Am I stupid for not having an emergency fund?

[FrugalKube]

In the case of an OP he may not need an emergency fund. Dont they recommend at least having a few month emergency fund just in case? And what constitutes  the use of this fund, medical emergency, loss of job, car accident? For me I think it would be loss of job.

[dess1313]

Talking from experience here.  I have a solid job, but due to an injury was off work for 5-6 months.  I had to deal with EI and later insurance minimal payouts.  As much as we have good insurance, they don't pay you 100% of your income.  Ei was about half or less of my normal income.  It was a hell of a shock. 

Ive been fairly good with my finances, but it taught me a lesson that you can never depend on anything 100%  I am also single living alone so ALL expenses fell on my shoulders as well.  Well let say my spending has dramatically improved since then and i've recovered nicely in the bank side of things as well.

I had a EF that saved my ass.  It took a hell of a hit, but i was able to get through the ups and downs, the waiting weeks without any payments because i had my EF to pull from.  I had it as a savings account in a TFSA. (I'm Canadian)Had to have it as liquid as possible for that reason. 

A EF makes it easy to sleep at night.  Hopefully most of you wont, but its worth its weight in gold when you need it in a crunch.

[Villanelle]

But I don't think there's a one size fits all answer.  DH's job is freakishly stable (military).   If he's injured, he still gets full pay, assuming it is recoverable.  If it isn't, he'd have to deal with the mess that is the VA, but he'd still have income. That alone means we need less EF than other people.  And we have a HELOC, with nearly 5 figures of room on it, and we could probably increase that if necessary (though we'd lose the great terms we currently have, so we haven't bothered). 

Everyone needs to evaluate their own situation, but I certainly don't think that having thousands or tens of thousands of dollars sitting around not working is necessary for everyone, or even most people.

[dess1313]

All i had was $5k.  not much but enough to ride out the bad waves.  You may not need 20k, but it depends on where and how you live.  after reading more in these forums, those who live on less will find it easier.  Those who have working partners will find it easier.  My future goal is about 8k. But that's me and my life style.  Especially it will be better now that my mortgage is just about over with.

[Retire-Canada]

I don't keep cash as an EF. That would be a huge waste of money - literally!

In order of priority I deal with unforeseen expenses as follows:

1. current month's income
2. credit card to defer cost to next month's income
3. line of credit
4. non-taxable investments
5. taxable investments

There are more options below #5, but I've never had to go further down than my LOC so no point planning beyond my investments.

If I lost my current contract and my income dried up I would take a retail job and have all my expenses covered with less than a week's lost pay. I'd look for a higher paying gig immediately and be back on track within a few months.

If I had a life changing medical condition/accident I have enough invested to cover my basic no frills living costs with the help of my GF's medical benefits plan and Canada's universal health care system.

-- Vik

[Blonde Lawyer]

I don't keep cash as an EF. That would be a huge waste of money - literally!

In order of priority I deal with unforeseen expenses as follows:

1. current month's income
2. credit card to defer cost to next month's income
3. line of credit
4. non-taxable investments
5. taxable investments

If I lost my current contract and my income dried up I would take a retail job and have all my expenses covered with less than a week's lost pay. I'd look for a higher paying gig immediately and be back on track within a few months.

If I had a life changing medical condition/accident I have enough invested to cover my basic no frills living costs with the help of my GF's medical benefits plan and Canada's universal health care system.

-- Vik

The only flaw in your strategy is the belief that you could secure a retail position in a week. 

[Public Hermit]

This thread has been a real eye-opener. I've always advocated having an emergency fund of some sort, yet I still didn't want my entire savings sitting in a savings account losing value to inflation. Based on this thread, I think I will adjust my approach a little bit. I will probably keep 1 months living expenses in a cash savings account(about $2000). Anything more that I save after that will be put in somewhat conservative investments in my taxable brokerage account. I can always sell off my positions if a real emergency hits. I have credit cards to float/defer any debt by 30 days in case I hit an emergency. In case of a job loss, I can always grab more hours at my side job until I can find another job.

[nereo]

But I don't think there's a one size fits all answer.  ...
Everyone needs to evaluate their own situation, but I certainly don't think that having thousands or tens of thousands of dollars sitting around not working is necessary for everyone, or even most people.

+1.  I've been lambasted on this forum and others when I say I try to keep no more than $500 in our checking accounts, but for our personal situation, having an ER fund earning <1% would seem like such a huge waste.  We both work freakishly stable jobs (6-18 month contracts which are virtually guaranteed... until the next one), and we can live on only one of us earning anything, so we'd both need to loose our jobs for us not to have a surplus of cash each month.  We have a HELOC at 3.1% which could cover any 5-figure expense, and we have both ROTH and taxable accounts we could draw off of if absolutely needed to.   We can (and have) rented out our spare bedroom for extra income.  And while this may not be an option for many, both of our parents are very comfortably retired, and if we suffered something truly catastrophic we know we could count on either one of them to help us back on our feet.  The only scenario I can come up with here would be a debilitating illness that requires extensive care not covered under our health plan.  That or having to hire an attorney for a prolonged criminal trial.

Some people have cited that having an ER fund in a 0% savings account helps them sleep better at night, and that's fine.  But for me I feel just the opposite - I hate inefficiency and the thought of all those 'little-green-employees' just sitting on their asses keeps me up at night. 

While I appreciate people not wanting to withdraw money when the market is down, the alternative way of thinking about it is to consider how long you've been in the market and calculating what your total gain/loss would have been.  In our case, even if the market dropped 25% and we had to suddenly pull out a chunk, that money still would have earned us a pretty return because it's been there for 15+ years.

[Retire-Canada]

The only flaw in your strategy is the belief that you could secure a retail position in a week.

I know I can. I have contacts at 20 different businesses through my hobbies. One of which would employ me on short notice.

In the absolute worst case it would take 2-3 weeks which makes virtually no difference at all.

-- Vik

[mathlete]

But I don't think there's a one size fits all answer.  DH's job is freakishly stable (military).   If he's injured, he still gets full pay, assuming it is recoverable.  If it isn't, he'd have to deal with the mess that is the VA, but he'd still have income. That alone means we need less EF than other people.  And we have a HELOC, with nearly 5 figures of room on it, and we could probably increase that if necessary (though we'd lose the great terms we currently have, so we haven't bothered). 

Everyone needs to evaluate their own situation, but I certainly don't think that having thousands or tens of thousands of dollars sitting around not working is necessary for everyone, or even most people.

You never know. Debt ceiling nonsense could screw with your husband's pay and HELOCs are no good if home values fall again.

You'll probably be okay w/o a cash emergency fund.

I'm healthy, thin, and in my 20s. I don't smoke and I drink maybe once or twice a month. I could save thousands of dollars a year by forgoing health insurance until I'm 30 and I'd probably be okay. I'm not going to do that though =D

[nereo]

You never know. Debt ceiling nonsense could screw with your husband's pay and HELOCs are no good if home values fall again.

You'll probably be okay w/o a cash emergency fund.

I'm healthy, thin, and in my 20s. I don't smoke and I drink maybe once or twice a month. I could save thousands of dollars a year by forgoing health insurance until I'm 30 and I'd probably be okay. I'm not going to do that though =D

HELOCs are fine as long as you have sufficient equity in your home.  Also, it's just one arrow in the quiver.

I don't think your analogy of forgoing health insurance applies here.  In the case of health insurance any injury or illness will result in a bill, some of which can be incredibly expensive (e.g. ICU after a car accident).  There's only one scenario at play: need healthcare, pay a lot of money.  If you are FI and can "self-insure", that's great.  Otherwise you are weighing the risk of something happening with your expected ability to pay while sick/injured.
Financial emergencies are a different beast because they can come in many forms, but there are also many, many ways of dealing with them.  We have health and disability insurance.  We have a HELOC and multiple lines of credit.  We both earn more than we need to live off of.  We have investments, and assets that could generate more income in a pinch.  We have a network of family members who could assist us if it became necessary.

BTW, I'm surprised someone who is healthy, thin and in their 20s is paying several 'thousand dollars a year' for health care.   Too many variables for me to say for sure, but I'd look at plans again - I'd expect you could find one for under $170/month.

[Villanelle]

But I don't think there's a one size fits all answer.  DH's job is freakishly stable (military).   If he's injured, he still gets full pay, assuming it is recoverable.  If it isn't, he'd have to deal with the mess that is the VA, but he'd still have income. That alone means we need less EF than other people.  And we have a HELOC, with nearly 5 figures of room on it, and we could probably increase that if necessary (though we'd lose the great terms we currently have, so we haven't bothered). 

Everyone needs to evaluate their own situation, but I certainly don't think that having thousands or tens of thousands of dollars sitting around not working is necessary for everyone, or even most people.

You'll probably be okay w/o a cash emergency fund.

I'm healthy, thin, and in my 20s. I don't smoke and I drink maybe once or twice a month. I could save thousands of dollars a year by forgoing health insurance until I'm 30 and I'd probably be okay. I'm not going to do that though =D

Our home value would have to fall by roughly 80% before it hit a point where we would have less equity in it than our HELOC value.  If that happens, so much shit will be hitting the fan that little else will matter. 
You never know. Debt ceiling nonsense could screw with your husband's pay and HELOCs are no good if home values fall again.
 
As for the debt ceiling stuff, the HELOC would cover us for a couple years of expenses.  And we have a few other options in addition to our savings, our taxable investments, and our Roths.

Last year, when the debt ceiling nonsense was looming, we did cut spending for the month or two prior, just to build up the savings account a bit.  It wasn't strictly necessary, but it would have made things easier.  Which also shows that we have a lot we can cut from our budget if necessary.   

So again, it comes down to evaluating one's situation.  It's just odd to me that so many people here seem to look down on those who are overly risk-averse when it comes to SWR, and yet many are so conservative when it comes to ES. 

[nereo]

So again, it comes down to evaluating one's situation.  It's just odd to me that so many people here seem to look down on those who are overly risk-averse when it comes to SWR, and yet many are so conservative when it comes to ES.

That's an interesting point.  I hope I'm not one who comes down too hard on those who are risk-adverse with their SWR - I certainly have argued passionately that simple flexibility makes it very easy to implement.  There can be a fine line between arguing one's point and being intolerant of other's.
But I do find it strange that people can be risk-adverse with EFs and more risk tolerant with WR, since i see them as different sides of the same die.  What also confuses me is how you can have 5+ available options for handling an emergency, and someone will latch onto just one of those and declare how it may not be available under certain circumstances, and conclude that the entire plan is unstable.  Multiple options means no single option needs to be relied upon.

[Retire-Canada]

Multiple options means no single option needs to be relied upon.

Bingo! :)

[thd7t]

Multiple options means no single option needs to be relied upon.

Bingo! :)

While I think that when you get to 5 options, you're pretty secure, multiple options can offer a false sense of security.  For example, in 2007, home prices went down rapidly.  A lot of HELOCs were cancelled due to credit tightening, while reevaluation took place.  Meanwhile, the job market had far fewer offerings.  If you were forced to sell stock at that point, you'd be forced to sell low, which would be damaging in the long term to your plans.  Having multiple options sounds great, as long as your options are really diversified.

[mathlete]

BTW, I'm surprised someone who is healthy, thin and in their 20s is paying several 'thousand dollars a year' for health care.   Too many variables for me to say for sure, but I'd look at plans again - I'd expect you could find one for under $170/month.

I get it through my employer. I picked the highest deductible plan (b/c I never get sick and could afford the deductible if I did) and even that is about $2000 a year in premiums.

[fb132]

sorry to use up this old thread again, what does anyone think of my strategy, I save 50% of whatever leftover money I have left at the end of the month towards my EF and the other 50% I invest it. I do that for 12 months, on the 13th, I clear my EF and invest and I restart all over again. Is that a better strategy to have an EF in my case??? I usually don't get many emergencies throught the year, but it does happen that once in awhile my parents ask me for money and sometimes the amount can be bigger than my leftover money. So I figure if after one calendar year my EF is still intact, I can invest the money and restart filling up my EF all over again and repeat the same pattern every year. is there a flaw to this plan that I didn't think of?

I figure that it's a hybrid EF meanining the money is in my EF throught the year and then it gets invested if the year was good to me, if not, at least it will be used to bail me out of a situation like last year when I helped out my parents to pay for the repair of their roof.

[nereo]

sorry to use up this old thread again, what does anyone think of my strategy, I save 50% of whatever leftover money I have left at the end of the month towards my EF and the other 50% I invest it. I do that for 12 months, on the 13th, I clear my EF and invest and I restart all over again. Is that a better strategy to have an EF in my case??? I usually don't get many emergencies throught the year, but it does happen that once in awhile my parents ask me for money and sometimes the amount can be bigger than my leftover money. So I figure if after one calendar year my EF is still intact, I can invest the money and restart filling up my EF all over again and repeat the same pattern every year. is there a flaw to this plan that I didn't think of?

I figure that it's a hybrid EF meanining the money is in my EF throught the year and then it gets invested if the year was good to me, if not, at least it will be used to bail me out of a situation like last year when I helped out my parents to pay for the repair of their roof.

Your strategy is a bit non-conventional, but if it works for you...

My concern is that you want to have both a cash ER fund and not have any opportunity cost.  You are attempting to do this by letting your ER fund grow for 12 months and then zero-ing it out and investing it all.  The flaws in your plan are 1) you never know when an emergency will actually strike and 2) you won't reduce your opportunity cost because your average balance in your ER fund remains the same, even while it fluctuates from $0 at month 1 to whatever it is in month 13.  Because of this, it is NOT earning you any more than if you simply held an ER fund with the same amount you'd have in month 7 of your plan (the average annual balance).

[fb132]

So am I better off doing the MMM way and simply invest everything and if there is an emergency (usually caused by a family member, not myself) I use the credit line or should I simply continue my way?

[nereo]

So am I better off doing the MMM way and simply invest everything and if there is an emergency (usually caused by a family member, not myself) I use the credit line or should I simply continue my way?

well... figure out what works best for you and what helps you sleep at night.
You seem to want to have some money in an ER fund, and that's fine.  Perhaps a good strategy for you would be to keep a few months worth of savings in an cash-equivalent account.  Once this is established you can put 100% of your monthly cash surplus towards long-term savings.  Use your ER only for real emergencies.

If, after a year or two you discover that you haven't needed to dip into the ER fund *and* you have many layers of security (e.g. a monthly cash surplus, credit cards, a HELOC, large amounts of savings in taxable or IRA accounts, the ability to reduce expenses if necessary, etc) then shrink your ER fund and rely a bit more on 'springy debt'.  The more sources you have for taking care of financial emergencies, the less you need an ER.

you might want to read: http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/

[RunHappy]

I think it really depends on the person and their overall financial situation.  For me if I have to wait 24 hours to access my money, then I don't count it as "emergency money".  For me an emergency is a "right here right now need". 

If you are 100% debt free and are making investments, then probably having a credit card with a zero balance is all the emergency fund you need. 

For me I have 1 years living expenses as an emergency fund.  I came up with this arbitrary number a few years ago as my goal. I've since hit and maintained it.  In reality I don't need that much in a savings account and should invest it, but it gives me a sense of comfort having it there. 

However for my in debt friends who ask for advice, I ask them, if they each (usually a husband and wife) had an at-fault car accident at the same time, would they be able to cover 2 car insurance deductibles and still have enough money to cover their monthly expenses (house, daycare, food, etc)?  Usually the answer is no.  So I advise them to start with an emergency fund to cover that.

[nereo]

I think it really depends on the person and their overall financial situation.  For me if I have to wait 24 hours to access my money, then I don't count it as "emergency money".  For me an emergency is a "right here right now need". 

I'm really curious about your 24 hour rule. Does that preclude things like savings and checking accounts, which often have a $500 daily ATM maximum limit and the bank may not be open on Sunday?  Would credit cards still count?

At the risk of repeating myself from earlier in this thread, I've never encountered an emergency situation costing >$500 where I had to pay with cash (no cc) and I had to pay the full balance that day.  I'm having a hard time even coming up with a plausible situation where I'd need that much cash in under 24hrs that didn't involve criminal activity.

[RunHappy]

I think it really depends on the person and their overall financial situation.  For me if I have to wait 24 hours to access my money, then I don't count it as "emergency money".  For me an emergency is a "right here right now need". 

I'm really curious about your 24 hour rule. Does that preclude things like savings and checking accounts, which often have a $500 daily ATM maximum limit and the bank may not be open on Sunday?  Would credit cards still count?

At the risk of repeating myself from earlier in this thread, I've never encountered an emergency situation costing >$500 where I had to pay with cash (no cc) and I had to pay the full balance that day.  I'm having a hard time even coming up with a plausible situation where I'd need that much cash in under 24hrs that didn't involve criminal activity.

I've only ever needed money right away a couple of times.

1) was when my hot water tank blew and I needed a replacement.  I was maybe 25 years old (14 years ago) and didn't have an emergency fund or enough left on my only credit card to pay for a new one to be delivered/installed that day, so I had to call my parents for help.  I wrote them a check and paid it off a week later, but without them I would have had to wait a week (with a young child). 

2) To pay for a $1200 airplane ticket when my dad had a stroke.  I got the call and 2 hours later I was on a flight.

There have been a couple of similar things:  my grandmother passed and I had to pay for  plane tickets, rental car, hotel for my daughter and I;  My friend called me crying because she was her car broke down and was 100 miles from the nearest town and couldn't afford a tow that far, etc).  I've never had to post bail for anything, most of my emergencies have to do with a relative passing and me living far away, but I've had to use my debit card (with a credit card logo) several times.

Now if either of these things happened I would use my credit card and pay it off before the next billing cycle, but back then I was trying to get myself out of debt but still have a plan for worst case scenarios, so that is where my 24 hour rule came from and it just kind of stuck.

[nereo]

I think it really depends on the person and their overall financial situation.  For me if I have to wait 24 hours to access my money, then I don't count it as "emergency money".  For me an emergency is a "right here right now need". 

I'm really curious about your 24 hour rule. Does that preclude things like savings and checking accounts, which often have a $500 daily ATM maximum limit and the bank may not be open on Sunday?  Would credit cards still count?

At the risk of repeating myself from earlier in this thread, I've never encountered an emergency situation costing >$500 where I had to pay with cash (no cc) and I had to pay the full balance that day.  I'm having a hard time even coming up with a plausible situation where I'd need that much cash in under 24hrs that didn't involve criminal activity.

I've only ever needed money right away a couple of times.

1) was when my hot water tank blew and I needed a replacement.

2) To pay for a $1200 airplane ticket when my dad had a stroke.  I got the call and 2 hours later I was on a flight.

Now if either of these things happened I would use my credit card and pay it off before the next billing cycle, but back then I was trying to get myself out of debt but still have a plan for worst case scenarios, so that is where my 24 hour rule came from and it just kind of stuck.

Ok - thanks for the response.  I certainly would just use a credit card in any of these scenarios.  I agree that when you don't have a lot of surplus each month an EF can be a useful tool.  If you have credit card debt - well it makes no sense to keep an EF fund and continue to pay interest on your credit cards; your cc is your de-facto EF.
Just a tip - almost all major airlines offer medical emergency fares and bereavement fares.  You have to call them each directly but it can save you when you have to book a ticket within 24h to reach a family member during a medical emergency.

[ysette9]

This is an interesting discussion and I am glad it was resurrected. I don't think we will ever fully agree on emergency funds in part because I feel the "right answer" is going to be different according to the particulars of one's situation.

In the case where someone is just starting out on the path of getting their financial $hit together, the idea of a cash emergency fund makes a lot of sense. In cases where the household is dependent on a single income, has high monthly debt obligations, or similar situations I can also see having a good chunk of cash sitting around makes sense. Other posters above have listed various scenarios where it may make sense. 

Personally we followed the mantra of having 3-6 months of expenses in a money market for years. Finally my husband woke up (interestingly, after reading a couple of the MMM blog posts) and we realized that having 6 months' expenses in cash was stupid. We do keep about 2 months' expenses in cash-like forms spread across random accounts; that has come in handy at times. Mostly though we realized we don't need that kind of cash sitting around for the following reasons:
1) We are dual income and save 50%+ of our income. The most likely emergency would be if one of us loses a job. In that case we would simply temporarily stop saving to cover expenses.
2) We are heavily insured and so I feel comfortable we would be covered in most disasters (car accident, getting sick, etc.)
3) We rent and own our vehicles outright; no debt helps us sleep a little better at night
4) We keep a few k cash in a safe in case a true natural disaster hits and power is out to our area (i.e. for when "the big one" earthquake hits)

Basically our strategy is to first use the cash buffer we keep in checking/savings to absorb outlier expenses; then the credit cards are available. We could always dial back our savings temporarily which would free up cash. If need be, we could sell some investments if we really needed a big chunk of cash. Mainly though I have a hard time imagining a scenario that would require that much money. Maybe I suffer from failure of imagination. So far, so good (fingers crossed)!

[Digital Dogma]

I prefer to have two emergency funds, one in cash at home (600-1200 usually), the other in my checking account (6-7k usually). That way, if the banks are closed Im not stuck in line waiting for my only source of cash.

Ive experienced cash only emergencies during hurricanes and they can last a week or two before things are functioning normally. If I had to pull money from Vanguard it would have been a major problem due to power and cell service being down for weeks.

So keep cash on hand, even if its in single dollar bills (I save all my pocket change and dont spend it for a slowly buliding fund of dollar bills).

[sleepyguy]

Not stupid at all... if there are no penalties for extract some current investments and the timing isn't too bad then I see no reason to have a large emergency fund.

We personally don't have  have a direct "emergency" fund either.  Our is based on this, and I think we're fine.

- We both work, would be fine on single income for the long haul.  The event we're both layed off... EI/severance could even keep us going for some time.
- our investment TSFA (allow withdrawals) is over 100k and can be replenished after the fact if required... in "lockdown" mode this could last a LONG time
- 60k LOC (untouched) at a good rate... would not touch probably ever, but nice to know it's there.
- $5-7k always in chequing/savings account.
- we both have decent life insurance plans from work and 3rd party
- OHIP covers most health related stuff (Canada universal health)
- we have dental/eye/etc from work plans

[fb132]

Well that is why it is a tough choice for me to either chose having a hybrid EF or not. I am still trying to figure out if I should continue what I am doing, that is putting 50% each month towards my EF and then at the end of the year, I clear it to invest if I haven't touched the money or partially.

On one hand, it has happened a few occasions where my parents would ask me out of nowhere for 3K-4K$ to help them pay their bills or some repairs for the house, but on the other hand, it doesn't happen on a regular basis (maybe once every 2-3 years minimum). So that is why I am debating between having a EF and not having one. I usually have about 1000$ in unspent money by the end of the month, so I am wondering if I am simply better off borrowing from my credit line and pay it off after 2-3 months instead of carrying an emergency fund if the time comes that my parents ask me for money.

If it were only me, my choice would be easy, I would choose MMM's way going with debt springy.

[nereo]

Well that is why it is a tough choice for me to either chose having a hybrid EF or not. I am still trying to figure out if I should continue what I am doing, that is putting 50% each month towards my EF and then at the end of the year, I clear it to invest if I haven't touched the money or partially.

On one hand, it has happened a few occasions where my parents would ask me out of nowhere for 3K-4K$ to help them pay their bills or some repairs for the house, but on the other hand, it doesn't happen on a regular basis (maybe once every 2-3 years minimum). So that is why I am debating between having a EF and not having one. I usually have about 1000$ in unspent money by the end of the month, so I am wondering if I am simply better off borrowing from my credit line and pay it off after 2-3 months instead of carrying an emergency fund if the time comes that my parents ask me for money.

If it were only me, my choice would be easy, I would choose MMM's way going with debt springy.

to be clear, what I'm concerned about is (if I am reading your posts correctly) your tendency to move ALL of your EF into investments at the end of the year, effectively zeroing out your EF.  That makes it less useful, because you never know when an emergency might strike, and if it happens shortly after zeroing out your EF you won't be any better off.  It's kind of the "worst of both worlds" - you loose the opportunity cost of not having that money invested, and you loose the insurance of knowing there's money to handle the next time you need to shell out a few thousand bucks unexpectedly.

Instead, if you want an EF, I'd suggest going with the more traditional approach; set a dollar amount you want in your EF and then do what you are doing (50% in investments, 50% in your EF) until you hit that target.  Once you've hit that amount, put everything into investments.  As you move closer to FI, as your savings rate goes up and as other sources of credit become available you can gradually reduce your EF.

[dess1313]

sorry to use up this old thread again, what does anyone think of my strategy, I save 50% of whatever leftover money I have left at the end of the month towards my EF and the other 50% I invest it. I do that for 12 months, on the 13th, I clear my EF and invest and I restart all over again. Is that a better strategy to have an EF in my case??? I usually don't get many emergencies throught the year, but it does happen that once in awhile my parents ask me for money and sometimes the amount can be bigger than my leftover money. So I figure if after one calendar year my EF is still intact, I can invest the money and restart filling up my EF all over again and repeat the same pattern every year. is there a flaw to this plan that I didn't think of?

I figure that it's a hybrid EF meanining the money is in my EF throught the year and then it gets invested if the year was good to me, if not, at least it will be used to bail me out of a situation like last year when I helped out my parents to pay for the repair of their roof.

If you want to keep up investing, why not do more 20% savings, 80% investing and continue a bit slower until you hit your goal?  Then put all of it to investing?  Why restart every year?  Just at the end of each year you would have to see if the amount you had was adequate for what you thought your expenses would be.  What if the rates go shooting up, would you still invest a lump sum at the high of the market?  and what happens if you invest your money in january and suddenly in february you have an emergency?  All that money is now gone

This is an interesting discussion and I am glad it was resurrected. I don't think we will ever fully agree on emergency funds in part because I feel the "right answer" is going to be different according to the particulars of one's situation.

In the case where someone is just starting out on the path of getting their financial $hit together, the idea of a cash emergency fund makes a lot of sense. In cases where the household is dependent on a single income, has high monthly debt obligations, or similar situations I can also see having a good chunk of cash sitting around makes sense. Other posters above have listed various scenarios where it may make sense. 

Personally we followed the mantra of having 3-6 months of expenses in a money market for years. Finally my husband woke up (interestingly, after reading a couple of the MMM blog posts) and we realized that having 6 months' expenses in cash was stupid. We do keep about 2 months' expenses in cash-like forms spread across random accounts; that has come in handy at times. Mostly though we realized we don't need that kind of cash sitting around for the following reasons:
1) We are dual income and save 50%+ of our income. The most likely emergency would be if one of us loses a job. In that case we would simply temporarily stop saving to cover expenses.
2) We are heavily insured and so I feel comfortable we would be covered in most disasters (car accident, getting sick, etc.)
3) We rent and own our vehicles outright; no debt helps us sleep a little better at night
4) We keep a few k cash in a safe in case a true natural disaster hits and power is out to our area (i.e. for when "the big one" earthquake hits)

Basically our strategy is to first use the cash buffer we keep in checking/savings to absorb outlier expenses; then the credit cards are available. We could always dial back our savings temporarily which would free up cash. If need be, we could sell some investments if we really needed a big chunk of cash. Mainly though I have a hard time imagining a scenario that would require that much money. Maybe I suffer from failure of imagination. So far, so good (fingers crossed)!

+1!!!
Every plan is not right for every body.  I keep about a month buffer in my checking accounts to avoid fees and accidental things/unplanned expenses.  Then my goal is another 2-3 months saved up in a separate savings account.  I'll see what i want to do after i get that saved up to goal again.  I'm single so everything is dependent on my income.  I don't have a partner to fall back on, so i have to protect myself. 

[music lover]

What if your electricity dies for 2 weeks.  Boom, use your emergency fund to buy a generator.

Or learn to survive without electricity :-)

I hate camping. But, that's beside the point...electricity runs more than TVs and hair dryers. A fridge and freezer full of food won't last 2 weeks, if it's winter, the furnace has to run, 2 weeks without a sump or septic pump never turns out good, etc...

[nereo]

What if your electricity dies for 2 weeks.  Boom, use your emergency fund to buy a generator.

Or learn to survive without electricity :-)

I hate camping. But, that's beside the point...electricity runs more than TVs and hair dryers. A fridge and freezer full of food won't last 2 weeks, if it's winter, the furnace has to run, 2 weeks without a sump or septic pump never turns out good, etc...

Huh.  We take the exact opposite approach.  Part of our disaster preparedness is being able to function without electricity for at least a week.  We've been forced to put this into action once after an ice storm left us without power for almost 6 days, and we've voluntarily 'practiced' for 3 day periods just for fun and to see where the kinks are.  I'd wager almost all homes could go without electricity for 2 weeks with a bit of planning.  To be fair I've never lived in a home that has needed a sump-pump.  Sure, you might loose the milk and yogurt in the fridge, but stuff in the freezer stays safe for days.  Cooking is easy on a propane grill or camping stove, and a stocked pantry can provide gourmet meals for weeks.  Water can be shut off and drained from pipes before they freeze, etc. etc.
The hardest part we've had is storing enough water, but there are ways around that, too...

[Fuzzy Buttons]

Thought I'd throw in a personal story, since this is what I'm dealing with right now.

Last year I started getting my finances together, motivated largely by MMM.  At the time I was keeping $10k in my checking account as an emergency fund.  I also had a HELOC with a $30k limit and a $4k balance, with no other debt save the mortgage.  I was putting $7k per year in my 401(k).

After reading the Springy Debt blog post and thinking about it, I decided to put that $10k of cash to work.  I put $5500 into an IRA for the year and upped my 401(k) contribution so that I would max out for the year in the last five months.  That was about 75% of my salary, so I used the rest of the cash to cover living expenses for the rest of the year.

This spring the HELOC balance was zero and my monthly 401(k) contributions are set to hit the limit.  In May I bought a car and I took $3k out of the HELOC to pay for it.  No problem - the HELOC is there to smooth the cash flow just as a cash emergency fund would.  But now, I find I need a new roof on the house.  That's going to be about $16k.  So I'll take that out of the HELOC as well, giving me a balance of about $18k and continuing to pay off a thousand a month or so.

Now mathematically, this is exactly what I intended.  The roof is an unexpected expense, and the HELOC means I'm paying about 2.5% to finance it.  That's better than keeping the money in cash, losing the 25% deduction from putting it in the 401(k) to say nothing of the investment returns it will eventually accrue.  My net worth is going up, even with this expense.  I'm not in danger of losing the HELOC - I've got $70k in equity in the home.  So I feel comfortable that I can do this and even should some other emergency come up, I've still got over $10k of room.  And that's quick to access - just log onto my bank's website and transfer the money to checking and it's ready to go.

But emotionally, I'm having some trouble pulling the trigger on the roof.  I just got that HELOC paid off.  I really don't like the idea of having a large balance again.  It feels like I'm sliding backwards.  I'm getting estimates on the roof work, and in the evenings I'm creating different reports in Quicken, trying to find one that helps me feel as good about this as I think I do.

One day, I think I'd like to have a cash emergency fund again.  But it won't be until I can build it up with money after I have maxed my retirement accounts and paid off all existing debt.  That's going to be a few years, so I just have to be patient and keep my eye on my ever-growing Stash.  :)

[johnny847]

No, you're not stupid. My thoughts on the matter are here.

Long story short, an emergency fund is supposed to protect you from an unforseen expense. However, so long as that money is sitting in cash, there is an opportunity cost: your emergency fund could be making money in the market. As long as your financial situation is reasonably stable and you have a large enough portfolio, your cost of guarding against an unforseen expense is much higher than your expected return from investing your emergency fund instead.

Depending on the probability of an unforseen expense and job security, this is akin to investing in gold: gold (allegedly?) protects against hyperinflation. But in the long run, gold's real return should be zero. So you are effectively losing money by not investing elsewhere to protect against this rare beast that is hyperinflation.


I've been meaning to actually backtest this: using VFINX data, assume some probability of an emergency expense occurring and see if you are better off investing that amount or leaving it in cash. I imagine this would have a strong dependence on initial conditions: a low net worth individual will get hit hard if he/she is invested and has a large expense when the market tanks, but a high net worth individual doesn't care.

[partgypsy]

Here's a question. I have a daughter who will be getting specialized education for probably at least the next 2 years. This year's out of pocket will be 13.2K, (plus another 2600 for the summer program). We filled out a financial aid form to receive 5K in financial aid.
Since we had multiple things happen we have very little in the way of an emergency fund at this time (maybe a month's expenses), we are going to take out a home equity line of credit, for months we can't make the payments, to pay off later.

Realistically I don't think we will be able to save addition for an emergency fund these next 2 years. However even if we could, any money we save in a checking or savings account is going to count against us for financial aid next year, while having debt "helps" in the equation.

It has also made me think, that after the 2 years, what is so horrible with using the line of equity as an emergency fund instead of having a separate cash fund? Any thoughts?

[nereo]

It has also made me think, that after the 2 years, what is so horrible with using the line of equity as an emergency fund instead of having a separate cash fund? Any thoughts?

The classic answer is that using a HELOC transfers debt to your home which (in the 'classical, debt-is-bad' camp) means that you will be pushing your mortgage-free day further into the future and putting your retirement in jeopardy.  People get caught up using HELOCs as virtual ATMs to inflate their style of living and then run into problems later when they either loose their job (and were already living on the edge financially) or they go to sell their home and discover they have no equity and are underwater.
As individuals who aren't consumer suckas, using a low interest HELOC as an emergency fund can be a GREAT way of dealing with the unexpected.  As always, you shuold make sure that you are living below you means, and that you aren't using a HELOC "just because you can". 
I haven't had to tap into it yet, but my HELOC is just one of several sources we could draw from if necessary.

[partgypsy]

Yes the idea is just to have it there, in case of an emergency. Not to use it as an ATM, but to have a month's expenses, and then access to line of credit for bigger emergencies. I guess we will have to see whether we are mature enough to handle it (not to use it for "easy money").  Only time will tell.

[Frugancial Advisor]

An 'Emergency Fund' is overrated. It is easily replaceable by liquid investments or a HELOC.

The term originated as a means to help persuade otherwise non-saving individuals to put aside enough cash to 'weather the inevitable storm'.

The reality is your investments can easily provide this coverage. As far as the 'you don't want to pull from your investments when they're down!' comments; we have negatively correlated assets for a reason. The majority of this board is invested in individual index funds which offer this advantage. Historically, bonds and equities have proven to be negatively correlated. Therefore, if one asset class has taken a significant dive during an 'emergency', you simply pull from the other asset class. Replenishment and repositioning awaits the post-emergency crisis.

The only benefit in keeping a cash component is to have the ability to deploy funds into potentially lucrative investment opportunities.

*Side note: This opinion is obviously for the mass affluent investor who has a significant portfolio over-and-above their retirement account (in which withdrawals would be 100% taxable and a HELOC would be a better route).

[Dexterous]

Do i really need more cash lying around?

I say no, and I'm in very similar shoes as you.  I think a credit card can be good for someone like us.  You can use your current small EF + the credit card if needed to cover initial costs of an emergency, then pay off the card after selling some shares from your taxable account days later.

[fb132]

I think I will listen to your advices, I won't carry an EF. I mean whenever I get hit with an emmergency, usually the amount is 3-4K$ at most and I can pay that in max. 3-4 months, plus in my case, I use YNAB, so with rule #4, living on last month's income, it makes it easier to pay off those emergencies.

[thd7t]

An 'Emergency Fund' is overrated. It is easily replaceable by liquid investments or a HELOC.

The term originated as a means to help persuade otherwise non-saving individuals to put aside enough cash to 'weather the inevitable storm'.

The reality is your investments can easily provide this coverage. As far as the 'you don't want to pull from your investments when they're down!' comments; we have negatively correlated assets for a reason. The majority of this board is invested in individual index funds which offer this advantage. Historically, bonds and equities have proven to be negatively correlated. Therefore, if one asset class has taken a significant dive during an 'emergency', you simply pull from the other asset class. Replenishment and repositioning awaits the post-emergency crisis.

The only benefit in keeping a cash component is to have the ability to deploy funds into potentially lucrative investment opportunities.

*Side note: This opinion is obviously for the mass affluent investor who has a significant portfolio over-and-above their retirement account (in which withdrawals would be 100% taxable and a HELOC would be a better route).

I think your side note should be your up-front disclaimer, here.  However, regarding negatively correlated assets (which you explain very well), early retiree/aspirants will probably be light on bonds.  In an event like the 2008 recession, home values fell quickly enough to eliminate a lot of people's available HELOCs (and a lot of comanies froze HELOCs, because they worried about more potential fall in the housing market).  Equities fell precipitously at the same time.  If one had an emergency (we'll use job loss as an example, because that was fairly common at the same time), a bond heavy taxable account would become the only place to get money without selling in a down market. 

In addition, once you've got assets at the level that you've mentioned, a cash component makes sense as a negatively correlated asset class.  Cash for a few months of survival will also no longer be a significant portion of the portfolio, so it won't hurt to keep it. 

Most posters who disparage the emergency fund have a very narrow view of "emergency".  Fixing/replacing your car isn't an emergency, it's an expense.  Emergencies come at the confluence of a number of problems (falling home values, portfolio values, job loss, and more) which were common across income levels and savings rates not very long ago.

[nereo]

An 'Emergency Fund' is overrated. It is easily replaceable by liquid investments or a HELOC.
...
*Side note: This opinion is obviously for the mass affluent investor who has a significant portfolio over-and-above their retirement account (in which withdrawals would be 100% taxable and a HELOC would be a better route).

I think your side note should be your up-front disclaimer, here.  However, regarding negatively correlated assets (which you explain very well), early retiree/aspirants will probably be light on bonds.  In an event like the 2008 recession, home values fell quickly enough to eliminate a lot of people's available HELOCs (and a lot of companies froze HELOCs, because they worried about more potential fall in the housing market).  Equities fell precipitously at the same time.  If one had an emergency (we'll use job loss as an example, because that was fairly common at the same time), a bond heavy taxable account would become the only place to get money without selling in a down market. 

In addition, once you've got assets at the level that you've mentioned, a cash component makes sense as a negatively correlated asset class. Cash for a few months of survival will also no longer be a significant portion of the portfolio, so it won't hurt to keep it. 

Most posters who disparage the emergency fund have a very narrow view of "emergency".  Fixing/replacing your car isn't an emergency, it's an expense.  Emergencies come at the confluence of a number of problems (falling home values, portfolio values, job loss, and more) which were common across income levels and savings rates not very long ago.

I disagree with several of your assertions.  First of all, a bond heavy taxable account is not the only place to get money without selling equities in a down market.  A savvy individual already has a large cash surplus to invest every month and can identify the differences between "wants" and "needs", so the two immediate steps would be to postpone contributions and reduce spending.  While HELOCs dissapeared for some (particularly those with little/no equity in their homes) they persisted for many, including me.  Even without a HELOC, credit cards are an option.  Borrowing money from family is an option.  Starting/expanding a side-hustle is an option.  Selling any number of things in our opulent lives is an option.  Renting out a bedroom is an option.  Moving is an option - particularly if you are renting. Sure, not all of these options will be available or appealing to everyone, but declaring bonds to be the only source of money in a crisis is a bit absurd.

Second, while a large portfolio by definition means that a 3-6 month cash fund is a relatively small portion of the overall portfolio, $15,000 is still $15,000, regardless of whether you have a NW of $100k or $1MM.  That's a lot of idle employees sitting around eating donuts, and I can respect people who have "won the game" and want to keep them there just to play defense (or keep a 'negatively correlated asset class), but for everyone else they are just a wasted resource.

[thd7t]

An 'Emergency Fund' is overrated. It is easily replaceable by liquid investments or a HELOC.
...
*Side note: This opinion is obviously for the mass affluent investor who has a significant portfolio over-and-above their retirement account (in which withdrawals would be 100% taxable and a HELOC would be a better route).

I think your side note should be your up-front disclaimer, here.  However, regarding negatively correlated assets (which you explain very well), early retiree/aspirants will probably be light on bonds.  In an event like the 2008 recession, home values fell quickly enough to eliminate a lot of people's available HELOCs (and a lot of companies froze HELOCs, because they worried about more potential fall in the housing market).  Equities fell precipitously at the same time.  If one had an emergency (we'll use job loss as an example, because that was fairly common at the same time), a bond heavy taxable account would become the only place to get money without selling in a down market. 

In addition, once you've got assets at the level that you've mentioned, a cash component makes sense as a negatively correlated asset class. Cash for a few months of survival will also no longer be a significant portion of the portfolio, so it won't hurt to keep it. 

Most posters who disparage the emergency fund have a very narrow view of "emergency".  Fixing/replacing your car isn't an emergency, it's an expense.  Emergencies come at the confluence of a number of problems (falling home values, portfolio values, job loss, and more) which were common across income levels and savings rates not very long ago.

I disagree with several of your assertions.  First of all, a bond heavy taxable account is not the only place to get money without selling equities in a down market.  A savvy individual already has a large cash surplus to invest every month and can identify the differences between "wants" and "needs", so the two immediate steps would be to postpone contributions and reduce spending.  While HELOCs dissapeared for some (particularly those with little/no equity in their homes) they persisted for many, including me.  Even without a HELOC, credit cards are an option.  Borrowing money from family is an option.  Starting/expanding a side-hustle is an option.  Selling any number of things in our opulent lives is an option.  Renting out a bedroom is an option.  Moving is an option - particularly if you are renting. Sure, not all of these options will be available or appealing to everyone, but declaring bonds to be the only source of money in a crisis is a bit absurd.

Second, while a large portfolio by definition means that a 3-6 month cash fund is a relatively small portion of the overall portfolio, $15,000 is still $15,000, regardless of whether you have a NW of $100k or $1MM.  That's a lot of idle employees sitting around eating donuts, and I can respect people who have "won the game" and want to keep them there just to play defense (or keep a 'negatively correlated asset class), but for everyone else they are just a wasted resource.

Bonds were just an example of a negatively correlated asset class that you could sell in a down market without a loss (I did say "only", which was a mistake). 

In terms of a large, cash surplus each month, that goes away pretty quickly with job loss.  You present a number of great options to increase income, but they're only valid if you are not already doing them, and if you can get them started in time.  I definitely agree that cutting/selling from opulent lives is an opportunity for many of us and would be an instant option as a first line of defense.

In stable markets, only people with little equity in their homes lost access to HELOCs, but in Florida, Maryland, Nevada and several other markets, median prices fell by over 20% (some over 35%).  People with 40% equity or more lost the equity required for a HELOC.  This wasn't isolated to people who had taken advantage of bad terms.

Regarding credit cards, I'd be very wary about using them as springy debt.  Their terms are almost always adjustable by the company and unless you are constantly applying for introductory offers, you're unlikely to have a low rate.  In addition, if an emergency strikes and you are using the springy debt technique, your credit use will rise, making it harder to get new lines of credit.

On your final point, people "just getting into the game" particularly benefit from an emergency fund, as their expenses are low (hopefully) and their opportunity cost is reduced, but they lack a lot of the resources that you and I have mentioned in this discussion.

[3Mer]

An emergency fund is a great concept for the poor and those trying to get out of debt or unable to have any foresight.  It is also an alright concept for several months while people are getting started on serious savings and investments. 

It is not for you or most MMMers who are maxing out retirement accounts.

Here is why it is an entirely bad idea.

Dave Ramsey often suggests a 6 month E fund.  That is 6 months of income.  He also suggests keeping it in money markets or checking.

So let's see,  if a person keeps 40K at essentially zero interest, in 30 years they will have an inflation adjusted 13K.

Now take that same 40K and invest at an average 9-10% and in 30 years you'll have an inflation adjusted 425K.   

So you decide --- would you rather have 13K or 425K?

So for emergency cash you can bank account churn (see post here somewhere) and earn over 20% on your cash,  or have credit cards,  or HELOCs ready.

You may want to have some of your investments in taxable accounts for access if there is a true emergency.

I love Dave R's argument for the money market or checking instead of the market.     He says what if the market is down when you need the money.  Duh,  what if the market is up?  It is a ridiculous manner to manage your money out of fear.   If you are that scared the market might be down when you need the cash,  simply put twice as much in that account.   

Dave Ramsey recommends 6 months expenses, not 6 months income.

[missj]

I do have an emergency fund.  It is woefully shy of 6months living expenses, but it is there.  Honestly, I don't really need it but it just makes me feel secure, and I have it in a 3% interest bearing checking account so I don't feel too guilty about keeping it there.

I think the "canned" advice comes from the fact that average americans live paycheck to paycheck and their retirement savings are inadequate to begin with.  So using their retirement as an emergency has especially bad consequences when the equation is already tipped against them.

There are many ways to have an emergency fund besides money in a mattress or a savings account.  having a HELOC open, ROTH contributions etc.  You could always use a credit card as your "emergency fund"  then you have 25 days to move some money over from your ROTH or HELOC or taxable brokerage account before you start paying interest on the credit card purchase (plus...you might get some credit card rewards doing it this way).

The only thing I could think of where you might need actual cash in a hurry is like a bail-bonds situation.   Might not be for you, personally.  maybe it's friday night and banks are closed and your brother gets a DUI or something....

[fb132]

I do have an emergency fund.  It is woefully shy of 6months living expenses, but it is there.  Honestly, I don't really need it but it just makes me feel secure, and I have it in a 3% interest bearing checking account so I don't feel too guilty about keeping it there.

I think the "canned" advice comes from the fact that average americans live paycheck to paycheck and their retirement savings are inadequate to begin with.  So using their retirement as an emergency has especially bad consequences when the equation is already tipped against them.

There are many ways to have an emergency fund besides money in a mattress or a savings account.  having a HELOC open, ROTH contributions etc.  You could always use a credit card as your "emergency fund"  then you have 25 days to move some money over from your ROTH or HELOC or taxable brokerage account before you start paying interest on the credit card purchase (plus...you might get some credit card rewards doing it this way).

The only thing I could think of where you might need actual cash in a hurry is like a bail-bonds situation.   Might not be for you, personally.  maybe it's friday night and banks are closed and your brother gets a DUI or something....

If that were the case you can simply go to your online banking, transfer the money towards your checking account and withdraw from an ATM if that were the case. But I do agree you need some cash on you, it happens (although very rare) that no debit or credit card works because banks are having technical issues.

[missj]

I do have an emergency fund.  It is woefully shy of 6months living expenses, but it is there.  Honestly, I don't really need it but it just makes me feel secure, and I have it in a 3% interest bearing checking account so I don't feel too guilty about keeping it there.

I think the "canned" advice comes from the fact that average americans live paycheck to paycheck and their retirement savings are inadequate to begin with.  So using their retirement as an emergency has especially bad consequences when the equation is already tipped against them.

There are many ways to have an emergency fund besides money in a mattress or a savings account.  having a HELOC open, ROTH contributions etc.  You could always use a credit card as your "emergency fund"  then you have 25 days to move some money over from your ROTH or HELOC or taxable brokerage account before you start paying interest on the credit card purchase (plus...you might get some credit card rewards doing it this way).

The only thing I could think of where you might need actual cash in a hurry is like a bail-bonds situation.   Might not be for you, personally.  maybe it's friday night and banks are closed and your brother gets a DUI or something....

If that were the case you can simply go to your online banking, transfer the money towards your checking account and withdraw from an ATM if that were the case. But I do agree you need some cash on you, it happens (although very rare) that no debit or credit card works because banks are having technical issues.

yes.  Which should work fine for most situations.  I quoted the bail bond as an exception because there is usually a daily limit to how much cash you can get from an ATM.  Usually $300 or $500 per day maximum.  so just because you have $10,000 in the bank doesn't mean you can access $10k in cash on a friday night.  But I think those situations are rare enough and you have to go out of your way to dream up scenarios where you actually need access to a large amount of cash when banks are closed.

[fb132]

I do have an emergency fund.  It is woefully shy of 6months living expenses, but it is there.  Honestly, I don't really need it but it just makes me feel secure, and I have it in a 3% interest bearing checking account so I don't feel too guilty about keeping it there.

I think the "canned" advice comes from the fact that average americans live paycheck to paycheck and their retirement savings are inadequate to begin with.  So using their retirement as an emergency has especially bad consequences when the equation is already tipped against them.

There are many ways to have an emergency fund besides money in a mattress or a savings account.  having a HELOC open, ROTH contributions etc.  You could always use a credit card as your "emergency fund"  then you have 25 days to move some money over from your ROTH or HELOC or taxable brokerage account before you start paying interest on the credit card purchase (plus...you might get some credit card rewards doing it this way).

The only thing I could think of where you might need actual cash in a hurry is like a bail-bonds situation.   Might not be for you, personally.  maybe it's friday night and banks are closed and your brother gets a DUI or something....

If that were the case you can simply go to your online banking, transfer the money towards your checking account and withdraw from an ATM if that were the case. But I do agree you need some cash on you, it happens (although very rare) that no debit or credit card works because banks are having technical issues.

yes.  Which should work fine for most situations.  I quoted the bail bond as an exception because there is usually a daily limit to how much cash you can get from an ATM.  Usually $300 or $500 per day maximum.  so just because you have $10,000 in the bank doesn't mean you can access $10k in cash on a friday night.  But I think those situations are rare enough and you have to go out of your way to dream up scenarios where you actually need access to a large amount of cash when banks are closed.

I forgot to add you can take the money from the credit line.

[Candace]

The only thing I could think of where you might need actual cash in a hurry is like a bail-bonds situation.   Might not be for you, personally.  maybe it's friday night and banks are closed and your brother gets a DUI or something....

Something very close to this happened to me with my brother. It wasn't a DUI, just some parking tickets that he had stupidly ignored. He needed $4000 to get out and avoid losing his job. Because I had a large cash stash, I was able to send the money very quickly and cheaply.

I figure I have about a 30% chance of ever being paid back. But my brother is a very good guy and I didn't want him to lose his job-- that would just make everything worse. He has since gotten a promotion.

Having said that, after reading this thread and others, I am going to reduce the size of my emergency fund. Mine is right now very large, around $30k, because my automatic savings toward major house repairs and a (someday) new-to-me car were going into cash. But it makes more sense to put most of that money into mutual funds, and just sell some investments when those expenses happen. If they happen during a down market, oh well. At the very least, I can use the selling as an opportunity to rebalance.

[horsepoor]

I do have an emergency fund.  It is woefully shy of 6months living expenses, but it is there.  Honestly, I don't really need it but it just makes me feel secure, and I have it in a 3% interest bearing checking account so I don't feel too guilty about keeping it there.

I think the "canned" advice comes from the fact that average americans live paycheck to paycheck and their retirement savings are inadequate to begin with.  So using their retirement as an emergency has especially bad consequences when the equation is already tipped against them.

There are many ways to have an emergency fund besides money in a mattress or a savings account.  having a HELOC open, ROTH contributions etc.  You could always use a credit card as your "emergency fund"  then you have 25 days to move some money over from your ROTH or HELOC or taxable brokerage account before you start paying interest on the credit card purchase (plus...you might get some credit card rewards doing it this way).

The only thing I could think of where you might need actual cash in a hurry is like a bail-bonds situation.   Might not be for you, personally.  maybe it's friday night and banks are closed and your brother gets a DUI or something....

The other thing with this is people who are in perpetual small emergencies that really shouldn't be emergencies every month - e.g. oh, I didn't know my car would need new tires.  Emergency!  Oh, ancient water heater busted.  Emergency!  Johnny needs his sports fees paid.  Emergency!  And suddenly, voila, no more retirement savings.  This is the type of stuff that should be built into the budget, or just get cash flowed by reducing investments for a month by anyone with a decent savings rate and ability to plan ahead.