

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Re: What to do with an "emergency fund"...thoughts?
« Reply #13 on: June 03, 2015, 05:57:49 AM »
I have close to 25% of my net worth in cash.  Most of that is tied up in my business account. 

I need to keep a lot more for quarterly taxes.  I could probably cut it down by 15-20% but I want a buffer in case a contract terminates.

I have another 15% in a tax brokerage account .

Most of my emergency fund money would come from credit cards that would be paid off immediately.

protostache

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Re: What to do with an "emergency fund"...thoughts?
« Reply #14 on: June 03, 2015, 06:37:21 AM »
We have an embarrassing amount of cash laying around, but mostly for good reasons. We built up two large emergency funds when I went full time consulting a year ago, which helps my wife and I sleep better at night. Here's how our cash breaks down:

  • $16k emergency SHTF fund
  • $11k long-ish term savings (house improvements, medical copays, travel stash)
  • $1k short term savings, to be spent 1-6 months from now (accumulating insurance premiums, etc)
  • $3k current-month expense buffer
  • $19k business buffer to provide two months' salary in case I lose a contract
  • $5k business discretionary fund
  • Accrued quarterly taxes

Most of the personal cash is split between two savings and two checking accounts, three of which bear interest, only one of which approaches 1%. Most of the business money is sitting in a money market account earning 0.4%. All told cash represents almost a third of our stash.

Our largest emergency to date was a $8k three month long slow motion train wreck, which was easy to put on credit cards and cash flow. I'd like to put almost all of our SHTF and long term savings into VASIX (80% bond, 20% stock) because they're either there for long-planned expenses or permanent contract loss, both of which can be dealt with over the course of at least two months. My wife is much more conservative right now with that money, but I think once June VASIX dividends hit she'll be ok with at least starting to migrate more to join the $3k we already have in a taxable account.

LackOfSense

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Re: What to do with an "emergency fund"...thoughts?
« Reply #15 on: June 03, 2015, 06:58:58 AM »
I usually keep around $30k on hand...

-$5k in Mango Money savings account earning 5.2% (if you are married you can open one for your spouse for a total of $10k)
-$5k in CD @ 4.88% (Navy Federal)
-$20k in checking account @ 3.1%

There is also a Union Plus card that is similar to Mango that some use that earns around 5%. Here's a link describing how Mango works that I found very informative when I was looking at my options: http://thefinancebuff.com/mango-prepaid-card-6-apy-savings-account-a-hidden-gem.html

Heckler

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Re: What to do with an "emergency fund"...thoughts?
« Reply #16 on: June 03, 2015, 07:25:24 AM »
$3500 cash real emergency fund sitting in a chequing account, which cancels out the $13.95 monthly banking fee (welcome to big Canadian bank), so in my mind it's making a 4.7% annual return.

Anything above that would come from fluctuating cash savings account (<1%) which has ~ 1-2% of our savings in it, which gets invested once there is more than $4k extra sitting idle.   Above that could come from $40k credit limits, which carry zero balance.  We just got a zero percent Home Depot card to spread the cost of a new stove over 8 months.

Then we have 16% of our savings in VSB and 4% in VCN (80% short bonds/20% equity), easily accessed in my TFSA.  The other 80% is in RRSPs, not to be touched. 
« Last Edit: June 03, 2015, 07:30:25 AM by Heckler »

Retire-Canada

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Re: What to do with an "emergency fund"...thoughts?
« Reply #17 on: June 03, 2015, 08:38:13 AM »
I am just starting out on my journey to FIRE and I am wondering, do most of you keep a 6-12 month emergency fund in liquid? If you do have an "emergency fund," where do you keep it? High interest savings account or elsewhere? I am set to have around $10,000 saved by the end of the year and I'm wondering if I should put it somewhere else besides the online savings account I have where I get close to 1% interest.

How much do you generally keep "on-hand" and what do you do with the rest?

Emergency Fund Plan:

- I keep $3K on hand as a float for my mortgage payments.

- I have a $30K line of credit [not home equity based] that I can live for a year off of if I need to.

- I have a high savings rate ~50% so unexpected expenses can typically get covered by 1 or 2 months of diverted savings.

- my GF and I work in different industries so we are unlikely to lose income simultaneously and can both support the other if need be

- I have enough investments I can live off them for a couple decades at minimal levels

- I am very employable at a high pay rate

- I have a couple hobbies that mean I could go work a retail job for $16/hr tomorrow and pay all my bills

For me leaving 6 - 12 month of $$ out of the market is not helpful to my FIRE goals and I can't see many scenarios where having cash would solve my problems vs. my plan.

Bearded Man

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Re: What to do with an "emergency fund"...thoughts?
« Reply #18 on: June 03, 2015, 09:07:29 AM »
I kept 6-9 months in cash pre-FIRE and none post-FIRE.  I no longer fear losing a job...

In the rare instances I need short term cash (such as when a/c unit failed) I put it all on credit card (1.5% cash back) and pay it off immediately with a margin loan from my broker (currently 1.65% at IB).  If I repay the loan in less than a year (every time so far), I actually come out ahead on cash. 

For cash that is thought of as "shortish term" I put in CEF municipal bonds such as NIO or NEA.  Currently yielding a hair under 6% tax free.

Not a bad plan. Nice avatar!

I'm a red panda

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Re: What to do with an "emergency fund"...thoughts?
« Reply #19 on: June 03, 2015, 09:49:51 AM »
I have about 4 months worth of expenses saved in two CDs.  5,000 in one paying 4.88% for a year and 3,000 in another paying 3.25% for a year.  I am single so I only have my income to count on.  I feel pretty comfortable with that amount liquid, and anything more will go towards my Roth IRA at Vanguard.

Can you share where you get these rates? Especially with such low dollar amounts invested and such a short term?

MVal

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Re: What to do with an "emergency fund"...thoughts?
« Reply #20 on: June 03, 2015, 10:06:21 AM »
Whoa, whoa, wow! What is this Mango Money, I never heard of it! I just went online and found they have 6% interest on savings up to $5,000, but then they will drop it to almost 0 if you go over that, right? Do they compound daily? That beats my Ally.com account at 1%!  And Navy Federal Credit Union...do you have be in the Navy or a veteran to use it?

Full Beard

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Re: What to do with an "emergency fund"...thoughts?
« Reply #21 on: June 03, 2015, 10:33:31 AM »
There are lots of ways that you can be eligible for Navy Federal.  The most obvious is to be a member of any branch of the military.  You are also eligible if you are a civilian employee working for the Department of Defense.  If you have any family members (parents, grandparents, siblings, children, spouses) that are members that makes you eligible for membership as well.

MVal

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Re: What to do with an "emergency fund"...thoughts?
« Reply #22 on: June 03, 2015, 10:52:02 AM »
Dang, doubt I'm eligible then. My deceased grandfather was an Army helicopter pilot and my uncle was in the guard, but no other military affiliations. :(

I wonder if any other banks out there offer similar high rates on CDs? 3% on a 1-year CD sounds so amazing, I'm really bummed I'm not eligible.

LackOfSense

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Re: What to do with an "emergency fund"...thoughts?
« Reply #23 on: June 03, 2015, 10:53:08 AM »
Whoa, whoa, wow! What is this Mango Money, I never heard of it! I just went online and found they have 6% interest on savings up to $5,000, but then they will drop it to almost 0 if you go over that, right? Do they compound daily? That beats my Ally.com account at 1%!  And Navy Federal Credit Union...do you have be in the Navy or a veteran to use it?

MVal, look at the link I provided for mango money. It is explained extremely well there. But basically its a prepaid debit card (no hard pull on your credit score, so don't worry). They give you 6% if you have direct deposit of $50 a month into the account. However there is a $3 monthly fee which eats into your 6% (with $5k in the account, you'll get around 5.2%). If you go over, you still get the 6% on the first $5k and anything over that gets the .10% I believe. I withdraw the funds every month over the $5k.

NoraLenderbee

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Re: What to do with an "emergency fund"...thoughts?
« Reply #24 on: June 03, 2015, 11:02:18 AM »
I am just starting out on my journey to FIRE and I am wondering, do most of you keep a 6-12 month emergency fund in liquid?

Yes.

Quote
If you do have an "emergency fund," where do you keep it? High interest savings account

Yes.

As Frugal NYC said, the low return is the price you pay for the liquidity.

If an emergency happens, the large EF means I can handle it financially without having to think about it, saving my mental energy for dealing with the emergency. Also, I don't have much passive income; if I lose my job, there is not much coming in, and I'll need to live on savings. Both of these things have happened. Having the large EF helps me sleep at night.

Scandium

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Re: What to do with an "emergency fund"...thoughts?
« Reply #25 on: June 03, 2015, 11:07:28 AM »
I-bonds!

haha, with zero yield not so great. I do better in my 0.9% savings account. If rates rise I'm hoping to put some in I-bonds though, they're pretty neat.

RunHappy

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Re: What to do with an "emergency fund"...thoughts?
« Reply #26 on: June 03, 2015, 11:16:08 AM »
Whoa, whoa, wow! What is this Mango Money, I never heard of it! I just went online and found they have 6% interest on savings up to $5,000, but then they will drop it to almost 0 if you go over that, right? Do they compound daily? That beats my Ally.com account at 1%!  And Navy Federal Credit Union...do you have be in the Navy or a veteran to use it?

I don't think Mango money is worth it.  To get the savings account you have to sign up for a prepaid card that can have a lot of fees.

this covers some of the pain points with using Mango Money

http://www.dailyfinance.com/2012/02/02/when-6-percent-interest-is-too-good-to-be-true/



LackOfSense

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Re: What to do with an "emergency fund"...thoughts?
« Reply #27 on: June 03, 2015, 12:08:03 PM »

I don't think Mango money is worth it.  To get the savings account you have to sign up for a prepaid card that can have a lot of fees.

this covers some of the pain points with using Mango Money

http://www.dailyfinance.com/2012/02/02/when-6-percent-interest-is-too-good-to-be-true/

RunHappy, that article is old (2012) and the $5 fee has changed to $3. Also you can avoid all the other fees by using ACH transfers to and from the account. Most banks allow you to link bank accounts to deposit and withdraw from (I use USAA to do this). If you do it this way the only fee you will see is the $3 monthly fee. I've been doing it for 6 months and I have yet to find a better rate to hold spare cash in.

I don't use the prepaid card at all. It just sits in my safe, as I have no need for it.
« Last Edit: June 03, 2015, 12:10:55 PM by LackOfSense »

RunHappy

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Re: What to do with an "emergency fund"...thoughts?
« Reply #28 on: June 03, 2015, 12:56:17 PM »

I don't think Mango money is worth it.  To get the savings account you have to sign up for a prepaid card that can have a lot of fees.

this covers some of the pain points with using Mango Money

http://www.dailyfinance.com/2012/02/02/when-6-percent-interest-is-too-good-to-be-true/

RunHappy, that article is old (2012) and the $5 fee has changed to $3. Also you can avoid all the other fees by using ACH transfers to and from the account. Most banks allow you to link bank accounts to deposit and withdraw from (I use USAA to do this). If you do it this way the only fee you will see is the $3 monthly fee. I've been doing it for 6 months and I have yet to find a better rate to hold spare cash in.

I don't use the prepaid card at all. It just sits in my safe, as I have no need for it.
Updated:  https://www.mangomoney.com/simple-fees#mango-simple-fees

I don't use prepaid either but I looked at Mango and it still seems more trouble than it is worth.

TomTX

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Re: What to do with an "emergency fund"...thoughts?
« Reply #29 on: June 06, 2015, 06:56:37 AM »
My own deployment:

3 months "high interest" savings
3 months in an I-bond (older, was paying 3% this year)
3 months worth of stuff I can sell off (Craigslist, etc) - I just don't have TIME right now. If I'm not working, time has appeared ;)
« Last Edit: June 06, 2015, 04:55:13 PM by TomTX »

Gin1984

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Re: What to do with an "emergency fund"...thoughts?
« Reply #30 on: June 06, 2015, 03:22:07 PM »
I-bonds!

haha, with zero yield not so great. I do better in my 0.9% savings account. If rates rise I'm hoping to put some in I-bonds though, they're pretty neat.
It depends when you bought the ibond.  My I bond is earning over three percent because the fix rate when I bought it.

Scandium

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Re: What to do with an &quot;emergency fund&quot;...thoughts?
« Reply #31 on: June 06, 2015, 03:55:40 PM »
I-bonds!

haha, with zero yield not so great. I do better in my 0.9% savings account. If rates rise I'm hoping to put some in I-bonds though, they're pretty neat.
It depends when you bought the ibond.  My I bond is earning over three percent because the fix rate when I bought it.
Exactly, if the rate gets better I'd jump on it. But at least for the next 6 months it actually better to keep the money in a checking account with 0.05%!

kpd905

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Re: What to do with an "emergency fund"...thoughts?
« Reply #32 on: June 06, 2015, 04:29:18 PM »
If you have a direct deposit and want to jump through the hoops of doing 10-12 debit card transactions a month, there are banks that'll give you 3% on $10-25k.


Gin1984

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Re: What to do with an &quot;emergency fund&quot;...thoughts?
« Reply #33 on: June 06, 2015, 05:03:05 PM »
I-bonds!

haha, with zero yield not so great. I do better in my 0.9% savings account. If rates rise I'm hoping to put some in I-bonds though, they're pretty neat.
It depends when you bought the ibond.  My I bond is earning over three percent because the fix rate when I bought it.
Exactly, if the rate gets better I'd jump on it. But at least for the next 6 months it actually better to keep the money in a checking account with 0.05%!
If the government would offer bonds to us citizens at 2-3% and used the money to pay off the debt to international lenders 3-5%), many people would jump on it and it would save our government money but for some reason no one in politics wants to look at saving 1-2% at a time.

mr_orange

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Re: What to do with an "emergency fund"...thoughts?
« Reply #34 on: June 06, 2015, 05:30:10 PM »
This topic is impossible to comment on in the absence about a ton of other information about your personal scenario.  Such as:

1.  Do you have dependents?
2.  What are your monthly obligations?
3.  Do you have credit lines you can draw on in emergency cases?  For instance, some folks have low interest credit lines for their business that could be used to balance out cash flows in emergencies

I glanced through the responses above and they're all over the map.  I'm not sure how helpful they'll be for you either because each poster has a unique set of circumstances that are different from yours. 

Heckler

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Re: What to do with an "emergency fund"...thoughts?
« Reply #35 on: June 06, 2015, 06:10:41 PM »

I glanced through the responses above and they're all over the map.  I'm not sure how helpful they'll be for you either because each poster has a unique set of circumstances that are different from yours.

Although I agree with your point, the question was where we keep our emergency fund, not where MVal should.  ;)

mr_orange

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Re: What to do with an "emergency fund"...thoughts?
« Reply #36 on: June 06, 2015, 06:19:48 PM »

I glanced through the responses above and they're all over the map.  I'm not sure how helpful they'll be for you either because each poster has a unique set of circumstances that are different from yours.

Although I agree with your point, the question was where we keep our emergency fund, not where MVal should.  ;)

Not following....this was from the OP:

//Quote
How much do you generally keep "on-hand" and what do you do with the rest?
//End Quote

How much you keep on hand is a function of your personal situation:

-How your assets are allocated
-How your income streams work
-How your credit is and whether or not you have credit lines established

and probably many, many more factors. 

Nords

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Re: What to do with an "emergency fund"...thoughts?
« Reply #37 on: June 06, 2015, 07:58:59 PM »
Dang, doubt I'm eligible then. My deceased grandfather was an Army helicopter pilot and my uncle was in the guard, but no other military affiliations. :(
Here's the checklist where you figure it out:
https://www.navyfederal.org/how-to-become-a-member/how-to-become-a-member.php

Indexer

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Re: What to do with an "emergency fund"...thoughts?
« Reply #38 on: June 07, 2015, 06:15:40 AM »
Not sure if you guys agree with me or not, but my EF is in a conservative portfolio (30% Stocks, 70% Bonds), I mean historically, the lowest it has ever gone down is at -7% and that was in 2008 during the recession. Keeping it in a high savings account is not interesting for me.

I do something similar with part of my EF, but that is not the potential downside for that portfolio.  A 'well diversified' 30/70 portfolio has a worst year performance of around -15%.  VTINX is a great example of this portfolio and it was down about 11% in 2008.  (If it is not well diversified the potential downside is obviously 100%).


Personally.
$500 in the checking.
$5000 at mango money!  6%.... wow!
Anything beyond that goes into VASIX(20%stocks/80%bonds made up of the 4 vanguard total market index funds so it is extremely diversified).  A worst year scenario for this type of portfolio is around a 10-11% drop(down 10.5 in 2008), but it would have to be a pretty big emergency for me to need to touch it.


3 months worth of stuff I can sell off (Craigslist, etc) - I just don't have TIME right now. If I'm not working, time has appeared ;)

+1
« Last Edit: June 07, 2015, 06:17:15 AM by Indexer »

SpareChange

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Re: What to do with an "emergency fund"...thoughts?
« Reply #39 on: June 07, 2015, 10:16:22 AM »
I have no emergency fund per se. My situation:

No dependents
Rent an apt
No debt
Very stable career (hospital)
High savings rate (>60%)

I "zero" my checking account at $2k. I have a credit card, and can cash out up to two weeks of my PTO per year. I try to save a good amount of PTO every year, as a buffer against short term disability type emergencies. I'm also at the point where I am investing quite a bit into my taxable account, although it's all stock and I would touch it last.

kpd905

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Re: What to do with an "emergency fund"...thoughts?
« Reply #40 on: June 07, 2015, 10:45:06 AM »

$5000 at mango money!  6%.... wow!


How long have you been using Mango, and how easy is it to move money around?  I can set up direct deposit at work online, so it would be easy for me to have any amount go there.

So it is about 5.2% return after the fees, seems worth it as long as the money is easy to access.

Indexer

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Re: What to do with an "emergency fund"...thoughts?
« Reply #41 on: June 07, 2015, 11:14:05 AM »

$5000 at mango money!  6%.... wow!


How long have you been using Mango, and how easy is it to move money around?  I can set up direct deposit at work online, so it would be easy for me to have any amount go there.

So it is about 5.2% return after the fees, seems worth it as long as the money is easy to access.

I have $50 from each direct deposit go over to it.

As for access it is just like transferring money between banks.  So normally 2-3 business days via ACH.  I've transferred money to the account from my bank plenty of times, but I did take $500 out of it once and it only took a couple days to get to my bank.

Dollar Slice

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Re: What to do with an "emergency fund"...thoughts?
« Reply #42 on: June 07, 2015, 09:39:07 PM »
I keep about 3 months' expenses in cash (checking account) and the rest (currently about 8 months' expenses) in a muni bond fund which returns over 3% tax free. It's a New-York specific fund (VNYTX) so it's tax-free for local, state, and city tax, meaning it's the equivalent of ~5% of taxable income when factoring in my marginal tax rates... not bad at all.

I don't really think I need THAT much in an emergency fund (I'm single and have very little risk in terms of big expenses that could pop up), but the muni bond fund is doubling as my "down payment on a home hopefully someday" medium-term savings account, so I am just piling all of my non-retirement savings in there for now.

Bob W

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Re: What to do with an "emergency fund"...thoughts?
« Reply #43 on: June 07, 2015, 09:51:06 PM »
Obviously in index stock funds.   Anticipate a 30% hit and then just invest 30% more than you currently expect your so called emergency to be.     10k setting at near zero is a very bad long term plan.    How bad?   10k at zero in 60 years will be worth 2 k inflation adjusted.  10 k at 10% will be worth 2 million inflation adjusted.  Little choices do matter over the long term.    Don't settle for less.

bord

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Re: What to do with an "emergency fund"...thoughts?
« Reply #44 on: June 08, 2015, 09:07:50 AM »
Obviously in index stock funds.   Anticipate a 30% hit and then just invest 30% more than you currently expect your so called emergency to be.     10k setting at near zero is a very bad long term plan.    How bad?   10k at zero in 60 years will be worth 2 k inflation adjusted.  10 k at 10% will be worth 2 million inflation adjusted.  Little choices do matter over the long term.    Don't settle for less.

This exactly. In an emergency you may need to withdraw in a down market, but this is an emergency fund not a flexible pool of cash. 30% over your target in a taxable index stock fund is the best way to cover an emergency and plan for growth.

dungoofed

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Re: What to do with an "emergency fund"...thoughts?
« Reply #45 on: June 08, 2015, 09:31:37 AM »
3 months worth of stuff I can sell off (Craigslist, etc) - I just don't have TIME right now. If I'm not working, time has appeared ;)

Thank you for this. I had never thought of it since there is no second hand market in Japan but now that I'm in Australia I probably have a few things that could be sold like this.

The only reservation I'd have is relying on this when there was a massive drop in the markets and you weren't the only one losing your job, in which case there would be less people with cash available to buy your stuff. Although I think your EF actually benefits from the diversification.

Bob W

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Re: What to do with an "emergency fund"...thoughts?
« Reply #46 on: June 08, 2015, 09:50:41 AM »
Obviously in index stock funds.   Anticipate a 30% hit and then just invest 30% more than you currently expect your so called emergency to be.     10k setting at near zero is a very bad long term plan.    How bad?   10k at zero in 60 years will be worth 2 k inflation adjusted.  10 k at 10% will be worth 2 million inflation adjusted.  Little choices do matter over the long term.    Don't settle for less.

This exactly. In an emergency you may need to withdraw in a down market, but this is an emergency fund not a flexible pool of cash. 30% over your target in a taxable index stock fund is the best way to cover an emergency and plan for growth.

Thank you Bord-   If there is a job loss emergency for instance at the very bottom of the market you would have 9 months of so to draw down and the market would have some recovery time.

I do believe that initially one should just acquire and save cash.   This rule generally applies to those in debt or recently out of debt.   But a person who is diligently saving 1 - 3 K per month can easily just put that money into indexs.   

You are either guaranteed to pay a huge insurance (0 percent on the 10K or an average of 1K per year) or a possible smaller insurance (a 30% one time hit on the 10K).   

I'm not sure anyone has done any studies on how often EFs are actually used but I'm guessing not very often for the MMM crowd?  What do we think?  -  A 5% likelihood of using and EF.

Regardless,  once you have twice what you perceive as an emergency is it should all be invested for life.   So it may be just a matter of months of transitioning. 

Another scenario --

Those who keep $1,000 in zero rate checking --

60 years that 1 k is worth 200 dollars inflation adjusted..

Keep that 1K invested and in 60 years the 1K is worth   $160,000.   It really is amazing that that little 1K decision can mean the difference between 160K and 200 dollars (a factor of 800).   

I always ask --- So which would you rather give your grandkids 200 dollars or $160,000?

(If you have 1 million today and keep it invested --- You'll potentially have 166 million in 60 years! Inflation adjusted)

BuzzardsBay

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Re: What to do with an "emergency fund"...thoughts?
« Reply #47 on: June 10, 2015, 11:28:28 AM »
I keep mine in a money market account at the local credit union.  It's there in case of an emergency so I want to be able to just write a check.  I don't want to have to cash something out and then wait to get the money.  I don't consider it part of my investing.  It's there so I don't have to worry if something happens.