Do I Have Enough In My Emergency Fund?

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rattlenap
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Do I Have Enough In My Emergency Fund?

Post by rattlenap » Sun Jul 30, 2017 1:20 pm

When I started investing some time back I couldn't decide how much to keep in my emergency fund. So I defaulted and just chose the often recommended 6 months that I currently keep in a taxable account in the Vanguard Federal Money Market Fund. I am however considering upping the amount. Yet I am not sure how much and if I should put it elsewhere other than where I currently keep my EF or even if what I am currently doing is just fine. Any feedback will be great.

Here's my situation: I am 41, no wife and no kids, in good health with a stable career, am not a home owner just yet, and live in a major metropolis area with an abundance of jobs.

abner kravitz
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Re: Do I Have Enough In My Emergency Fund?

Post by abner kravitz » Sun Jul 30, 2017 1:28 pm

Its hard to answer this question without knowing your entire portfolio. You may have enough other stuff so that 6 months is more than adequate. My emergency fund is 3 months.

kathyauburn
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Re: Do I Have Enough In My Emergency Fund?

Post by kathyauburn » Sun Jul 30, 2017 1:39 pm

2 years. You want to have enough cash/equivalents so that you can draw from that in the inevitable stock/bond downturn to come. You also want to have ample cash both to live on and to add to your stock/bond investments when they decline. Takes a lot of cash!

mhalley
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Re: Do I Have Enough In My Emergency Fund?

Post by mhalley » Sun Jul 30, 2017 1:42 pm

6 months should be adequate for being single with no mortgage, but having more is fine if you sleep better. The wiki has some suggestions for a multi tiered ef. You could bump it to 9-12 mos.
. Three months of expenses in cash (bank account or money market fund)
The next three months of expenses in CDs with the option to cash them in for three months of interest
The next three months of expenses in a short-term Treasury bond fund. Selling these would risk incurring some loss of principal due to interest rate changes, but since the odds of needing to rely on your emergency fund for more than six months are slim, some would consider this an acceptable compromise. [note 2]
Another thing that many people overlook is disability insurance, as you are 3 times as likely to be disabled as die young.
Last edited by mhalley on Sun Jul 30, 2017 1:45 pm, edited 1 time in total.

aristotelian
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Re: Do I Have Enough In My Emergency Fund?

Post by aristotelian » Sun Jul 30, 2017 1:45 pm

6 months seems reasonable to me. Feel free to post your whole portfolio details if you want specific advice on how it should be structured and/or how to write your IPS to deal with emergency situations.

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mickeyd
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Re: Do I Have Enough In My Emergency Fund?

Post by mickeyd » Sun Jul 30, 2017 3:17 pm

Vanguard Federal Money Market Fund. I am however considering upping the amount. Yet I am not sure how much and if I should put it elsewhere
You might want to consider the PMMF which is yielding 1.10% (FMMF is 0.92%). An increase in 18bps is there for the taking.
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runner3081
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Re: Do I Have Enough In My Emergency Fund?

Post by runner3081 » Sun Jul 30, 2017 3:22 pm

kathyauburn wrote:2 years. You want to have enough cash/equivalents so that you can draw from that in the inevitable stock/bond downturn to come. You also want to have ample cash both to live on and to add to your stock/bond investments when they decline. Takes a lot of cash!
2 years is borderline absurd and not really needed for someone who is single with no dependants. I would say 3-6 months is sufficient, he should be able to easily scale down costs if something happens and only draw a minimal amount from investments in a bad scenario.

j0nnyg1984
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Re: Do I Have Enough In My Emergency Fund?

Post by j0nnyg1984 » Sun Jul 30, 2017 4:12 pm

runner3081 wrote:
kathyauburn wrote:2 years. You want to have enough cash/equivalents so that you can draw from that in the inevitable stock/bond downturn to come. You also want to have ample cash both to live on and to add to your stock/bond investments when they decline. Takes a lot of cash!
2 years is borderline absurd and not really needed for someone who is single with no dependants. I would say 3-6 months is sufficient, he should be able to easily scale down costs if something happens and only draw a minimal amount from investments in a bad scenario.
Yeah, I'm with you. Two years is quite irresponsible, imho, however, I have something like 25 months of expenses in a CD & savings account. It's for early payoff of my mortgage.

kathyauburn
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Re: Do I Have Enough In My Emergency Fund?

Post by kathyauburn » Sun Jul 30, 2017 6:04 pm

runner3081 wrote:
kathyauburn wrote:2 years. You want to have enough cash/equivalents so that you can draw from that in the inevitable stock/bond downturn to come. You also want to have ample cash both to live on and to add to your stock/bond investments when they decline. Takes a lot of cash!
2 years is borderline absurd and not really needed for someone who is single with no dependants. I would say 3-6 months is sufficient, he should be able to easily scale down costs if something happens and only draw a minimal amount from investments in a bad scenario.
I suppose I've seen worse scenarios than your "bad scenario." Experience.

ryman554
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Re: Do I Have Enough In My Emergency Fund?

Post by ryman554 » Mon Jul 31, 2017 7:44 am

j0nnyg1984 wrote: Yeah, I'm with you. Two years is quite irresponsible, imho, however, I have something like 25 months of expenses in a CD & savings account. It's for early payoff of my mortgage.
Why are you doing this instead of paying the mortgage directly? It's losing money to the mortgage monthly.

If you treat it is as an emergency mortgage fund, then I'd see why, and it hedges a lot of bets.

If you're treating it as a "early mortgage payoff", you would be much better either paying down the mortgage or investing. The former is mathematically certain to be better, while the latter is expected to be significantly better over the long term.

coupleofcents
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Re: Do I Have Enough In My Emergency Fund?

Post by coupleofcents » Mon Jul 31, 2017 10:50 am

Doesn't sound like you need more than 6 months emergency fund. Hard to say without more details. Why not open a separate no penalty CD or something and start building up a down payment for a house. Sounds like you eventually plan to buy a house.

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flamesabers
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Re: Do I Have Enough In My Emergency Fund?

Post by flamesabers » Mon Jul 31, 2017 11:04 am

OP,

6 months for an emergency fund is a good standard to follow I think. If circumstances change for you (i.e. job security becomes uncertain for you) or if you need to save up for a major expense like a house, by all means save more money. Otherwise, the more money you have stashed in your emergency fund is less money you can invest in equities and bonds.

Chadnudj
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Re: Do I Have Enough In My Emergency Fund?

Post by Chadnudj » Mon Jul 31, 2017 11:11 am

I'd remember that, technically speaking, ALL savings/funds/investments are emergency funds, when it comes down to it. I mean, you don't WANT to tap your 401k, but if the emergency got dire enough, it's there.

6 months is good because (a) the larger actual expenses in life (a new roof, a new car, etc.) are unlikely to exceed that, and (b) 6 months is a decent amount of time to find a job if you lose yours.

Beyond that, though, you're probably better off doing a Roth IRA (if you aren't already), since your contributions (but not earning) to a Roth IRA can be withdrawn penalty free, thereby making this an additional emergency fund. After that (and assuming you're already maxing your 401k), contributing towards a taxable fund at an appropriate AA is probably a better bet -- you have the upside of gains in the long term, but even if you suffered an emergency in a huge downturn (the nightmare scenario), you'll still having likely 50 cents on the dollar of what you put into a taxable fund available for emergencies (assuming a 50% downturn), which is nothing to sneeze at.

j0nnyg1984
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Re: Do I Have Enough In My Emergency Fund?

Post by j0nnyg1984 » Mon Jul 31, 2017 6:59 pm

ryman554 wrote:
j0nnyg1984 wrote: Yeah, I'm with you. Two years is quite irresponsible, imho, however, I have something like 25 months of expenses in a CD & savings account. It's for early payoff of my mortgage.
Why are you doing this instead of paying the mortgage directly? It's losing money to the mortgage monthly.

If you treat it is as an emergency mortgage fund, then I'd see why, and it hedges a lot of bets.

If you're treating it as a "early mortgage payoff", you would be much better either paying down the mortgage or investing. The former is mathematically certain to be better, while the latter is expected to be significantly better over the long term.
The money is just being set aside until I feel I have enough back in savings to provide a comfortable EF. Once I have this, I'll plop the 50k towards my mortgage.

It's in an ally 1.5% cd, and I already have plenty of money going into retirement accounts - I'm in no way concerned with the "lost time value."

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ruralavalon
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Re: Do I Have Enough In My Emergency Fund?

Post by ruralavalon » Mon Jul 31, 2017 8:06 pm

Six months is a reasonable default in my opinion, but the right amount depends on a lot of details we don't know.

I had a very stable job, with extremely erratic income, living in a moderate cost of living area, and with a fairly frugal lifestyle. We kept only a couple of months worth expenses in checking and savings.
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Ron Ronnerson
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Re: Do I Have Enough In My Emergency Fund?

Post by Ron Ronnerson » Mon Jul 31, 2017 8:22 pm

I think you're likely fine with a six-month emergency fund.

rattlenap
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Re: Do I Have Enough In My Emergency Fund?

Post by rattlenap » Mon Jul 31, 2017 9:40 pm

coupleofcents wrote:Doesn't sound like you need more than 6 months emergency fund. Hard to say without more details. Why not open a separate no penalty CD or something and start building up a down payment for a house. Sounds like you eventually plan to buy a house.
For buying a home, I am actually putting that money in an intermediate term muni bond in a taxable account. Won't be needing it though for like 5 years.

ThrustVectoring
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Re: Do I Have Enough In My Emergency Fund?

Post by ThrustVectoring » Mon Jul 31, 2017 10:10 pm

rattlenap wrote:
coupleofcents wrote:Doesn't sound like you need more than 6 months emergency fund. Hard to say without more details. Why not open a separate no penalty CD or something and start building up a down payment for a house. Sounds like you eventually plan to buy a house.
For buying a home, I am actually putting that money in an intermediate term muni bond in a taxable account. Won't be needing it though for like 5 years.
If you know when you need the money, buying safe bonds with that maturity date is a great choice. The intermediate term bond fund will reinvest rather than buy a note and hold to maturity, so you'd be taking interest rate risk closer to when you need the money.

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Re: Do I Have Enough In My Emergency Fund?

Post by bnes » Mon Jul 31, 2017 11:23 pm

rattlenap wrote:Here's my situation: I am 41, no wife and no kids, in good health with a stable career, am not a home owner just yet, and live in a major metropolis area with an abundance of jobs.
Do you maintain health insurance? That would reduce risk more.

Given the low risk consider Series EE Savings Bonds. You'll loose only the value of inflation to hold the bonds, but get it back after 20 years (effective interest rate 3.4%). You can get at the money any time, but it's awkward enough you're unlikely to tap it until you really need it. In the happy case you have a decent return on the funds.

Be sensitive that problems cascade. A stock market crash, can lead to an economic crash, that leads to loss of job, that leads to health problems, that makes getting another job hard...

coupleofcents
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Re: Do I Have Enough In My Emergency Fund?

Post by coupleofcents » Tue Aug 01, 2017 8:02 am

rattlenap wrote:
coupleofcents wrote:Doesn't sound like you need more than 6 months emergency fund. Hard to say without more details. Why not open a separate no penalty CD or something and start building up a down payment for a house. Sounds like you eventually plan to buy a house.
For buying a home, I am actually putting that money in an intermediate term muni bond in a taxable account. Won't be needing it though for like 5 years.
Okay good. I think rather than building the emergency fund more, use the extra money towards the down payment savings. You could always access the muni bonds in the case of a true emergency and you blew through the 6 month savings you already have.

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randomizer
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Re: Do I Have Enough In My Emergency Fund?

Post by randomizer » Tue Aug 01, 2017 9:28 am

6 months is just fine. If that runs out, dip into the bond part of your portfolio.
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remomnyc
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Re: Do I Have Enough In My Emergency Fund?

Post by remomnyc » Tue Aug 01, 2017 9:33 am

I would put another 6 mos in an Ally 11-mo no penalty CD (pays 1.4%) to give yourself 1-yr of coverage. At your age and seniority leverage, finding a new job could take more than 6 mos, especially if it is during an economic downturn, and health insurance coverage in the interim could be a big nut.

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steelerfan
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Re: Do I Have Enough In My Emergency Fund?

Post by steelerfan » Tue Aug 01, 2017 12:12 pm

OP,
Do you have debt?

A good rule of thumb is to pay off all non-mortgage debt first, then begin creating an EF of 3-6 months worth of expenses.
"You make most of your money in a bear market, you just don't realize it at the time." - Shelby Cullom Davis

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