Emergency cash

[umasubra]

Hi,

I'm new to MMM and was trying to find how much to keep as cash for emergencies and in what type of account/fund. Any advice?

Thanks!

[protostache]

There are a couple big threads on this subject. To get you started, here's one:

https://forum.mrmoneymustache.com/welcome-to-the-forum/how-big-is-you-emergency-fund/

To find more, either use the site search at the top of the page or type this into Google:

emergency fund site:forum.mrmoneymustache.com

[Re3iRtH]

Hi,

I'm new to MMM and was trying to find how much to keep as cash for emergencies and in what type of account/fund. Any advice?

Thanks!

If you invest in real estate, you don't have to worry about an 'emergency fund'. Why? You'll always have $30-100K sitting in the bank you will use to fund your next deal. That works as an emergency fund. You typically will never deplete this to $0 since the property down payment etc. won't be the full $ amount in your savings. So at worst, you deplete it down to $5k or so. Then rinse and repeat. You will also have rental income coming in, in addition to your job, which doubly helps. Do you want FI now, or have to wait 15 or 20 years? Choose wisely.

[Sibley]

Umasubra, you will find that there are many people with strong opinions and personalities on this forum. Some of them are rabidly pro real estate investments. You just met one of them apparently in Re3iRth.

No, you don't have to invest in real estate if it doesn't make sense for you, for any reason, including you just don't want to. You can invest in real estate if it makes sense for you, for any reason.

Welcome to MMM :)

[jjandjab]

Hi,

I'm new to MMM and was trying to find how much to keep as cash for emergencies and in what type of account/fund. Any advice?

Thanks!

If you invest in real estate, you don't have to worry about an 'emergency fund'. Why? You'll always have $30-100K sitting in the bank you will use to fund your next deal. That works as an emergency fund. You typically will never deplete this to $0 since the property down payment etc. won't be the full $ amount in your savings. So at worst, you deplete it down to $5k or so. Then rinse and repeat. You will also have rental income coming in, in addition to your job, which doubly helps. Do you want FI now, or have to wait 15 or 20 years? Choose wisely.

This is a highly aggressive answer to a question about an emergency fund from a young physician who has done well in real estate in Hawaii. This is applicable to maybe 1% of people at most. The majority of this board would be happy to 30-100k in the bank, never mind using it to fund the "next deal." And despite the last 8-9 years, real estate and the market don't always go up. This a very niche idea about how to keep reserve cash. Perhaps real estate is great way to become FI for those inclined, but not really how most would think about an emergency fund.

Most people - especially those with lower incomes or kids - benefit from having an emergency fund outside of investments - i.e. 3-6 month of cash in high yield checking, etc... - until they have a good asset base. Once you have a solid core of assets, then it might be safer to be more creative with what constitutes an "emergency fund"

Check out https://www.bogleheads.org/wiki/Emergency_fund for a good background on the topic, including the forum links at the bottom.

[sisto]

It definitely depends a lot on your particular situation. General advice says you should have roughly 6 months worth of living expenses in order to weather a layoff or something catastrophic. Some people follow the MMM advice of keeping less in liquid cash and rely on credit cards or a heloc. You could also have some funds in a CD ladder, this is what I do. It doesn't earn a ton, but it gives my wife peace of mind. We typically use a credit card and then figure out where we will pull the money from. So far the CD ladder has remained as is and we've funded our emergencies without having to touch it. We also keep some cash on hand in savings. I would prefer to keep less there, but everyone has a different comfort level. Do what's best for you, your situation, and what meets your investment strategy goals for asset allocation. The linked threads on the subject are also great for different perspectives.

[Lis]

Keep in mind there won't be one "right" answer - there will be lots of good ideas and you can figure out which one works best for you.

- I have $500 in my primary bank for "shit happens" - smaller car fixtures, vet bills, etc. If I'm over budget I take money from there and replenish it right away. This is my slush fund. I plan on bumping this up to $1000 (which is my car insurance deductible) once I finish maxing stuff out.
- I have ~4 months worth of expenses saved in a high interest savings account I purposely keep off my radar, as well as ~3 months in a CD ladder with the same bank.
- "Shit hits the fan" - I can take money from my Roth IRA. Obviously not something I *want* to do, but it's an option once I've exhausted everything else. I have at least a year's worth saved there (not including the earnings, which I know I can't touch).
- I have ~$20k in home equity. No idea how to access that other than selling my place, but that's something I would look into if, again, shit hit the fan. Not sure if I'd do this or IRA first, but that's a disaster bridge I can cross once I (hopefully never) get there.

[acroy]

2-6 months living expenses in the checking account, depending on your comfort level. I keep around 4 months, as our expenses can vary greatly month to month, depending if we go on vaca or something ;)

Everything else invested. Brokerage is liquid, just a little less so than checking.
Good luck!

[marshdesign]

When I think of emergency cash, I think of cash sitting in a savings account far far away. If you are a homeowner I would say have a higher cash on hand 20,000. You want to be able to write a check for any large home repair if needed, on the spot. Other than that, keep less cash in the bank and more cash invested in bonds, stocks, real estate or CDs. 

[Rosy]

Hi,

I'm new to MMM and was trying to find how much to keep as cash for emergencies and in what type of account/fund. Any advice?

Thanks!

Welcome to the forum, uma:) The size of your EF depends entirely upon your own unique situation.

1. If you are in debt up to your eyeballs and live paycheck to paycheck then you would be wise to start with $1000 - you might even have to build it up slowly from $200 to $500 up to $1K. It will keep you from piling up credit card debt when you can least afford it.

We all have to start somewhere and $1K will cover life's little surprises, from a blown tire to a new washer or car repair or emergency trip.

2. I have a $1K - operational - slush fund at my regular bank.
But, because I also might have to make an emergency trip overseas at any time and stay at least a month or longer, I have a separate travel fund of $3K set aside in an online account at .75% with a debit card that works overseas and has no foreign transaction fees. So I just book a flight and go without budget worries.

3. Between Mr. R. and I we have another $10K total which represents our true emergency fund - $8K at 2% interest at our credit union and $2K at 1%.
Dedicated emergency cash that we can immediately access at any time - it gives me peace of mind.

Some people are in a situation where losing a job is a possibility - in that case an EF in the amount of your monthly expenses is a good start. Then continue to build up enough for three to six months of expenses. Personally I think that is a must if there is only one earner in the family and you have no other investments/savings to draw from, if you lost your job tomorrow.

Where to put it? Online banks and credit unions is where we keep our stash, our various cash buckets earn from 1% to 2% at present. Anything over $10K should either be invested or reside in an online bank earning 1.5% to 2.5% in a MM or CD.

Here is an up to date list of high interest accounts from the money blog http://www.mymoneyblog.com/best-interest-rates-cash-savings-august-2017.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Mymoneyblog+%28My+Money+Blog%29

SalemFiveDirect online bank also had a 2.5% CD - min 10K

Of course there is a segment here on the forum that maintains that since they pay off all their credit cards each month anyway, they consider their cards their EF. Next step if it is a big emergency would be to draw from other savings or investments which may take three to five days.
Personally I feel better having at least $10K instantly available at a brick and mortar bank, but I admit that is becoming rather an old fashioned notion and you might bleed a little money each month by doing that.
 
 
 

[Lmoot]

I keep a years worth of  expenses in an emergency fund… Pushing it, it could be 18 months worth of cash expenses (if need be I can pay certain things with a cc...I have ways of getting 0% interest, or if I were to get advanced notice of a job loss, I would apply for a credit card at 0% interest for a year or longer and use that exclusively, instead of savings....hey might as well earn rewards whilst in the slump!

I don't really keep in emergency fund for repairs or anything like that. Those usually go on a 0% interest credit card. I view my emergency fund strictly in terms of job loss or inability to work. And in terms of being able to pay my mortgage and feed myself.

I also keep in consideration my part-time job and my rental property as an efund of sorts. I've always felt more comfortable having multiple streams of income because at least with a job loss, I can rely on those to take over my expenses so that I don't even have to dip into my emergency fund.

[Laserjet3051]

I've got 20K sitting in cash in high interest credit union account. I'd sleep better at night if that were $40K. I went through long term unemployment/foreclosure in the 2008 crash. I do not want to live on the edge like that again.......ever, especially with young children.

[JoshyBoy]

I don't have as much tucked away as others in this thread (jealous!), but I'm working on it. I tend to run with 'worst case scenarios' when running the numbers, and then adding a bit more wiggle room on top if at all possible. I think there's also a difference between an on-hand 'emergency' fund (car breaks down. Minor vehicle repairs. etc), and just straight up having enough savings hidden away so that if worst were to happen - you lose a job / medical difficulties etc - than even if you couldn't afford it *all*, that you'd at least feel comfortable knowing you're able to handle it.

[Capt j-rod]

There are lots of variables. Do you rent or own a home? Rent needs less than owning... what year and condition is your car? How stable is your line of work? I'm self employed (hvac) and my wife is in medicine... health insurance deductibles, auto and home deductibles... I keep enough to buy the equipment for 3 jobs... $15k for my business. For the home? $10k... if your money isn't working as hard as you are then you are missing out.

[Altons Bobs]

My emergency fund is for when the market crashes, like spartana, I will have 2 years expenses sitting in a money market account. Otherwise we always have $20-$50k in our checking account for our daily expenses, I think that should be enough to cover any emergencies.

[SC93]

My momma always told me to keep a dime in my pocket in case of an emergency. That way I could make a call. That's my emergency fund. :)

[skip207]

It all depends on your position.  To start with build a months income.  Then 2, 3 etc.  I think 3 months is the minimum I would feel comfortable with.  That should cover most home / car emergencies and also cover unemployment in normal circumstances.  6 months is ideal, in my opinion as it gives more scope to cover multiple events.  There is a saying that things happen in 3s....

[Bracken_Joy]

Tons of things go into this answer.

Things that mean you should have a higher emergency fund:
-Defendants *edit: dependents, lol!
-Stay at home spouse
-Volatile job situation, whether your industry or the company or personal clashes with managers, all that
-Pets, especially very old, very young, or if you breed them
-You have assets that require care- house, car(s) particularly if they're high mileage, need to replace your phone soon, etc.

Things that reduce your need for a large fund:
-You are comfortable, and have access to, squishy debt instead, like a HELOC
-You have family or friends that will keep things from going to hell if things fall apart, and you're willing to ask for help
-You have a flexible lifestyle- you're young and able bodied and single and would be willing to houseshare a motohome under a bridge or whatever you need to do

And a controversial one:
-If you have high interest debt. A lower e fund (but still have one!) then throw everything else at that debt. This especially applies to credit card debts with high interest rates.

Anyway, it depends a lot on individual circumstance and risk tolerance.

[prognastat]

Tons of things go into this answer.

Things that mean you should have a higher emergency fund:
-Defendants
-Stay at home spouse
-Volatile job situation, whether your industry or the company or personal clashes with managers, all that
-Pets, especially very old, very young, or if you breed them
-You have assets that require care- house, car(s) particularly if they're high mileage, need to replace your phone soon, etc.

Things that reduce your need for a large fund:
-You are comfortable, and have access to, squishy debt instead, like a HELOC
-You have family or friends that will keep things from going to hell if things fall apart, and you're willing to ask for help
-You have a flexible lifestyle- you're young and able bodied and single and would be willing to houseshare a motohome under a bridge or whatever you need to do

And a controversial one:
-If you have high interest debt. A lower e fund (but still have one!) then throw everything else at that debt. This especially applies to credit card debts with high interest rates.

Anyway, it depends a lot on individual circumstance and risk tolerance.

Good stuff.

Yeah there are a lot of factors that affect how big you might want your emergency fund to be.

3-6 months of expenses is usually the shortcut to give a general guideline. This is because it at least isn't a specific amount and instead something that varies based on your situation.

Generally things that increase the risk of needing to draw on your emergency fund will mean needing to put more in and things reducing risk will decrease the amount you would need.

Another example of higher risk for example would be 2 spouses working for the same company. If the company goes under both would be out of a job so the risk is higher than if both work at a different company.

[jlcnuke]

My "emergency fund" is the cash in my wallet and only to be used in the event I feel like spending it or I need to buy something in a place that only accepts cash.

As 99.999% of everything I could ever need to purchase (from a new roof to the deductible on my auto insurance policy to a new wardrobe and place to stay if my residence burnt down) can be purchased with credit cards and paid off with money I subsequently take out of my brokerage account, I only leave enough "cash" on hand for anticipated spending before the cash will be replaced by future income. The rest is invested. I can get ~1/2 my brokerage account's value out in cash within hours in the exceptionally unlikely event where I'd need such large amount of cash. If I need more than immediately that then someone should probably be calling law enforcement to report the crime in progress, and then take down notes so they can accurately make the movie later. 

[RyanAtTanagra]

I know the money would be put to better use in my brokerage account, especially during the accumulation phase, but I keep a years worth of expenses in savings (about 8% of NW currently).  It just lets me sleep better knowing if something happens to my job (either by my hand or theirs) I have a year before I even have to think about what I have to do.