Author Topic: Took MMM advice and slashed emergency fund!  (Read 17403 times)

Physicsteacher

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Re: Took MMM advice and slashed emergency fund!
« Reply #50 on: August 07, 2016, 08:23:37 AM »
We have life insurance in case my husband dies so that the children and I would be fine, but short-term disability as a much more common outcome.

Do you have life insurance on YOU?

Nope. Life insurance is to replace the income. Since my income isn't required for our lifestyle, it isn't necessary.

Your income may be negligible, but your labor in service to your family certainly isn't. If you were no longer alive, would household expenses increase, for example if your husband had to hire someone to do child care, or might your husband's income decline as a result of being less able to devote time to his business due to the demands of parenting without a partner to share the load?

mathjak107

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Re: Took MMM advice and slashed emergency fund!
« Reply #51 on: August 07, 2016, 08:36:53 AM »
sometimes just the fact the surviving spouse has to file single  tax wise can be quite painful . especially in retirement later on , when you have rmd's as well as the loss of an ss check all converging at the same time .

Nederstash

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Re: Took MMM advice and slashed emergency fund!
« Reply #52 on: August 10, 2016, 02:24:16 PM »
This is from a Dutch perspective, sorry if it's not really relevant to the rest of you... I wanted to write it out for myself.

E-Fund:
2 months of expenses in a directly accessible savings account, yielding 0.5%
4 months of expenses in a different savings account, yielding 0.9%. This account takes 1-2 days for transfers to come through
The rest is in investments.

Big ticket items: hadn't really thought much about it... my car probably needs replacing in the next year, I'll shore up on investments for a bit and put some extra money aside in my second savings account. Thanks, everyone in the thread, for reminding me.

Security blankets: thanks to Dutch social welfare, I do feel like there are safety nets should anything happen. I don't need to have insurance for the following, they are there by law:
Involuntary job loss (ie laid off, contract terminated/not renewed): I would get 70% of my last income for 13 months (length depends on how many years you've been working). Of course you don't get this if you quit or get kicked out for theft or something.
Sickness/disability: depending on how much you can still work, up to 70% of income for as long as the disability/sickness lasts (really short version, there's tons variations).
'Bijstand' ('help'): if none of the above apply, you get 70% of minimum wage, so that comes to 977 euro (~$1000) a month. You are required to liquidate and use up your assets first - including a house. You do get extra government help up to 420 euro a month for rent and healthcare.

I hope to God I never need any of these! But it's good to know they're there and I don't need to put any thought and money towards it. Since I have a 40% savings rate now, 70% of my income would still let me save 10% even if I was jobless. It's a nice thought.

Of course, a 42% tax rate is the trade-off here... On the other hand, mortgage interest is also deductible at 42% :)

Landlady

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Re: Took MMM advice and slashed emergency fund!
« Reply #53 on: August 10, 2016, 04:40:15 PM »
I tend to work for startups and have amassed a huge cushion in emergency funds to account for that job risk, which in retrospect is unreasonable. But now I'm going to spend a huge chunk on building a house and my plan is to deplete those emergency funds to a more reasonable level of about 3-4 months of emergency funds. You guys give me confidence to do this. I haven't had just 3-4 months stash since post-college, yet I've not had trouble finding work since post-college either. It's time to make my risk tolerance match reality.

Telecaster

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Re: Took MMM advice and slashed emergency fund!
« Reply #54 on: August 10, 2016, 05:24:21 PM »
Thanks everyone for the advice on the emergency fund.  I need to do some thinking on this.  In the next four years, we will need to replace our family car.   I am adverse to car payments so I would want to start saving for it so we can pay cash.  With the line of thought similar to the emergency fund,  I guess I should invest it.  Any advice there, knowing that in about 4 years I would need to cash out?

Sent from my SAMSUNG-SM-G920A using Tapatalk

A little different thinking applies, because you're talking about a future planned expense, which is completely different than an emergency. 

Four years is kind of tricky because it is a short enough time frame that if invest in the stock market you can't really be assured that the money will be there when you want it.  I'm definitely of the "no cash emergency fund" school, but if it were me I'd put it in short term bonds, CDs, etc.  so it will be there when you are planning on using it. 


kenaces

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Re: Took MMM advice and slashed emergency fund!
« Reply #55 on: August 10, 2016, 06:35:38 PM »
I am changing my approach to emergency funds. Reading MMM, and some material on betterment.com got me thinking - https://www.betterment.com/resources/personal-finance/safety-net-funds-why-traditional-advice-is-wrong/

I have been working on getting my act together so I can progress to FIRE in ~10 years so I am also thinking a lot about maximizing.  I have kept a pretty big E-fund/poker bankroll for years, but I am always unsure exactly how much liquidity I need and how much I should invest. 

I decided to put ~25k in my brokerage account to work.  I plan to add $500/mo to this multi-purpose account.  It is hard to put my money into buckets.  This money is part E-fund, part poker bankroll(less than ~5% chance for this), part retirement fund.  I have also been reading tons on financial planning and investing.  I invested the these funds into a slightly more conservative version of the "Larry Portfolio" which is explained in his book Reducing the Risk of Black Swans, and on this site -https://portfoliocharts.com/portfolio/swedroe-min-fat-tails/

I set it up with 13% US SCV, 12% EM, 75% 5-year AA+MUNI so it might look something like this -https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults

mathjak107

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Re: Took MMM advice and slashed emergency fund!
« Reply #56 on: August 11, 2016, 03:11:28 AM »
one of the sad parts of life is things tend to happen at the worst possible times .  just look at 2008 when job loss and pay cuts were happening left and right . it can suck selling off long term money at a 40% loss to fill short term needs .

nothing is ever a problem until it's a problem .

personally my opinion is  an emergency fund should not be dependent on credit or long term invested assets . murphy was an optimist when it comes to this stuff happening

putting the carrot on the stick with  money that really should be held in reserve is really not a great idea . 

i am a big believer in matching the money to the investments  based on the time frame that money may be needed . i would never match long term investments to money that  could have short term needs .

folks do this all the time , then they blame markets for burning them when they have to sell when markets are down . or they use credit cards as an emergency fund and then have to make loan payments when money is tight and they are running off the loan .

trouble happens when your plan tries to rule out  bad events from happening  instead of  allowing  for them and planning for them .

4-6 months of expense money is always what i like to see  today at a min . one of the big three eventually gets all of us . illness-divorce-job loss .

the better you plan to withstand life's negative  events the better the outcome may be.

« Last Edit: August 11, 2016, 04:19:20 AM by mathjak107 »

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #57 on: August 11, 2016, 01:28:03 PM »
one of the sad parts of life is things tend to happen at the worst possible times .  just look at 2008 when job loss and pay cuts were happening left and right . it can suck selling off long term money at a 40% loss to fill short term needs .



4-6 months of expense money is always what i like to see  today at a min . one of the big three eventually gets all of us . illness-divorce-job loss .

the better you plan to withstand life's negative  events the better the outcome may be.

pretty pessimistic look on life right there.  but if you live long enough i guess illness will hit you.  if you're into FIRE jobloss is hardly a question.  divorce is its own beast. 

i would still say "planning for the worst" can just snowball til you have money in your mattress.

mathjak107

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Re: Took MMM advice and slashed emergency fund!
« Reply #58 on: August 11, 2016, 01:33:34 PM »
there is a difference between ruling out uncertainty from a plan vs allowing for it in the plan . i was always as an aggressive investor as you can get but i made sure i always had 9 to 12 months in cash without upsetting any of our portfolio's or worrying about selling things at poor times .

lost my job in 2010 so i was glad i allowed for it .
« Last Edit: August 11, 2016, 01:36:16 PM by mathjak107 »

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #59 on: August 11, 2016, 02:02:43 PM »
i guess if i was looking at a 30+ year working career i would be more concerned about job loss.  i keep less than a month in cash and am some times leveraged out more than that depending on where i'm at CC churning at the time.  but we're DINKs so if i lose my job we have another income and vice versa.  both incomes can support our lifestyle standing alone. based on what you spend you're talking about keeping around 50-100k in cash over 30 years.  which at 6% on the 50k is a cost of over 230,000 dollars!!! that would keep me up at night. even if you had to withdraw in 2008 during the crash that close to the end of your career you'd still be ahead. having invested it.

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #60 on: August 11, 2016, 05:16:45 PM »
i guess if i was looking at a 30+ year working career i would be more concerned about job loss.  i keep less than a month in cash and am some times leveraged out more than that depending on where i'm at CC churning at the time.  but we're DINKs so if i lose my job we have another income and vice versa.  both incomes can support our lifestyle standing alone. based on what you spend you're talking about keeping around 50-100k in cash over 30 years.  which at 6% on the 50k is a cost of over 230,000 dollars!!! that would keep me up at night. even if you had to withdraw in 2008 during the crash that close to the end of your career you'd still be ahead. having invested it.

What's a DINK. And also, I agree with everything you're saying which is why I did what I did! Hooray for two peas in a pod or something like that.

Full Beard

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Re: Took MMM advice and slashed emergency fund!
« Reply #61 on: August 11, 2016, 05:31:03 PM »
DINK = Dual Income No Kids

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #62 on: August 11, 2016, 05:38:34 PM »
DINK = Dual Income No Kids

ahha! makes perfect sense.. I'm DIOI. Dual Income One Infant?

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #63 on: August 11, 2016, 05:49:29 PM »
DINK = Dual Income No Kids

ahha! makes perfect sense.. I'm DIOI. Dual Income One Infant?

In a year or 2 well be in your shoes then in 3-4 we'll be DICKs. Dual income couple kids.


ASquared

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Re: Took MMM advice and slashed emergency fund!
« Reply #64 on: August 15, 2016, 12:15:53 AM »
We "invested" our emergency $ into Betterment after reading quite a bit here. Very happy we did. It's been almost 3 years. The continued growth is amazing, and realistically we can wait the 7 days or so to cash out some of it if we truly need to. It's never been touched.

icemodeled

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Re: Took MMM advice and slashed emergency fund!
« Reply #65 on: August 21, 2016, 10:18:26 PM »
I need to make this a priority to.. We have $30k in our efund. Sitting in an account earning .01%! I'm not sure why I'm being such a worry wart about letting it go into a better fund. Even Ally would be better. Great you made the move though!

Dicey

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Re: Took MMM advice and slashed emergency fund!
« Reply #66 on: August 21, 2016, 11:26:55 PM »
I sort of consider my Roth IRA (my contributions) to be an emergency fund but one to be accessed only in the most dire need. I depleted my cash EF earlier this year thanks to car repairs, and it makes me quite nervous not have much in there anymore because I don't want to have to access my Roth. But thinking of a Roth as an EF seems like a way to have it both ways--you have access to your money if you really need it, but it's also working for you in a better investment vehicle than just a savings account. I suppose the issue is that it would take a few days to access Roth money, but if I were going to do that, I would probably just use a credit card to cover the emergency and then pay that off when I was able to get the cash from the Roth. Does this make sense? I would prefer to have a more liquid EF with 3-5K in it, even if that money wasn't making much in interest, but the Roth plan sort of helps me sleep better.
The oops in this plan is that once you take the money out of the Roth, you can't put it back. Those lovely tax benefits are gone forever. That blows enough that I would never seriously consider using the Roth as an EF. I'd rather just have cash on hand, the old fashioned way.

Trudie

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Re: Took MMM advice and slashed emergency fund!
« Reply #67 on: August 24, 2016, 01:22:26 PM »
I also count my HSA balances as part of my emergency fund.  Right now we have 14K in cash and another 7K in our HSA.  Plus access to a HELOC of $70K.   

I've slowly been DCA out of the money market (cash account) to fund my Roth for the year.

I would say I'm most comfortable with having $20K liquid (cash and HSA) plus the HELOC.  I also save receipts from small medical expenses that I don't reimburse myself so that in a pinch I could liquidate a large chunk of the HSA, but for now it can grow tax free.  I have the HSA invested in Vanguard index funds.

mathjak107

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Re: Took MMM advice and slashed emergency fund!
« Reply #68 on: August 25, 2016, 04:21:17 AM »
what is the plan if the hsa money is down 40% and you lost a job or need it for a big medical expense . we went through 20k in just dental this year for the two of us  .nothing sucks more than paying a heloc loan while out of work  or liquidating an index fund down 40% ..

just something to think about for folks following this path whether it apply's to the above post or not . it is a popular way of thinking , and of course as we know ,  nothing is a problem until it's a problem .
« Last Edit: August 25, 2016, 04:24:48 AM by mathjak107 »

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #69 on: August 25, 2016, 05:25:54 AM »
what is the plan if the hsa money is down 40% and you lost a job or need it for a big medical expense . we went through 20k in just dental this year for the two of us  .nothing sucks more than paying a heloc loan while out of work  or liquidating an index fund down 40% ..

just something to think about for folks following this path whether it apply's to the above post or not . it is a popular way of thinking , and of course as we know ,  nothing is a problem until it's a problem .

why are you so doom and gloom and cynical.  at this point i'd expect you to have all your money in cash under your mattress just incase.  i mean you never know when the banks will collapse like 1929 and you're gonna need it.  do you also have a bomb shelter completely stocked with guns ammo and food in case of apocolypse ... where does the what if situation end with you?  you're old we get it you've been around the block you retired at normal retirement age on an incredibly high annual spending.  what if the earth had been struck by an asteroid while you were toiling away at your job in your 50s.  what if what if what if.  cmon ... you can what if yourself into ridiculousness.

mathjak107

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Re: Took MMM advice and slashed emergency fund!
« Reply #70 on: August 25, 2016, 06:36:06 AM »
i didn't get to where i am being cynical  nor financially as successful . but i have been a round long enough to know murphy was an optimist when you plan long term things . you don't succeed by ruling out uncertainty or bad things happening . rather you allow and plan for them happening . if they don't than you are a head of the game . it is when you try to rule them out that you end up getting burned .

putting the carrot on the stick and just endlessly chasing it with every cent you can in my opinion is not a well thought out plan . counting on debt for emergency money is a no go in my book . lost my job in 2010 so it happens .
« Last Edit: August 25, 2016, 06:41:55 AM by mathjak107 »

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #71 on: August 25, 2016, 07:53:02 AM »
i didn't get to where i am being cynical  nor financially as successful . but i have been a round long enough to know murphy was an optimist when you plan long term things . you don't succeed by ruling out uncertainty or bad things happening . rather you allow and plan for them happening . if they don't than you are a head of the game . it is when you try to rule them out that you end up getting burned .

putting the carrot on the stick and just endlessly chasing it with every cent you can in my opinion is not a well thought out plan . counting on debt for emergency money is a no go in my book . lost my job in 2010 so it happens .

90% of this forum wouldnt have had an issue with that b/c they plan to be retired well before the age you were in 2010.

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #72 on: August 25, 2016, 08:34:44 AM »
simple risk can be looked at from multiple angles.  once you are saving in taxable accounts. you have an HSA and a HELOC etc. the risk of not having that money invested and earning greater than inflation out weighs the risk of having to pull money out from a catastrophic emergency in a down market.  the opportunity cost of holding money in cash is huge compared to the chance a perfect storm hits and you have to draw down taxable accounts.  also financial independence eliminates the concern for job loss late in life where it is harder to find one.  every 20-30s something here if they lost their job should likely be able to go find one relatively quickly to cover their cost of living. add into that dual income households where one income more than supports the lifestyle and you've further reduced risk.  most of you posts seem to ere on the side of catastrophic life failure ... where in my opinion catastrophic life failure would be not saving and investing enough while i was young to be financially independent by 40 and being so afraid of bad life events i let it affect my earning potential on my money.

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #73 on: August 25, 2016, 10:29:18 AM »
Boarder,

What if a Trex came down with laser beams, vaporized my vanguard funds, and then I needed 25K to pay a ransom to get my family back from Central American Cartels? Or if a sharknado did the same thing to my funds.

Thanks in advance.

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #74 on: August 25, 2016, 11:11:59 AM »
Having had extensive experience with both of these events in my life I'd say the T-Rex is the harder of the 2 issues.  I'd give then both a probability of 75%. Which means you have a 56.3% chance both will happen in your lifetime. Based on this striking evidence I would say you should probably keep half your efund invested frontend loaded Edward Jones accounts that return 1.6% guaranteed annually while your agent rotates these annually for you so you can keep that loading up.  The other half should be kept in funding a small military force bc you never know when you're going to need to invade another country where the cartel owns the govt to rescue your family.  Using Edward Jones you will gain that personal relationship with an advisor who will guide you past the sure fire lazer beams of the T-Rex.  And fielding a small army is really cost effective. Bc while your family may not always be kidnapped they come in handy for making sure all your bullets get put to good use from your stockpile in the event of anarchy.

DoubleNickels

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Re: Took MMM advice and slashed emergency fund!
« Reply #75 on: August 25, 2016, 12:14:35 PM »
There has to be a happy medium between Mathjak and Boarder.  Both have good points.  Yes if you are otherwise FI, a 40% downturn in the stock market won't bother you. But, there are likely many non-FI people that are reading this Forum, would read the advice that says "it's a low probability" and could be in a bind, WHEN that day comes.  Maybe not 40%, but there will be another major stock market downturn of 20-25-30-etc % at some time. And no one, I can guarantee you, no one knows when that will occur.  We know that it will recover, but if you are forced to liquidate during the downturn, you will miss the recovery.

   


boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #76 on: August 25, 2016, 02:47:12 PM »
There has to be a happy medium between Mathjak and Boarder.  Both have good points.  Yes if you are otherwise FI, a 40% downturn in the stock market won't bother you. But, there are likely many non-FI people that are reading this Forum, would read the advice that says "it's a low probability" and could be in a bind, WHEN that day comes.  Maybe not 40%, but there will be another major stock market downturn of 20-25-30-etc % at some time. And no one, I can guarantee you, no one knows when that will occur.  We know that it will recover, but if you are forced to liquidate during the downturn, you will miss the recovery.

 

and in all likelihood the cash you have been hoarding to help you in a down turn wont have dropped by as much as it gained over the time you were worried about that down turn. just an FYI mathjak is the guy who reached FI at 62 and retired.  who is screaming conservativism.  i'm a 30 year old who is 7 years from FIRE screaming invest.   if you dont have dual large incomes that either could support your lifestyle or large taxable savings, or a rock steady job or etc. then yeah maybe you should have one

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #77 on: August 26, 2016, 09:05:35 AM »
Having had extensive experience with both of these events in my life I'd say the T-Rex is the harder of the 2 issues.  I'd give then both a probability of 75%. Which means you have a 56.3% chance both will happen in your lifetime. Based on this striking evidence I would say you should probably keep half your efund invested frontend loaded Edward Jones accounts that return 1.6% guaranteed annually while your agent rotates these annually for you so you can keep that loading up.  The other half should be kept in funding a small military force bc you never know when you're going to need to invade another country where the cartel owns the govt to rescue your family.  Using Edward Jones you will gain that personal relationship with an advisor who will guide you past the sure fire lazer beams of the T-Rex.  And fielding a small army is really cost effective. Bc while your family may not always be kidnapped they come in handy for making sure all your bullets get put to good use from your stockpile in the event of anarchy.

I agree with everything you're saying but I think that your math is a bit off. Also, in the event of anarchy, would my small army still be faithful to me? Just some thoughts.

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #78 on: August 26, 2016, 09:11:08 AM »
There has to be a happy medium between Mathjak and Boarder.  Both have good points.  Yes if you are otherwise FI, a 40% downturn in the stock market won't bother you. But, there are likely many non-FI people that are reading this Forum, would read the advice that says "it's a low probability" and could be in a bind, WHEN that day comes.  Maybe not 40%, but there will be another major stock market downturn of 20-25-30-etc % at some time. And no one, I can guarantee you, no one knows when that will occur.  We know that it will recover, but if you are forced to liquidate during the downturn, you will miss the recovery.

 

and in all likelihood the cash you have been hoarding to help you in a down turn wont have dropped by as much as it gained over the time you were worried about that down turn. just an FYI mathjak is the guy who reached FI at 62 and retired.  who is screaming conservativism.  i'm a 30 year old who is 7 years from FIRE screaming invest.   if you dont have dual large incomes that either could support your lifestyle or large taxable savings, or a rock steady job or etc. then yeah maybe you should have one

OP here, I'm wayyyyy more on the side with boarder. Maybe I'm just na´ve but I can't come up with a situation in my mind where someone demands 35K tomorrow, in cash... Unless it's a ransom as described above. The largest money question mark for us is having a 2 month old.. Even if any of us had large medical expenses (the largest money thing I can think of popping up out of the blue) we could still put it on a credit card then pay it off before the interest gets added.  I understand the fear and uneasiness of having a small amount of money in the bank, but from a financial standpoint it's illogical. That being said, if someone says "it makes me feel at ease to see 25K in my bank for no reason",  I can accept that as an appropriate answer and move on. It is when people try to justify it in other ways that makes no sense.

That being said.. After putting the 20K in my Vanguard, I still left 15K in savings because it makes me sleep better at night.