Author Topic: Figuring emergency fund, when job affects expenses.  (Read 5077 times)

piccione88

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Figuring emergency fund, when job affects expenses.
« on: June 13, 2015, 07:25:37 AM »
  So I currently have a 3,500 dollar emergency fund, and am comfortable with that. My expenses are around 1200 a month, so 3500 is close to 3 months expenses. However, my job allows me to not have any expenses associated with housing, or transportation.
 When factoring in expenses should I build it up to a number three times what it would be without the job?
 I have great job security, and the last turn I lost my job. I had a new job two days later.

Rural

  • Walrus Stache
  • *******
  • Posts: 5055
Re: Figuring emergency fund, when job affects expenses.
« Reply #1 on: June 13, 2015, 08:35:42 AM »
I'd say if your job provides your housing, you need a plan and an EF that will at least get you temporary housing for the time you think it will take you to figure out your next step and implement it. Even if your job is pretty secure, still companies may fold.

StockBeard

  • Pencil Stache
  • ****
  • Posts: 648
  • Age: 41
    • How To Retire Early?
Re: Figuring emergency fund, when job affects expenses.
« Reply #2 on: June 15, 2015, 01:53:32 PM »
I'm always confused by the need for an emergency fund... if problems arise, wouldn't it be easier to just sell some of your long term assets? (stock, etc...)
Or is it just that people don't want to sell at a time where the market could be bad?


fb132

  • Guest
Re: Figuring emergency fund, when job affects expenses.
« Reply #3 on: June 15, 2015, 02:05:59 PM »
I'm always confused by the need for an emergency fund... if problems arise, wouldn't it be easier to just sell some of your long term assets? (stock, etc...)
Or is it just that people don't want to sell at a time where the market could be bad?
I am pretty sure that is the reason, but if I would lose my job, I would put it on my credit line and if I still can't find a job after 5-6 months, then I sell my investments. I try to avoid it unless I have a debt that is too big.

NotJen

  • Handlebar Stache
  • *****
  • Posts: 1333
  • Location: USA
Re: Figuring emergency fund, when job affects expenses.
« Reply #4 on: June 15, 2015, 02:10:37 PM »
Since my emergency fund is pretty much an "if I lost my job" fund, I would build it up to include the new expenses you could have.

EF size is pretty personal.  I am single/single income, so keep 1 year's worth of expenses in my emergency fund.  If you have another income to fall back on, you probably don't need as much.  I try very hard to be responsible with my money, provide for myself, not take on debt, etc. so I am pretty conservative when it comes to my EF - I want to be prepared to weather anything without taking a step back financially.

I'm always confused by the need for an emergency fund... if problems arise, wouldn't it be easier to just sell some of your long term assets? (stock, etc...)
Or is it just that people don't want to sell at a time where the market could be bad?
For me, it's about not wanting to raid tax-advantaged retirement accounts.  Up until this year, that's all I've had.  Sure, in an emergency I could have used my Roth funds or 401k (if my emergency was losing my job), but that's investment space I can't get back.  This year, I've started building up a taxable investment account.  Once it reaches a certain size (enough so that it could lose 50% and still provide an adequate EF), I'll keep some of my EF there instead of in a "high-yield" savings account.  I might still refer to it as my EF, though.

piccione88

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Figuring emergency fund, when job affects expenses.
« Reply #5 on: June 15, 2015, 02:18:30 PM »
Well in my situation I'm just starting to save/invest. I am also pretty deep in debt. So my investments are very insignificant.
 I don't think I'd feel comfortable with money I could need within the next year sitting in anything but cash. If the market when down, I Dont think I'd have the stomach to ride it out

fb132

  • Guest
Re: Figuring emergency fund, when job affects expenses.
« Reply #6 on: June 15, 2015, 02:37:22 PM »
Well in my situation I'm just starting to save/invest. I am also pretty deep in debt. So my investments are very insignificant.
 I don't think I'd feel comfortable with money I could need within the next year sitting in anything but cash. If the market when down, I Dont think I'd have the stomach to ride it out
When you just start to invest, then it is wise to have some EF, but once your investment gets quite big, the EF becomes useless.

Retired To Win

  • Handlebar Stache
  • *****
  • Posts: 1493
  • Age: 75
  • Location: Virginia
  • making the most of my time and my money
    • Retired To Win
Re: Figuring emergency fund, when job affects expenses.
« Reply #7 on: June 15, 2015, 03:35:53 PM »
When you just start to invest, then it is wise to have some EF, but once your investment gets quite big, the EF becomes useless.

Whether an Emergency Fund "becomes useless" depends on what other financial liquidity you have.  I'm not real comfortable labeling long term equity investments as financially liquid.  Sure, push comes to shove you can sell them... for whatever they'll bring at the time you have to sell.  I'd rather be in much more financial control than that.  Which is why I DO have an emergency fund, as well as "worst case scenario"extensive lines of credit.  In spite of also having a mid-six figure investment stash.  ;)

AZDude

  • Handlebar Stache
  • *****
  • Posts: 1296
Re: Figuring emergency fund, when job affects expenses.
« Reply #8 on: June 15, 2015, 04:23:06 PM »

Cashing out and withdrawing money from an investment account can take a week or longer sometimes, depending on the institution. So whatever you do, keep enough cash to hold you over for a week or two completely liquid. After that its just personal preference.

fb132

  • Guest
Re: Figuring emergency fund, when job affects expenses.
« Reply #9 on: June 15, 2015, 04:25:19 PM »

Cashing out and withdrawing money from an investment account can take a week or longer sometimes, depending on the institution. So whatever you do, keep enough cash to hold you over for a week or two completely liquid. After that its just personal preference.
If you have a credit line, you could put it there until you get your money from your investment, so it doesn't change much, unless you have absolutely no line of credit/credit card.

Jags4186

  • Pencil Stache
  • ****
  • Posts: 587
Re: Figuring emergency fund, when job affects expenses.
« Reply #10 on: June 15, 2015, 05:15:36 PM »
If you're truly a mustachian your expenses should be low and therefore your emergency fund should be relatively modest. If it's modest it shouldn't really effect your FIRE date so there's no reason not to have one.

I keep 16k in a 1% savings account. 16k represents 6% of my net worth and should cover at least 6 more like 8 months months of expenses. More if I got unemployment. Every week that 16k becomes less and less of my NW yet it protects me the same. Seems silly not to have it.

Wilson Hall

  • Stubble
  • **
  • Posts: 163
Re: Figuring emergency fund, when job affects expenses.
« Reply #11 on: June 16, 2015, 06:58:51 AM »

Cashing out and withdrawing money from an investment account can take a week or longer sometimes, depending on the institution. So whatever you do, keep enough cash to hold you over for a week or two completely liquid. After that its just personal preference.

I keep a few thousand in a money market account that can be transferred into checking at any time. If I lose this job, I'll get a few more thousand in payout for leave time. For long-term unemployment, I would cash in my 457 account (no penalty for withdrawal before 59.5).

The biggest expense I have to worry about is health insurance. Right now the spouse is covered under my plan, but if I became unemployed we'd each have to go on the ACA federal exchange.

TravelJunkyQC

  • Bristles
  • ***
  • Posts: 465
  • Age: 36
  • Location: Québec City, Canada
Re: Figuring emergency fund, when job affects expenses.
« Reply #12 on: June 16, 2015, 07:08:08 AM »
Checking and «savings» accounts being what they are, I have a difficult time justifying keeping a large amount of money parked in them for any reason. I have a 5,000$ line of credit open, kept at zero, which is my EF - interest on the line is .5% above prime... which is way lower than what my investments make on average. Am I the only one who is uncomfortable keeping thousands of dollars at 1% interest?

Jags4186

  • Pencil Stache
  • ****
  • Posts: 587
Re: Figuring emergency fund, when job affects expenses.
« Reply #13 on: June 16, 2015, 09:21:43 AM »
Checking and «savings» accounts being what they are, I have a difficult time justifying keeping a large amount of money parked in them for any reason. I have a 5,000$ line of credit open, kept at zero, which is my EF - interest on the line is .5% above prime... which is way lower than what my investments make on average. Am I the only one who is uncomfortable keeping thousands of dollars at 1% interest?

If I assume that my investments grow at 8%, my $16,000 sitting in the bank at 1% is costing me 7% return.  I think I should be FI by the time I'm 40 so that puts me 11 years out.  My opportunity cost for having an EF is 7% growth over 11 years which is $17,677.  That means I would have $60 a month less at 4% SWR.  I think it's a risk worth taking since it prevents me from having to sell in the off chance I need money when the market is down.

Over 30 years, the market has returned negative returns 5 times.  From 2000-2010 the market returned 0.56%, less than my 1% savings account.  Once I'm FI I don't need an emergency fund anymore because I will be living off my investments.  Cash might be part of my portfolio but for different reasons.  It makes no sense to me NOT to keep an emergency fund if you are not yet FI.

TravelJunkyQC

  • Bristles
  • ***
  • Posts: 465
  • Age: 36
  • Location: Québec City, Canada
Re: Figuring emergency fund, when job affects expenses.
« Reply #14 on: June 16, 2015, 10:40:32 AM »
^
I understand your point and I very much agree with you and your math in general. I suppose I am taking a fair big gamble in this way. And come to think of it, I always keep a minimum of 2,500$ in my checking (because if it dips lower, my back charges me 9,50$ a month - those bastards). With my current way of life, 2,500$ is 3 months of necessary exependitures, + my line of credit that could theoretically cover me for another 6 months.

I should also specify that while my salary and basic expenditures are both low, living in Québec, health-related costs would never bankcrupt me - since my current 38% tax bracket already covers these were they to arise. Hence, I have the advantage of not having to calculate a medical emergency into any EF-use possibility. I would need to simultaneously lose my full-time job, lose the ability to accept side contracts (which I already do), lose my partner (and thus the condo we live in) - then I would truly be in the shit. There would also have to be some massive administrative black-hole inhibiting me from getting my TFSA government bonds that have been gathering dust and a little interest for the past 7 years.

I suppose my only point is that while a solid EF is necessary and important, I think pure liquidity CAN be overated in certain cases (again, these are not all cases).

shelivesthedream

  • Walrus Stache
  • *******
  • Posts: 6809
  • Location: London, UK
Re: Figuring emergency fund, when job affects expenses.
« Reply #15 on: June 16, 2015, 11:05:33 AM »
For me, an emergency fund is for if I need money <24hrs to <a week an so have no time to access any investments. It's currently £1000. This would cover things like having to call a plumber out in the middle of the night and write a cheque before they left, a car breakdown (if I had a car), a train ticket to my parents house if they were in an accident - that sort of thing. Not huge expenses but urgent ones that I would need a bit of extra cash quickly for.

If I had a salaried job and lost it, that would not be an emergency. If want to have money to cover me, sure, but it's not going to be a mad scramble for a few hundred quid that I need that day - it's going to be covering minimal living expenses for several months, for which I would have a little time to think about it and plan what to do.

Sure, I would want to empty my tax-advantaged accounts, but why have thousands sitting around in cash doing nothing just in case you lose your job with no warning? If that time ever comes, I will be very happy to sell some investments to cover it, even if the market has dipped a bit and it's at a loss. I'm married with no children, which is probably the least precarious position to be in as I have no dependents and have a spouse whose income can support me financially. Maybe I would be less blasé if I had children, but I would feel the same if I were single as then you have the advantage of so much more flexibility in lifestyle.

fb132

  • Guest
Re: Figuring emergency fund, when job affects expenses.
« Reply #16 on: June 16, 2015, 11:41:30 AM »
I think, us canadians are somewhat lucky since we don't have to worry about going bankrupt because of medical issues. I guess, it all depends of each individual, in my case, just like TravelJunkyQC, I feel having money doing nothing is a waste, because I can always use my Credit Card/LOC and worse comes to worse, there is the investments since here in Canada we have the TFSA in which we can withdraw our money without any penalties. But it would take alot for me to withdraw from my investments (most likely a job loss + I am out of work for 6 months + ).
« Last Edit: June 16, 2015, 11:43:22 AM by fb132 »

piccione88

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Figuring emergency fund, when job affects expenses.
« Reply #17 on: June 17, 2015, 07:37:22 AM »
 Thank you all so much. All the different viewpoints, really helped me think this through. Who needs financial advisors when I got the money mustache forum!!
 I feel comfortable with around 6k. I could stretch that out over 5 months, even with housing costs, if need be.
 My debt is all relatively low interest, highest is 5%. However a lot of it is in collections. I want money on hand to resolve lawsuits before they go to court.
Once that is no longer an issue, I would feel okay with 3k again.
 I understand the idea of keeping everything in investment accounts now. I just really don't like the idea of having to sell low, I worry that in the process of figuring out how much to take out, I may panic and withdraw way too much  out of fear.
 I drive truck for a refrigerated company. So other than an injury, or illness it would take a horrible downturn to leave me unemployed for any significant amount of time. There is a huge shortage of drivers, and we haul food. So it would take going beyond the labor shortage, and have to greatly affect people's eating habbits. I would like to be prepared for a few months in case something happens where I am unable to work for a few months, or have to find new job and want a cushion to find the right job. I don't want to face either withdraw from an investment fund, or take first job that comes my way.
 
« Last Edit: June 17, 2015, 07:58:22 AM by piccione88 »

Retired To Win

  • Handlebar Stache
  • *****
  • Posts: 1493
  • Age: 75
  • Location: Virginia
  • making the most of my time and my money
    • Retired To Win
Re: Figuring emergency fund, when job affects expenses.
« Reply #18 on: June 17, 2015, 11:31:48 AM »
...
 I feel comfortable with around 6K. I could stretch that out over 5 months, even with housing costs, if need be.

My debt is all relatively low interest, highest is 5%. However a lot of it is in collections. I want money on hand to resolve lawsuits before they go to court. Once that is no longer an issue, I would feel okay with 3K again...

Just don't get yourself in a bind by not factoring in "full expenses" including that housing.  Better to have a little more than you need in the emergency fund than not enough.

Good luck.