Author Topic: Took MMM advice and slashed emergency fund!  (Read 17219 times)

Jaguar Paw

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Took MMM advice and slashed emergency fund!
« on: July 30, 2016, 01:30:19 PM »
I was involved in a thread on here not too long ago talking about how silly it is to have too large of an emergency fund, especially with a super secure job. I took the plunge on Friday and took out 20K from emergency fund and put it in some "moderately aggressive" Vanguard funds. Sweet! 10 years from now me thanks everyone that participated in that discussion.

gggggg

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Re: Took MMM advice and slashed emergency fund!
« Reply #1 on: July 30, 2016, 09:06:39 PM »
I also cut mine down some, due to the same or a similar thread. It's hard to decide what to do with large expense savings though (car, roof, ac), I have trouble with those. I don't want to be pulling out dollars from an investment account for a new roof, if the market is down, for example. Maybe someone with math skills will chime in.

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #2 on: July 30, 2016, 09:22:48 PM »
we are moderately lucky (kind of?) A tornado tore apart our roof 3 months ago and we paid $250 for a brand new roof! That being said, we still chose to leave 15 k in emergency fund which for many people in here is still too much but it emotionally makes us feel good, which is cool.

COEE

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Re: Took MMM advice and slashed emergency fund!
« Reply #3 on: July 31, 2016, 05:10:31 AM »
I've always kept a pretty small emergency fund.  Something happened last week to convince me to increase this pretty significantly.

I work for small business (~50 employees).  Just last week one of the engineers that had been with the company for 6 years was booted because he was no longer a good fit for the company.  We were told that he was given 2 months notice to help him find a new job and finish up his work.  He also didn't tell a soul around the office (pretty classy if you ask me).  So the announcement of his immediate departure took the rest of the employees in the company by surprise.  Well this scared the SHIT out of me after working in corporate america all of my prior life; where nobody got fired or laid off.  I've been stashing an emergency fund like mad since that happened.  I have about 4 months right now.  Will be at 6 months in a few months.  With unemployment checks, hopefully a two month notice, and the way I do my finances (always living on last months income), I think this will stretch to about 9-12 months if I ever get the boot.  It took me about 2.5 years to find my last job (but I had a job so I could afford to be picky).

Overkill?  Maybe.  Nowadays it's a small percentage of my NW.  But most of my NW is wrapped up in investments and housing that I don't have liquid access to.

IDK.  At least I sleep at night.

mathjak107

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Re: Took MMM advice and slashed emergency fund!
« Reply #4 on: July 31, 2016, 05:15:14 AM »
we always maintained a healthy emergency fund and raising a family we were glad we did . there were always emergency spending situations and unexpected expenses .

in the scheme of things our investments ran with the ball and the relatively small amount in cash amounted to us giving up very little but the access and comfort was worth it .
today we are retired and maintain 2 years living expenses ready to go in cash .

one year we spend currently and the other is held in reserve . it amounts to less then 8% of our total portfolio . even at zero we couldn't really care less  about that part . it is all part of the plan .

Travis

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Re: Took MMM advice and slashed emergency fund!
« Reply #5 on: July 31, 2016, 10:00:17 AM »
I also cut mine down some, due to the same or a similar thread. It's hard to decide what to do with large expense savings though (car, roof, ac), I have trouble with those. I don't want to be pulling out dollars from an investment account for a new roof, if the market is down, for example. Maybe someone with math skills will chime in.

It's a matter of your risk tolerance, job security, and what you might be on the hook for in an emergency.  I have an extremely secure job, paid-for medical, and don't own a home so my emergency fund is mainly for expensive vehicle maintenance or a big shopping expense.  If you have recurring medical issues or a house to maintain it would be a good idea to keep enough to cover a significant expense if you can't immediately float it on credit.  While I keep $1000 set aside for "emergencies," I also live on YNAB's "live on last month's income" rule so in a way I have a full month of expenses plus $1000 sitting in checking.  I've heard homeowners here discuss keeping 1-2% of your home's value in cash in order to cover maintenance.

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #6 on: July 31, 2016, 02:46:59 PM »
We still keep around 3 -4 months of expenses in savings so it's ready to go whenever. This is probably too much as my wife and I would literally have to commit criminal acts in order to lose our jobs and the cost of being in prison for the person in prison is pretty non existent :).  Once again, it's just a weird "helps me sleep at night" number.

William Cannon

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Re: Took MMM advice and slashed emergency fund!
« Reply #7 on: July 31, 2016, 05:55:10 PM »
Could someone please share what the recommendation is for emergency fund?

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boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #8 on: July 31, 2016, 06:26:22 PM »
Could someone please share what the recommendation is for emergency fund?

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It varies wildly. We personally don't have a typical efund. All my money I don't need to live is invested in retirement and taxable accounts. I can't imagine keeping all those dollars in cash or bonds not working for me making money.

markstache

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Re: Took MMM advice and slashed emergency fund!
« Reply #9 on: July 31, 2016, 06:44:09 PM »
[Disclaimer: I recently (post MMM interview) started using You Need A Budget; I display all the ferver of a recent convert.]

I think the problem with e-funds is not that you hold cash but that you don't know WHY you have it.

My current strategy is to budget 3 months out of basic expenditures, 2  months of sinking funds/long term commitments, and 1 month of discretionary spending (all with dollars I have in my bank account right now). Everything else goes into retirement funds. If something comes up, I know i can pull back on future commitments with current dollars to say one month or two months.

[As I said, I'm new at this, but it makes sense. Previously,  had savings fund and it always covered my issues, but I never knew when enough was enough]

BeautifulDay

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Re: Took MMM advice and slashed emergency fund!
« Reply #10 on: July 31, 2016, 06:46:53 PM »
I would much rather keep all of my money invested and working for me.  I don't have children or own my home or have any medical issues.  I do have enough cash in my HSA to cover deductibles.  Right now that's my only cash savings.  I do have a couple months expenses in after tax investments that could be liquidated. 

But I am going to start building up my cash savings.  There is a chance that we may want to buy a house in the next couple years.  So I'd like to set aside $15k -$20k for a down payment.  It will be the first time I've ever keep this kind of cash savings. 

tightwaddy

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Re: Took MMM advice and slashed emergency fund!
« Reply #11 on: July 31, 2016, 08:01:28 PM »
We have $30K in our emergency fund. This number makes us comfortable and we have three different Kasasa credit union checking accounts that pay 3.1% interest on up to $10K balance (.02 % after that--so not much point in going higher).  The one downside is we need to make 12 debit card purchases on each to get the 3.1%, but that includes 50-cent gift card reloads to Amazon.

SeaEhm

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Re: Took MMM advice and slashed emergency fund!
« Reply #12 on: July 31, 2016, 08:12:44 PM »
Congrats! 

Great thread! I am always wavering on how much should I have in a bank account that is accessible within a day.   $15k seems like it would cover about 97.3% of the possible unexpected expenses that may pop up.


CarrieWillard

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Re: Took MMM advice and slashed emergency fund!
« Reply #13 on: August 01, 2016, 04:21:55 AM »
I have been reading threads about emergency funds and not one person has mentioned temporary disability due to a car wreck or other unforeseeable event (back injury, sudden pregnancy complications etc).

I think that for my particular family situation, having a 3 to 6 month emergency fund is wise. I realize that this is a sacred cow here. But since my husband is the person who earns 90% of the income in the family and if he were to become disabled for some reason I would not be able to pay the bills on my income, it seems foolish not to have money in the bank to take care of a large family.

Do a lot of people on this forum take out short-term disability insurance? 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.


Tjat

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Re: Took MMM advice and slashed emergency fund!
« Reply #14 on: August 01, 2016, 05:43:33 AM »
Could someone please share what the recommendation is for emergency fund?

http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/

MMM has at least one article on this, but his philosophy is that you always wants as many of your dollars as possible "working" for you in investments. Rather than having an e-fund of cash losing value to inflation, he advocates

1) Keep a HELOC on your home and only draw on it for emergencies
2) Sell investments in the event of a true emergency (philosophy that emergencies are so infrequent that even if you sell in a slump, you'll make out ahead long-term)

Another option non-MMM endorsed that I have used is:
3) Credit cards - For Short-term cash needs that outpace my cash flow, I would use a credit card to take advantage of the ~29 day float before interest kicks in. That way I'm able to stretch my liquidity until the next pay check comes in and have 0% interest charges.

William Cannon

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Re: Took MMM advice and slashed emergency fund!
« Reply #15 on: August 01, 2016, 06:21:47 AM »



Do a lot of people on this forum take out short-term disability insurance? 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.

Yes, we have a short term disability policy but it is cheap through my employer.  If you couldnt pay bills if your hubby were  to get hurt, i recommend looking into one.

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William Cannon

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Re: Took MMM advice and slashed emergency fund!
« Reply #16 on: August 01, 2016, 06:24:45 AM »
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?

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boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #17 on: August 01, 2016, 06:40:13 AM »
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?

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i'd invest but as stated above i invest everything. 

Duchess of Stratosphear

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Re: Took MMM advice and slashed emergency fund!
« Reply #18 on: August 01, 2016, 08:14:41 AM »
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.

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #19 on: August 01, 2016, 08:58:33 AM »
I have been reading threads about emergency funds and not one person has mentioned temporary disability due to a car wreck or other unforeseeable event (back injury, sudden pregnancy complications etc).

I think that for my particular family situation, having a 3 to 6 month emergency fund is wise. I realize that this is a sacred cow here. But since my husband is the person who earns 90% of the income in the family and if he were to become disabled for some reason I would not be able to pay the bills on my income, it seems foolish not to have money in the bank to take care of a large family.

Do a lot of people on this forum take out short-term disability insurance? 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.

Answering this question personally, I have 9 months paid vacation time saved and my wife has 6 months (it was 9 but she took off 4 for our newborn). If we were to have any type of emergency, we would continue getting paid for some time. In addition to this we also have some fairly minimal free life insurance through our employer. Without paying, if one of us dies, the other will get one year salary.

Also, with money in a Vanguard fund, it can be accessed in a few days should an emergency come about, the risk being an emergency happening during a time like 2008.

The more I write about this the less I realize I should have sitting in my bank account doing nothing.

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #20 on: August 01, 2016, 09:02:26 AM »
I have been reading threads about emergency funds and not one person has mentioned temporary disability due to a car wreck or other unforeseeable event (back injury, sudden pregnancy complications etc).

I think that for my particular family situation, having a 3 to 6 month emergency fund is wise. I realize that this is a sacred cow here. But since my husband is the person who earns 90% of the income in the family and if he were to become disabled for some reason I would not be able to pay the bills on my income, it seems foolish not to have money in the bank to take care of a large family.

Do a lot of people on this forum take out short-term disability insurance? 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.

Answering this question personally, I have 9 months paid vacation time saved and my wife has 6 months (it was 9 but she took off 4 for our newborn). If we were to have any type of emergency, we would continue getting paid for some time. In addition to this we also have some fairly minimal free life insurance through our employer. Without paying, if one of us dies, the other will get one year salary.

Also, with money in a Vanguard fund, it can be accessed in a few days should an emergency come about, the risk being an emergency happening during a time like 2008.

The more I write about this the less I realize I should have sitting in my bank account doing nothing.

off topic but how much PTO do you acrue annually 9 months saved holy cow!!

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #21 on: August 01, 2016, 09:14:24 AM »
I have been reading threads about emergency funds and not one person has mentioned temporary disability due to a car wreck or other unforeseeable event (back injury, sudden pregnancy complications etc).

I think that for my particular family situation, having a 3 to 6 month emergency fund is wise. I realize that this is a sacred cow here. But since my husband is the person who earns 90% of the income in the family and if he were to become disabled for some reason I would not be able to pay the bills on my income, it seems foolish not to have money in the bank to take care of a large family.

Do a lot of people on this forum take out short-term disability insurance? 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.

Answering this question personally, I have 9 months paid vacation time saved and my wife has 6 months (it was 9 but she took off 4 for our newborn). If we were to have any type of emergency, we would continue getting paid for some time. In addition to this we also have some fairly minimal free life insurance through our employer. Without paying, if one of us dies, the other will get one year salary.

Also, with money in a Vanguard fund, it can be accessed in a few days should an emergency come about, the risk being an emergency happening during a time like 2008.

The more I write about this the less I realize I should have sitting in my bank account doing nothing.

off topic but how much PTO do you acrue annually 9 months saved holy cow!!

A lot... My wife and I both work for the same employer. we get 4 weeks every year that we have to use or we lose it (so we obviously use it). In addition to that we get around 5 weeks off per year (it goes up every year with time with employer) that can accrue indefinitely. Neither of us have touched much of that in 8 years me, 7 years her. In addition to that, sometimes we can work overtime for time off in the future instead of pay. This time bank has a maximum of over 400 hours. I have around 250 in here after just taking 4 weeks off for my baby.

bittheory

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Re: Took MMM advice and slashed emergency fund!
« Reply #22 on: August 01, 2016, 09:31:20 AM »
Mine sits at exactly 6 months living expenses. This is also to cover any major medical and/or repairs and replacements on my primary home and rental home.

The argument to place the majority of that fund in the market is strong, but I personally like the psychological security of having cash on hand.

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #23 on: August 01, 2016, 12:04:53 PM »
I have been reading threads about emergency funds and not one person has mentioned temporary disability due to a car wreck or other unforeseeable event (back injury, sudden pregnancy complications etc).

I think that for my particular family situation, having a 3 to 6 month emergency fund is wise. I realize that this is a sacred cow here. But since my husband is the person who earns 90% of the income in the family and if he were to become disabled for some reason I would not be able to pay the bills on my income, it seems foolish not to have money in the bank to take care of a large family.

Do a lot of people on this forum take out short-term disability insurance? 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.

Answering this question personally, I have 9 months paid vacation time saved and my wife has 6 months (it was 9 but she took off 4 for our newborn). If we were to have any type of emergency, we would continue getting paid for some time. In addition to this we also have some fairly minimal free life insurance through our employer. Without paying, if one of us dies, the other will get one year salary.

Also, with money in a Vanguard fund, it can be accessed in a few days should an emergency come about, the risk being an emergency happening during a time like 2008.

The more I write about this the less I realize I should have sitting in my bank account doing nothing.

off topic but how much PTO do you acrue annually 9 months saved holy cow!!

A lot... My wife and I both work for the same employer. we get 4 weeks every year that we have to use or we lose it (so we obviously use it). In addition to that we get around 5 weeks off per year (it goes up every year with time with employer) that can accrue indefinitely. Neither of us have touched much of that in 8 years me, 7 years her. In addition to that, sometimes we can work overtime for time off in the future instead of pay. This time bank has a maximum of over 400 hours. I have around 250 in here after just taking 4 weeks off for my baby.

holy hell i'd take a 15% pay cut for that extra time.

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #24 on: August 01, 2016, 06:36:42 PM »
I have been reading threads about emergency funds and not one person has mentioned temporary disability due to a car wreck or other unforeseeable event (back injury, sudden pregnancy complications etc).

I think that for my particular family situation, having a 3 to 6 month emergency fund is wise. I realize that this is a sacred cow here. But since my husband is the person who earns 90% of the income in the family and if he were to become disabled for some reason I would not be able to pay the bills on my income, it seems foolish not to have money in the bank to take care of a large family.

Do a lot of people on this forum take out short-term disability insurance? 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.

Answering this question personally, I have 9 months paid vacation time saved and my wife has 6 months (it was 9 but she took off 4 for our newborn). If we were to have any type of emergency, we would continue getting paid for some time. In addition to this we also have some fairly minimal free life insurance through our employer. Without paying, if one of us dies, the other will get one year salary.

Also, with money in a Vanguard fund, it can be accessed in a few days should an emergency come about, the risk being an emergency happening during a time like 2008.

The more I write about this the less I realize I should have sitting in my bank account doing nothing.

off topic but how much PTO do you acrue annually 9 months saved holy cow!!

A lot... My wife and I both work for the same employer. we get 4 weeks every year that we have to use or we lose it (so we obviously use it). In addition to that we get around 5 weeks off per year (it goes up every year with time with employer) that can accrue indefinitely. Neither of us have touched much of that in 8 years me, 7 years her. In addition to that, sometimes we can work overtime for time off in the future instead of pay. This time bank has a maximum of over 400 hours. I have around 250 in here after just taking 4 weeks off for my baby.

holy hell i'd take a 15% pay cut for that extra time.

Continuing to digress, but it's cool because it's my thread, right? We absolutely love all our paid time off, it allows us to visit Colorado a few times a year, head up to New England once and normally throw another state in there as well. It's pretty sweet!

gggggg

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Re: Took MMM advice and slashed emergency fund!
« Reply #25 on: August 01, 2016, 06:37:08 PM »
I mentioned this above, in an earlier post. So what do you guys do for large expense savings? Things like future vehicle, roof, hvac. It's not really an emergency item, because you know it's a predictable cost that's coming up at some point. I'm not sure I want my stable value emergency fund to be so large as to cover these AND a emergency; but I also am not real keen to put this future expense savings in the stock market, because you will need it much sooner than what you would the rest of your "standard" investments. I have my emergency fund and my retirement figured out; I just don't know where to put these in-between, large expense savings.

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #26 on: August 01, 2016, 07:50:12 PM »
Large expenses get invested. Not a single one of those expenses you listed should be replacedore than every 15-20 years. In which case stocks win. But even if it was 5-10 years I'd take the same stance bc in the long run investing will come out ahead

BeautifulDay

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Re: Took MMM advice and slashed emergency fund!
« Reply #27 on: August 01, 2016, 10:07:31 PM »
I have been reading threads about emergency funds and not one person has mentioned temporary disability due to a car wreck or other unforeseeable event (back injury, sudden pregnancy complications etc).

I think that for my particular family situation, having a 3 to 6 month emergency fund is wise. I realize that this is a sacred cow here. But since my husband is the person who earns 90% of the income in the family and if he were to become disabled for some reason I would not be able to pay the bills on my income, it seems foolish not to have money in the bank to take care of a large family.

Do a lot of people on this forum take out short-term disability insurance? 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.

My company provides sick days that can only be used with a doctor's approval or maternity leave and to use it you must be out more than 3 days.  So it is only used for short term medical type situations. They also provide long term disability insurance. I have 6 months of sick days saved and those would provide until the long term disability kicks in. 

My higher risk is that I couldn't work for other reasons. (Like Needing to assist aging parents).  In that case I'd liquidate my investments. It's a last resort fund.  But I'll risk having that money invested rather than having money sitting around not doing anything. 

FrenchStache

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Re: Took MMM advice and slashed emergency fund!
« Reply #28 on: August 02, 2016, 05:42:47 PM »
I have a long term disability insurance policy.  We also have 4-6 months (depending on spending levels) emergency fund invested conservatively (40% stock and 60% bonds) in Betterment.  Otherwise we keep a solid month worth of expenses in our checking account that absorbs any little unforeseen expenses.  Didn't think of it that way, but like someone above mentioned we also have some money in HSA account for medical emergencies.  Hope this helps.

CarrieWillard

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Re: Took MMM advice and slashed emergency fund!
« Reply #29 on: August 03, 2016, 05:55:20 AM »
"Answering this question personally, I have 9 months paid vacation time saved and my wife has 6 months (it was 9 but she took off 4 for our newborn). If we were to have any type of emergency, we would continue getting paid for some time. "

See... hubby and I are both self-employed, therefore I'm pretty convinced that having 3-6 months of cash in a crappy savings account IS the wise choice for us (7 kids, mostly one income - his). That, and I'm looking into short-term disability insurance pronto. If my hubby fell off a ladder, got in a bad car wreck, etc - we'd be screwed otherwise.


boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #30 on: August 03, 2016, 06:03:56 AM »
"Answering this question personally, I have 9 months paid vacation time saved and my wife has 6 months (it was 9 but she took off 4 for our newborn). If we were to have any type of emergency, we would continue getting paid for some time. "

See... hubby and I are both self-employed, therefore I'm pretty convinced that having 3-6 months of cash in a crappy savings account IS the wise choice for us (7 kids, mostly one income - his). That, and I'm looking into short-term disability insurance pronto. If my hubby fell off a ladder, got in a bad car wreck, etc - we'd be screwed otherwise.

thats why everyone is unique but you're at one extreme end of a spectrum around here... self employed and 7 kids isnt the norm

Jaguar Paw

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Re: Took MMM advice and slashed emergency fund!
« Reply #31 on: August 03, 2016, 12:38:49 PM »
"Answering this question personally, I have 9 months paid vacation time saved and my wife has 6 months (it was 9 but she took off 4 for our newborn). If we were to have any type of emergency, we would continue getting paid for some time. "

See... hubby and I are both self-employed, therefore I'm pretty convinced that having 3-6 months of cash in a crappy savings account IS the wise choice for us (7 kids, mostly one income - his). That, and I'm looking into short-term disability insurance pronto. If my hubby fell off a ladder, got in a bad car wreck, etc - we'd be screwed otherwise.

thats why everyone is unique but you're at one extreme end of a spectrum around here... self employed and 7 kids isnt the norm

plus 1

CarrieWillard

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Re: Took MMM advice and slashed emergency fund!
« Reply #32 on: August 03, 2016, 01:19:58 PM »
"thats why everyone is unique but you're at one extreme end of a spectrum around here... self employed and 7 kids isnt the norm"

It isn't? Teehee, I had no idea. :-)



Glenstache

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Re: Took MMM advice and slashed emergency fund!
« Reply #33 on: August 04, 2016, 10:50:04 AM »
I also cut mine down some, due to the same or a similar thread. It's hard to decide what to do with large expense savings though (car, roof, ac), I have trouble with those. I don't want to be pulling out dollars from an investment account for a new roof, if the market is down, for example. Maybe someone with math skills will chime in.

My personal strategy is that the invested portion should be 30% greater than the equivalent cash amount to allow for a bad market downturn and maintain the desired emergency amount. For example: If I want a 20k reserve and decide I want to have 10k of my emergency reserve invested, then I want to have a minimum of $13k in the accessible investment account to maintain that 20k target on top of the 10k still in cash. This does result in some over-saving, but that is really in a ledger sense only. Those extra 3k are still working for you.

Drifterrider

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Re: Took MMM advice and slashed emergency fund!
« Reply #34 on: August 04, 2016, 12:48:54 PM »
Could someone please share what the recommendation is for emergency fund?

Sent from my SAMSUNG-SM-G920A using Tapatalk

Suze Ormond used to say 3 months.  Since the meltdown of 2008 I think she now recommends 6 months.  I have one year's take home in my EF.  It does make interest.  I could probably get more interest but I'd then be taking risk I'm not willing to take.  My EF is my security blanket. 

Drifterrider

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Re: Took MMM advice and slashed emergency fund!
« Reply #35 on: August 04, 2016, 12:50:56 PM »
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?

Hotstreak

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Re: Took MMM advice and slashed emergency fund!
« Reply #36 on: August 04, 2016, 02:21:06 PM »
I think it's useful to think of your emergency fund in two ways.  One, how many months of regular expenses could I cover (emergency: job loss).  Two, do I have enough money to pay for an unlikely significant event (emergency: major car trouble, major health situation, major legal expense).  Since I started thinking this way I have been building my e-fund up, I want enough in there to cover a new car + 3 months bare bones budget, which would be close to $10k.  At some point I will need a new car and that will go down to $3-5k, which I would still be comfortable with.  I also have a $10k credit line I can draw cash off of at about 10% interest, if I needed to.

William Cannon

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Re: Took MMM advice and slashed emergency fund!
« Reply #37 on: August 04, 2016, 03:20:18 PM »
Could someone please share what the recommendation is for emergency fund?

Sent from my SAMSUNG-SM-G920A using Tapatalk

Suze Ormond used to say 3 months.  Since the meltdown of 2008 I think she now recommends 6 months.  I have one year's take home in my EF.  It does make interest.  I could probably get more interest but I'd then be taking risk I'm not willing to take.  My EF is my security blanket.
Where do you keep your EF?  I'm yielding about 1% in mine.

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boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #38 on: August 04, 2016, 03:50:53 PM »
Could someone please share what the recommendation is for emergency fund?

Sent from my SAMSUNG-SM-G920A using Tapatalk

Suze Ormond used to say 3 months.  Since the meltdown of 2008 I think she now recommends 6 months.  I have one year's take home in my EF.  It does make interest.  I could probably get more interest but I'd then be taking risk I'm not willing to take.  My EF is my security blanket.
Where do you keep your EF?  I'm yielding about 1% in mine.

Sent from my SAMSUNG-SM-G920A using Tapatalk

You mean -2% I think. Should talk in real returns.

Bicycle_B

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Re: Took MMM advice and slashed emergency fund!
« Reply #39 on: August 04, 2016, 04:40:58 PM »
I've always kept a pretty small emergency fund.  Something happened last week to convince me to increase this pretty significantly.

I work for small business (~50 employees).  Just last week one of the engineers that had been with the company for 6 years was booted because he was no longer a good fit for the company.  We were told that he was given 2 months notice to help him find a new job and finish up his work.  He also didn't tell a soul around the office (pretty classy if you ask me).  So the announcement of his immediate departure took the rest of the employees in the company by surprise.  Well this scared the SHIT out of me after working in corporate america all of my prior life; where nobody got fired or laid off.  I've been stashing an emergency fund like mad since that happened.  I have about 4 months right now.  Will be at 6 months in a few months.  With unemployment checks, hopefully a two month notice, and the way I do my finances (always living on last months income), I think this will stretch to about 9-12 months if I ever get the boot.  It took me about 2.5 years to find my last job (but I had a job so I could afford to be picky).

Overkill?  Maybe.  Nowadays it's a small percentage of my NW.  But most of my NW is wrapped up in investments and housing that I don't have liquid access to.

IDK.  At least I sleep at night.

If you have home equity, check into a HELOC (home equity line of credit) if you haven't done that.  It can be a way to give yourself great liquidity at little or no cost.  I believe MMM has one himself.

Just yesterday my bank (a very large American bank) explained that they are currently waiving closing costs for setting up a new HELOC, a savings of several thousand dollars, and that they actually lower the interest rate on a 30 year line by .1% for every $10,000 in credit line up to $100,000; this reduced the rate to 3.3%.  This bank requires you to borrow the $100,000 for the first three months, so essentially there is a .825% fee ($825 for $100K line; $990 for $120K line), though getting interest elsewhere for three months would reduce the effective fee.  I did not decide to do it but if I was illiquid and worried about it, would have done it - cheap insurance.  Once income disappears, it's harder to set up, I suspect.
« Last Edit: August 04, 2016, 05:03:13 PM by Bicycle_B »

Bicycle_B

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Re: Took MMM advice and slashed emergency fund!
« Reply #40 on: August 04, 2016, 05:00:55 PM »
I mentioned this above, in an earlier post. So what do you guys do for large expense savings? Things like future vehicle, roof, hvac. It's not really an emergency item, because you know it's a predictable cost that's coming up at some point. I'm not sure I want my stable value emergency fund to be so large as to cover these AND a emergency; but I also am not real keen to put this future expense savings in the stock market, because you will need it much sooner than what you would the rest of your "standard" investments. I have my emergency fund and my retirement figured out; I just don't know where to put these in-between, large expense savings.

I like Glenstache's 30% approach. 

Another way to invest the money while reducing risk is to use a more diverse portfolio.  The idea is that by having several investment types in your mix, volatility is lower.  This isn't strictly an MMM recommendation, but MMM's reasoning behind the usual stock portfolio is simplicity and long term returns; for your short term purpose, diversification could be helpful.  There's a member of this forum who created an awesome set of calculators showing the historical results of many portfolios besides just a stock or stock-and-bond strategy. Just about all of them historically vary less than stocks.  https://portfoliocharts.com/portfolios/

A third option is that you can use is i-bonds (Series I Federal Savings bonds), issued by the US Treasury.  Their interest rates are low right now, but they include an inflation protection guarantee as well as federal payment guarantee.  They have no fees and can be redeemed at will after being held one year.  You can buy $10,000 per year if you like.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
http://www.pbs.org/newshour/rundown/americas-best-kept-financial-secret-i-bonds/
« Last Edit: August 04, 2016, 05:04:49 PM by Bicycle_B »

Bicycle_B

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Re: Took MMM advice and slashed emergency fund!
« Reply #41 on: August 04, 2016, 05:02:16 PM »
deleted accidental re-post
« Last Edit: August 04, 2016, 05:08:40 PM by Bicycle_B »

William Cannon

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Re: Took MMM advice and slashed emergency fund!
« Reply #42 on: August 04, 2016, 08:14:20 PM »
Could someone please share what the recommendation is for emergency fund?

Sent from my SAMSUNG-SM-G920A using Tapatalk

Suze Ormond used to say 3 months.  Since the meltdown of 2008 I think she now recommends 6 months.  I have one year's take home in my EF.  It does make interest.  I could probably get more interest but I'd then be taking risk I'm not willing to take.  My EF is my security blanket.
Where do you keep your EF?  I'm yielding about 1% in mine.

Sent from my SAMSUNG-SM-G920A using Tapatalk

You mean -2% I think. Should talk in real returns.
Yes.  This is why I posted.  My situation: i work in a highly volitile industry so i have 11 months EF.  That is in addition to about another $8k that I accumulate for regularly occuring large spend items like kids' private tuition, car repairs and maintenance, annual insurance payments, etc.  Next year I plan to start saving for the next car which will be due for replacement in 4 years so I avoid car payments.



 using Tapatalk
« Last Edit: August 04, 2016, 08:25:38 PM by William Cannon »

Drifterrider

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Re: Took MMM advice and slashed emergency fund!
« Reply #43 on: August 05, 2016, 04:58:44 AM »
Could someone please share what the recommendation is for emergency fund?

Sent from my SAMSUNG-SM-G920A using Tapatalk

Suze Ormond used to say 3 months.  Since the meltdown of 2008 I think she now recommends 6 months.  I have one year's take home in my EF.  It does make interest.  I could probably get more interest but I'd then be taking risk I'm not willing to take.  My EF is my security blanket.
Where do you keep your EF?  I'm yielding about 1% in mine.

Sent from my SAMSUNG-SM-G920A using Tapatalk

Bank.  Not much interest but Sooooooooooo much warm fuzzies knowing it is there.  Plus, I'm looking for my second rental house and I like to have a nice savings account for when I find it.

talltexan

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Re: Took MMM advice and slashed emergency fund!
« Reply #44 on: August 05, 2016, 06:45:20 AM »
I've set aside $17,000-ish in dividend paying stocks, then used short-term 0% interest cash advances to meet emergencies. I probably have $11,000 balance on the loans...if I really get into a bind, I can sell the stocks to pay them off, but the way interest rates are going, the dividends should more than cover the interest and fees for a while still.

Slee_stack

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Re: Took MMM advice and slashed emergency fund!
« Reply #45 on: August 05, 2016, 01:31:34 PM »
I minimize EFs and have a similar view to Boarder.

It takes a couple extra days at most to sell funds vs moving funds from an online savings.  Sure there's risk of selling low.  There's also a bit of 'risk' of selling high too!

Is the sky falling inside those extra 24-48 hrs?  How many true EMERGENCIES are folks here having every year?

If emergencies are a regular event, you have bigger issues to tackle than your e-fund.  There's probably other actions/improvements you can take to position yourself better to weather them.

boarder42

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Re: Took MMM advice and slashed emergency fund!
« Reply #46 on: August 06, 2016, 04:00:38 AM »
I've set aside $17,000-ish in dividend paying stocks, then used short-term 0% interest cash advances to meet emergencies. I probably have $11,000 balance on the loans...if I really get into a bind, I can sell the stocks to pay them off, but the way interest rates are going, the dividends should more than cover the interest and fees for a while still.

You do realize this approach is inherently risky than just putting it in vtsax and selling some in the event of an emergency right?

mathjak107

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Re: Took MMM advice and slashed emergency fund!
« Reply #47 on: August 06, 2016, 04:03:03 AM »
 i would never use a credit line to replace cash .  just imagine losing a job in 2008-2009 and now having to start paying a loan back as well as living expenses  from a beaten up portfolio .  no thanks!

there is a point where putting the carrot on the stick with to much of your money  money  reaches a tipping point . to me , that is it . if you have to create debt to handle an emergency or unexpected large expense and then risk losing money on the asset you will pay the debt with that is a risk that exceeds the reward in my opinion .

you are using long term investments for potential short term money . never a good idea .

we see the same thing over and over with folks so called trying to self insure their long term care .

the money is left in the regular portfolio , used to base an income draw off off and then when they need it the stay at home spouse has to take a massive income cut as the money is spent down and the assets creating the income dwindle down towards impoverishment .

« Last Edit: August 06, 2016, 04:25:28 AM by mathjak107 »

mathjak107

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Re: Took MMM advice and slashed emergency fund!
« Reply #48 on: August 06, 2016, 04:30:58 AM »
we are retired . our cash held for the current years expenses and 1 year in reserve is over 200k .

it  is only   a small part of our portfolio  but it is an important part of our withdrawal strategy . if it gets 1% great , if not , it is irrelevant .

a better functioning portfolio with a better tax plan can surpass anything cash will give up . never mix long term investments with short term money needs  . that usually never ends well .

let me add one more thing . do not tie up all your cash in an on line bank either . make sure you keep some local at a brick and mortar bank .

we just had our main cash account that we pay bills from and have any direct deposit income go to shut down .

it is now a week and things are being re-set up by them and no money movement can happen .  luckily we have money locally too .

they have their  own team of internet hackers if you want to call them that . they monitor the underground criminal sites that sell info and credit card data . they found my wife's log in info up there .

she has not logged on in months under her log in so where it came from is anyone's guess .

they required us to have the computer professionally cleaned and now they are setting up all new accounts . nothing major was found  in the scans .

if any money is taken an investigation can be required under certain circumstances . there is no legal time frame as far as when you can see your money again  or the account livened
« Last Edit: August 06, 2016, 04:45:17 AM by mathjak107 »

CarrieWillard

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Re: Took MMM advice and slashed emergency fund!
« Reply #49 on: August 07, 2016, 05:50:10 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.