What is a reasonable emergency fund for HI family?

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jayk238
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What is a reasonable emergency fund for HI family?

Post by jayk238 » Wed Nov 08, 2017 2:35 pm

What is a reasonable emergency fund for HI family?

Many people argue its better to pay a monthly bill for disability, etc. and instead invest the rest.

Is the 6 mo x monthly spending = emergency fund really sensible if your income is over 100k? Seems like an awful lot is just sitting in a bank account losing to inflation

sailaway
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Re: What is a reasonable emergency fund for HI family?

Post by sailaway » Wed Nov 08, 2017 2:40 pm

It depends somewhat on your job. Most people are more likely to be laid off when stocks are also down. An emergency fund will help you through that period without selling those stocks.

CDs generally at least keep up with inflation, if that is truly your concern.

Also keep in mind that this is part of your portfolio, so 6x in CDs is that much less in bonds.

snowox
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Re: What is a reasonable emergency fund for HI family?

Post by snowox » Wed Nov 08, 2017 2:40 pm

Kinda hard to figure with out knowing more details. So I will go with the comfort level. For me its 50k. Thats what I keep in my emergency fund at all times.

ResearchMed
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Re: What is a reasonable emergency fund for HI family?

Post by ResearchMed » Wed Nov 08, 2017 2:41 pm

jayk238 wrote:
Wed Nov 08, 2017 2:35 pm
What is a reasonable emergency fund for HI family?

Many people argue its better to pay a monthly bill for disability, etc. and instead invest the rest.

Is the 6 mo x monthly spending = emergency fund really sensible if your income is over 100k? Seems like an awful lot is just sitting in a bank account losing to inflation
First, you could have the emergency fund in CD's with a minimal penalty to break, or build up a ladder, so that they are available (or renew) several times a year. And still have some cash for true immediate emergencies.

As for "disability"... if you mean disability insurance that would cover many *years* of lost income if disabled, then that's not the same as "emergency fund" money.
It's more like life insurance ('til a certain age), except that you'd still be there, too, meaning even more money would be needed, etc.

RM
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brad.clarkston
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Re: What is a reasonable emergency fund for HI family?

Post by brad.clarkston » Wed Nov 08, 2017 2:43 pm

jayk238 wrote:
Wed Nov 08, 2017 2:35 pm
What is a reasonable emergency fund for HI family?

Many people argue its better to pay a monthly bill for disability, etc. and instead invest the rest.

Is the 6 mo x monthly spending = emergency fund really sensible if your income is over 100k? Seems like an awful lot is just sitting in a bank account losing to inflation
Yes I believe that's correct even at the $300k range.
It's a matter of solvency any loan/credit is bad at the HI level always pay in cash which applies to EM's.

jayk238
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Re: What is a reasonable emergency fund for HI family?

Post by jayk238 » Wed Nov 08, 2017 2:53 pm

so lets say I do make 300k. The correct way to save would be to set aside at least 150k in safe accounts even if it means forgoing a significant return from stocks? Are there no insurance products to purchase for a monthly fee that offer that kind of reserve at low cost in a pinch? And if there are such products should one just buy those instead and invest the 150k?

totesmagotes
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Re: What is a reasonable emergency fund for HI family?

Post by totesmagotes » Wed Nov 08, 2017 2:58 pm

ResearchMed wrote:
Wed Nov 08, 2017 2:41 pm
jayk238 wrote:
Wed Nov 08, 2017 2:35 pm
What is a reasonable emergency fund for HI family?

Many people argue its better to pay a monthly bill for disability, etc. and instead invest the rest.

Is the 6 mo x monthly spending = emergency fund really sensible if your income is over 100k? Seems like an awful lot is just sitting in a bank account losing to inflation
First, you could have the emergency fund in CD's with a minimal penalty to break, or build up a ladder, so that they are available (or renew) several times a year. And still have some cash for true immediate emergencies.
I'm slowly putting some of my emergency funds in I Bonds. I plan on doing it in a similar fashion as building a CD ladder, though here I'll just put money into I Bonds every ~6 months, so that each new purchase carries the latest fixed rate. Once I've purchased enough to get over the 1-yr redemption ban, I'll shift purchasing decision to whether or not the fixed rate is higher than previously purchased bonds. Over time, I'll have ~1 month of expenses in a checking account (earning effectively 0%), 2 months of expenses in a high-yield savings (currently earning 1.3%, which, even before taxes, is less than inflation), and 3 months of expenses in the I-Bond ladder of sorts (currently at ~2.58% for I bonds bought starting 11/1/17).

My backup plan, should I need more than that, is to use my Roth IRA contributions. My Roth IRA is overweight on bonds on the notion that they are, generally, less volatile than stocks; my other tax-deferred retirement accounts are overweight on stocks such that my AA is on target. The Roth IRA, then, serves as my backup EF since contributions can be withdrawn at any time without penalty.

Note, I'm just starting to build my retirement portfolio now that my wife and are I finally in a position to save more than a few thousand dollars each yet. As such, my positions are peanuts compared to many on this board.

brad.clarkston
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Re: What is a reasonable emergency fund for HI family?

Post by brad.clarkston » Wed Nov 08, 2017 3:03 pm

jayk238 wrote:
Wed Nov 08, 2017 2:53 pm
so lets say I do make 300k. The correct way to save would be to set aside at least 150k in safe accounts even if it means forgoing a significant return from stocks? Are there no insurance products to purchase for a monthly fee that offer that kind of reserve at low cost in a pinch? And if there are such products should one just buy those instead and invest the 150k?
No you tier the money, in theory that could be:

Tier #1 = $50k in a high yield online bank account. <-- very fast to get to.
Tier #2 = $50k in CD's or bond ladder. <-- a bit harder to get to and has to be weekday.
Tier #3 = $50k in a state muni (for example) <-- hardest to get, must sell and possible tax liabilities.

I would start with that and then add to Tier #2 and #3 over time.

Nate79
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Re: What is a reasonable emergency fund for HI family?

Post by Nate79 » Wed Nov 08, 2017 3:04 pm

3-6 months of expenses as emergency fund. Note that income is no where in the equation.

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Meg77
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Re: What is a reasonable emergency fund for HI family?

Post by Meg77 » Wed Nov 08, 2017 3:16 pm

I argue that the higher your income, the less you may need an EF. I don't keep one at all anymore. My reasons are as follows:

1. My husband and I both work, and we each earn enough to cover our typical household expenses if the other were to get laid off. Our actual fixed, non-discretionary costs are a very low percentage of our income. Therefore we can cash flow things like insurance deductibles, home/car repairs and last minute trips for funerals - typical household "emergencies".

2. It's unlikely that either of us would lose our jobs - we work in stable industries that don't regularly do layoffs, and we both are good performers. It's even less likely that would both lose our jobs at the same time. But if we did, it would not take long to get new jobs at similar income levels. Currently there is lots of demand.

3. We have more than a year of expenses in taxable brokerage, plus several years worth of deductibles invested in a HSA. Of course we wouldn't want to tap those invested assets during a market downturn, but we could if we had to. We also have quite a bit in our Roth IRAs which is technically accessible in some kind of forced early retirement scenario.

4. We have great credit and access to over $50,000 on credit cards currently. We pay our balances in full monthly, but if we needed to in a true emergency we could run up some balances. We also could qualify for 0% new credit cards, cheap home equity loans, or other credit to bridge a short term cash flow gap.
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sailaway
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Re: What is a reasonable emergency fund for HI family?

Post by sailaway » Wed Nov 08, 2017 3:25 pm

jayk238 wrote:
Wed Nov 08, 2017 2:53 pm
so lets say I do make 300k. The correct way to save would be to set aside at least 150k in safe accounts even if it means forgoing a significant return from stocks? Are there no insurance products to purchase for a monthly fee that offer that kind of reserve at low cost in a pinch? And if there are such products should one just buy those instead and invest the 150k?
Are you spending your whole income or does part if it go to savings? An emergency fund is meant to cover your spending, not your income.

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slayed
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Re: What is a reasonable emergency fund for HI family?

Post by slayed » Wed Nov 08, 2017 3:26 pm

If your expenses are low compared to your income and you have insurance (disability, auto, etc) then you might not need an emergency fund at all.

It really depends on the individual circumstances. I don't have an emergency fund but I also rent (so don't need $ on hand for home repairs) and I work for a company that historically has payed severance whenever it does layoffs (so not really worried about job loss). Big expenses I just put on credit cards and payoff during the grace period which generally spans two or three paychecks.

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queso
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Re: What is a reasonable emergency fund for HI family?

Post by queso » Wed Nov 08, 2017 3:29 pm

We keep about a year's worth of expenses in an emergency fund that actually spans a couple of accounts. That being said, like Meg pointed out, we could leverage taxable, credit cards, savings bonds, liquidated cryptocurrency positions, etc. if we were in a real jam. Because of those other options I don't think twice about buying a vehicle or doing a large home repair/renovation out of those emergency funds and then just paying it back over several months from cash flow.

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Re: What is a reasonable emergency fund for HI family?

Post by David Scubadiver » Wed Nov 08, 2017 3:35 pm

My cash on hand fluctuates between $5,000 and $70,000.
If I need more cash, I sell something. If the markets have been moving up, I incur a tax liability. If they have been moving down, I have a loss to set off against income or future gains.

I don't understand why people with securities worry about how much cash they have when they can always get more.

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Re: What is a reasonable emergency fund for HI family?

Post by David Scubadiver » Wed Nov 08, 2017 3:41 pm

totesmagotes wrote:
Wed Nov 08, 2017 2:58 pm

I'm slowly putting some of my emergency funds in I Bonds. I plan on doing it in a similar fashion as building a CD ladder, though here I'll just put money into I Bonds every ~6 months, so that each new purchase carries the latest fixed rate. Once I've purchased enough to get over the 1-yr redemption ban, I'll shift purchasing decision to whether or not the fixed rate is higher than previously purchased bonds. Over time, I'll have ~1 month of expenses in a checking account (earning effectively 0%), 2 months of expenses in a high-yield savings (currently earning 1.3%, which, even before taxes, is less than inflation), and 3 months of expenses in the I-Bond ladder of sorts (currently at ~2.58% for I bonds bought starting 11/1/17).
Last year I scheduled 24 iBond purchases to coincide with my paychecks for the year. I like things to be on autopilot and I would rather buy from earnings then sell my holdings to acquire iBonds.

WL2034
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Re: What is a reasonable emergency fund for HI family?

Post by WL2034 » Wed Nov 08, 2017 3:43 pm

jayk238 wrote:
Wed Nov 08, 2017 2:53 pm
so lets say I do make 300k. The correct way to save would be to set aside at least 150k in safe accounts even if it means forgoing a significant return from stocks? Are there no insurance products to purchase for a monthly fee that offer that kind of reserve at low cost in a pinch? And if there are such products should one just buy those instead and invest the 150k?
The size of your emergency fund should be based on your expenses, not your income. So no, you don't need to double your emergency fund if your salary doubles. If you spend twice as much (expenses double), then yes, you should have a larger emergency fund.

ResearchMed
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Re: What is a reasonable emergency fund for HI family?

Post by ResearchMed » Wed Nov 08, 2017 3:49 pm

David Scubadiver wrote:
Wed Nov 08, 2017 3:35 pm
My cash on hand fluctuates between $5,000 and $70,000.
If I need more cash, I sell something. If the markets have been moving up, I incur a tax liability. If they have been moving down, I have a loss to set off against income or future gains.

I don't understand why people with securities worry about how much cash they have when they can always get more.
For many people, that would be because a time when money might be urgently needed on short notice *might* be a time when there is general financial stress (e.g. 2008++).
IF one needed to sell at real lows, then there's no time for that money to recover (and no money for purchases at those lows, either).

Obviously, some urgent needs could be at regular market conditions, but this is intended for contingency planning.
And it doesn't have to be "cash". CD's or high yield savings, etc., would also work for emergency funds.
It's obviously a trade-off, one that many people feel comfortable with (especially after weathering difficulties or very bad market conditions).

RM
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KlangFool
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Re: What is a reasonable emergency fund for HI family?

Post by KlangFool » Wed Nov 08, 2017 3:54 pm

OP,

In general, people with high income need more emergency fund. Not less. The simple reason is it usually took longer to find a new job. There is less opportunity out there.

KlangFool

David Scubadiver
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Re: What is a reasonable emergency fund for HI family?

Post by David Scubadiver » Wed Nov 08, 2017 4:47 pm

ResearchMed wrote:
Wed Nov 08, 2017 3:49 pm
David Scubadiver wrote:
Wed Nov 08, 2017 3:35 pm
My cash on hand fluctuates between $5,000 and $70,000.
If I need more cash, I sell something. If the markets have been moving up, I incur a tax liability. If they have been moving down, I have a loss to set off against income or future gains.

I don't understand why people with securities worry about how much cash they have when they can always get more.
For many people, that would be because a time when money might be urgently needed on short notice *might* be a time when there is general financial stress (e.g. 2008++).
IF one needed to sell at real lows, then there's no time for that money to recover (and no money for purchases at those lows, either).
If I have $500,000 invested today, and need $50,000 tomorrow, it really doesn't matter to me whether on the day I need the money I have $250,000 invested. Markets generally go up, and as a result, one seems far morel likely to miss out on more gains by having that $50,000 kept out of the market than they might lose should an emergency come up at the time of a market low.

In fact, *IF* I had $50,000 in emergency funds when the market dropped by 50%, you can be damned well certain that I'd throw it all in the market so the contingency of which you speak would simply be a form of market timing for myself.
Last edited by David Scubadiver on Wed Nov 08, 2017 4:54 pm, edited 1 time in total.

David Scubadiver
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Re: What is a reasonable emergency fund for HI family?

Post by David Scubadiver » Wed Nov 08, 2017 4:48 pm

KlangFool wrote:
Wed Nov 08, 2017 3:54 pm
OP,

In general, people with high income need more emergency fund. Not less. The simple reason is it usually took longer to find a new job. There is less opportunity out there.

KlangFool
I second that. When I nearly lost my job, after a year of searching, the best I could do was find a job where my take home pay would be 50% of what I was making, and that would have been without 401(k) contributions. It was brutal.

ResearchMed
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Re: What is a reasonable emergency fund for HI family?

Post by ResearchMed » Wed Nov 08, 2017 4:54 pm

David Scubadiver wrote:
Wed Nov 08, 2017 4:47 pm
ResearchMed wrote:
Wed Nov 08, 2017 3:49 pm
David Scubadiver wrote:
Wed Nov 08, 2017 3:35 pm
My cash on hand fluctuates between $5,000 and $70,000.
If I need more cash, I sell something. If the markets have been moving up, I incur a tax liability. If they have been moving down, I have a loss to set off against income or future gains.

I don't understand why people with securities worry about how much cash they have when they can always get more.
For many people, that would be because a time when money might be urgently needed on short notice *might* be a time when there is general financial stress (e.g. 2008++).
IF one needed to sell at real lows, then there's no time for that money to recover (and no money for purchases at those lows, either).
If I have $500,000 invested today, and need $50,000 tomorrow, it really doesn't matter to me whether on the day I need the money I have $250,000 invested. Markets generally go up, and as a result, one seems far morel likely to miss out on more gains by having that $50,000 kept out of the market than they might lose should an emergency come up at the time of a market low.
You wrote that you didn't understand why others would have a separate emergency fund.
So I explained the reason for many of those people.

I didn't suggest that it was right for you.

EDIT: As for the bit you added while I was replying,

"In fact, *IF* I had $50,000 in emergency funds when the market dropped by 50%, you can be damned well certain that I'd throw it all in the market so the contingency of which you speak would simply be a form of market timing for myself."

yes, having that money to throw at very low prices... that was part of the reason I provided, that some people use.

RM
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soupcxan
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Re: What is a reasonable emergency fund for HI family?

Post by soupcxan » Wed Nov 08, 2017 4:59 pm

[deleted]
Last edited by soupcxan on Sun Dec 10, 2017 3:22 pm, edited 1 time in total.

delamer
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Re: What is a reasonable emergency fund for HI family?

Post by delamer » Wed Nov 08, 2017 5:01 pm

jayk238 wrote:
Wed Nov 08, 2017 2:53 pm
so lets say I do make 300k. The correct way to save would be to set aside at least 150k in safe accounts even if it means forgoing a significant return from stocks? Are there no insurance products to purchase for a monthly fee that offer that kind of reserve at low cost in a pinch? And if there are such products should one just buy those instead and invest the 150k?
People who make $300,000 per year don't have $300,000 per year in household expenses. They pay income taxes, payroll taxes, and save money, none of which they have to pay if they lose their jobs. So they will not need to set aside $150,000 to cover 6 months of expenses.

Disability is only one reason that people lose their jobs. There isn't any insurance you can buy to cover your company going out of business or your job being moved overseas. Although you will probably get unemployment insurance in those cases.

David Scubadiver
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Re: What is a reasonable emergency fund for HI family?

Post by David Scubadiver » Wed Nov 08, 2017 5:10 pm

ResearchMed wrote:
Wed Nov 08, 2017 4:54 pm
EDIT: As for the bit you added while I was replying,

"In fact, *IF* I had $50,000 in emergency funds when the market dropped by 50%, you can be damned well certain that I'd throw it all in the market so the contingency of which you speak would simply be a form of market timing for myself."

yes, having that money to throw at very low prices... that was part of the reason I provided, that some people use.

RM
But that is not an emergency fund unless one considers the need to have dry powder to buy when the markets have crashed, an "emergency"

KlangFool
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Re: What is a reasonable emergency fund for HI family?

Post by KlangFool » Wed Nov 08, 2017 5:39 pm

delamer wrote:
Wed Nov 08, 2017 5:01 pm
jayk238 wrote:
Wed Nov 08, 2017 2:53 pm
so lets say I do make 300k. The correct way to save would be to set aside at least 150k in safe accounts even if it means forgoing a significant return from stocks? Are there no insurance products to purchase for a monthly fee that offer that kind of reserve at low cost in a pinch? And if there are such products should one just buy those instead and invest the 150k?
People who make $300,000 per year don't have $300,000 per year in household expenses. They pay income taxes, payroll taxes, and save money, none of which they have to pay if they lose their jobs. So they will not need to set aside $150,000 to cover 6 months of expenses.

Disability is only one reason that people lose their jobs. There isn't any insurance you can buy to cover your company going out of business or your job being moved overseas. Although you will probably get unemployment insurance in those cases.
delamer,

And, in general, at the high-income level, the unemployment insurance is hardly enough to cover a few months of expense. In my state, it is capped at around 10K.

KlangFool

jayk238
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Re: What is a reasonable emergency fund for HI family?

Post by jayk238 » Wed Nov 08, 2017 7:37 pm

totesmagotes wrote:
Wed Nov 08, 2017 2:58 pm
ResearchMed wrote:
Wed Nov 08, 2017 2:41 pm
jayk238 wrote:
Wed Nov 08, 2017 2:35 pm
What is a reasonable emergency fund for HI family?

Many people argue its better to pay a monthly bill for disability, etc. and instead invest the rest.

Is the 6 mo x monthly spending = emergency fund really sensible if your income is over 100k? Seems like an awful lot is just sitting in a bank account losing to inflation
First, you could have the emergency fund in CD's with a minimal penalty to break, or build up a ladder, so that they are available (or renew) several times a year. And still have some cash for true immediate emergencies.
I'm slowly putting some of my emergency funds in I Bonds. I plan on doing it in a similar fashion as building a CD ladder, though here I'll just put money into I Bonds every ~6 months, so that each new purchase carries the latest fixed rate. Once I've purchased enough to get over the 1-yr redemption ban, I'll shift purchasing decision to whether or not the fixed rate is higher than previously purchased bonds. Over time, I'll have ~1 month of expenses in a checking account (earning effectively 0%), 2 months of expenses in a high-yield savings (currently earning 1.3%, which, even before taxes, is less than inflation), and 3 months of expenses in the I-Bond ladder of sorts (currently at ~2.58% for I bonds bought starting 11/1/17).

My backup plan, should I need more than that, is to use my Roth IRA contributions. My Roth IRA is overweight on bonds on the notion that they are, generally, less volatile than stocks; my other tax-deferred retirement accounts are overweight on stocks such that my AA is on target. The Roth IRA, then, serves as my backup EF since contributions can be withdrawn at any time without penalty.

Note, I'm just starting to build my retirement portfolio now that my wife and are I finally in a position to save more than a few thousand dollars each yet. As such, my positions are peanuts compared to many on this board.
So I bonds can be bought and sold anytime - ie in a pinch in an emergency w no penalty? Why even bother with them when you can put in money at ally bank for 1.2% in a savings account?

totesmagotes
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Re: What is a reasonable emergency fund for HI family?

Post by totesmagotes » Wed Nov 08, 2017 8:44 pm

jayk238 wrote:
Wed Nov 08, 2017 7:37 pm
totesmagotes wrote:
Wed Nov 08, 2017 2:58 pm
ResearchMed wrote:
Wed Nov 08, 2017 2:41 pm
jayk238 wrote:
Wed Nov 08, 2017 2:35 pm
What is a reasonable emergency fund for HI family?

Many people argue its better to pay a monthly bill for disability, etc. and instead invest the rest.

Is the 6 mo x monthly spending = emergency fund really sensible if your income is over 100k? Seems like an awful lot is just sitting in a bank account losing to inflation
First, you could have the emergency fund in CD's with a minimal penalty to break, or build up a ladder, so that they are available (or renew) several times a year. And still have some cash for true immediate emergencies.
I'm slowly putting some of my emergency funds in I Bonds. I plan on doing it in a similar fashion as building a CD ladder, though here I'll just put money into I Bonds every ~6 months, so that each new purchase carries the latest fixed rate. Once I've purchased enough to get over the 1-yr redemption ban, I'll shift purchasing decision to whether or not the fixed rate is higher than previously purchased bonds. Over time, I'll have ~1 month of expenses in a checking account (earning effectively 0%), 2 months of expenses in a high-yield savings (currently earning 1.3%, which, even before taxes, is less than inflation), and 3 months of expenses in the I-Bond ladder of sorts (currently at ~2.58% for I bonds bought starting 11/1/17).

My backup plan, should I need more than that, is to use my Roth IRA contributions. My Roth IRA is overweight on bonds on the notion that they are, generally, less volatile than stocks; my other tax-deferred retirement accounts are overweight on stocks such that my AA is on target. The Roth IRA, then, serves as my backup EF since contributions can be withdrawn at any time without penalty.

Note, I'm just starting to build my retirement portfolio now that my wife and are I finally in a position to save more than a few thousand dollars each yet. As such, my positions are peanuts compared to many on this board.
So I bonds can be bought and sold anytime - ie in a pinch in an emergency w no penalty? Why even bother with them when you can put in money at ally bank for 1.2% in a savings account?
You cannot redeem Series I Bonds in the first year. After the first year until the fifth year, you can redeem at any time with a penalty equal to 3 months of interest. After 5 years of holding, you can redeem them at any time without penalty.

As to why you'd choose I bonds over an online savings account -- the interest earned on an I Bond currently is about twice what's available in a high yield savings account. In addition, the I Bond is pegged to the inflation rate. So, if inflation increases, the rate on I bonds will increase. At a current 1.3%, money in a savings account actually loses spending power with each passing month, and the more you save, the more you lose owing to the negative real interest rate.

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Re: What is a reasonable emergency fund for HI family?

Post by GoldenFinch » Wed Nov 08, 2017 8:55 pm

soupcxan wrote:
Wed Nov 08, 2017 4:59 pm
Why would an emergency fund for a family in Hawaii be any different than in the continental US?
The cost of living in Hawaii is extremely high.

ivk5
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Re: What is a reasonable emergency fund for HI family?

Post by ivk5 » Thu Nov 09, 2017 6:53 am

GoldenFinch wrote:
Wed Nov 08, 2017 8:55 pm
soupcxan wrote:
Wed Nov 08, 2017 4:59 pm
Why would an emergency fund for a family in Hawaii be any different than in the continental US?
The cost of living in Hawaii is extremely high.
From context I think OP meant HI = High Income

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djpeteski
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Re: What is a reasonable emergency fund for HI family?

Post by djpeteski » Thu Nov 09, 2017 7:33 am

The wife and I bring in about 300K of income per year, not super high, but well within the 95th percentile.

Some relevant facts:
- We have no mortgage
- We can live off of very little (about 30K)
- Our income is split about 45/55, so nearly equal
- She is an RN (but not working as one) and could pretty easily get a job making at least 60K.

So we decided 12K was enough to keep in the emergency fund.

Now we have a lot of sinking funds for various things. One example is we keep 5k laying around in case one of our cars breaks down and we have to replace or repair.

One our online savings account is more than 50K, I start looking at CDs where I can earn a little more interest.

That works very well for us. Earlier in the year, one of our cars gave up the ghost. We found a great deal on a new car for 27K and only had 5k in the car fund. We were able to "borrow" from our other sinking funds in order to pay cash for the car and still maintained the 12k in the efund. We had it soon paid back.

jayk238
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Re: What is a reasonable emergency fund for HI family?

Post by jayk238 » Thu Nov 09, 2017 10:18 am

So if Im confident of finding a job fairly quickly then the need for an emergency budget is less an issue?

jayk238
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Re: What is a reasonable emergency fund for HI family?

Post by jayk238 » Thu Nov 09, 2017 10:22 am

ivk5 wrote:
Thu Nov 09, 2017 6:53 am
GoldenFinch wrote:
Wed Nov 08, 2017 8:55 pm
soupcxan wrote:
Wed Nov 08, 2017 4:59 pm
Why would an emergency fund for a family in Hawaii be any different than in the continental US?
The cost of living in Hawaii is extremely high.
From context I think OP meant HI = High Income
My bad. I never knew why hawaii was brought up until you clarified this. Yes. I meant hi for high income.

KlangFool
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Re: What is a reasonable emergency fund for HI family?

Post by KlangFool » Thu Nov 09, 2017 10:27 am

jayk238 wrote:
Thu Nov 09, 2017 10:18 am
So if Im confident of finding a job fairly quickly then the need for an emergency budget is less an issue?
jayk238,

1) Does that apply when we are in a recession?

2) Do you change job regularly? If not, how do you know that your expectation is real?

3) What if the whole industry goes to hell?

4) How badly will you be hurt financially if you guess wrong? Will you lose your house?

We need to assess risk in 2 dimensions:

A) How likely for it to happen?

B) How badly will we be hurt if it happened?

We wear the seat belt because even though car accident is rare, we will be hurt seriously in a car accident without a seat belt.

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wrongfunds
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Re: What is a reasonable emergency fund for HI family?

Post by wrongfunds » Thu Nov 09, 2017 10:47 am

The wife and I bring in about 300K of income per year, not super high, but well within the 95th percentile.
Seriously? Are you claiming that 5% of the households in USA have more than $300K income per year? That is what it means when you say you are within 95th percentile.

This type of reply makes BH outlook extremely skewed from reality.

runner540
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Re: What is a reasonable emergency fund for HI family?

Post by runner540 » Thu Nov 09, 2017 10:48 am

jayk238 wrote:
Wed Nov 08, 2017 2:35 pm
What is a reasonable emergency fund for HI family?

Many people argue its better to pay a monthly bill for disability, etc. and instead invest the rest.

Is the 6 mo x monthly spending = emergency fund really sensible if your income is over 100k? Seems like an awful lot is just sitting in a bank account losing to inflation
I have about a year's worth of expenses in high yield savings. The opportunity cost of not investing in the market is the "premium" I pay for the "insurance" of a fat emergency fund and sleeping well at night.

Disability is only one scenario where you would need an emergency fund.

If you lose your job, how much would health insurance cost (cobra or exchange)? That full cost may not be in your budget today.

A family with concentrated income (one high earner) needs more than a family with two equal earners. A family with 3 kids needs more than a family with 1 kid (more risks of health issues.

2008 - 2009 seems to be fading from people's memories. Many people think their job is more secure than it really is.

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ruralavalon
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Re: What is a reasonable emergency fund for HI family?

Post by ruralavalon » Thu Nov 09, 2017 10:50 am

jayk238 wrote:
Wed Nov 08, 2017 2:35 pm
What is a reasonable emergency fund for HI family?

Many people argue its better to pay a monthly bill for disability, etc. and instead invest the rest.

Is the 6 mo x monthly spending = emergency fund really sensible if your income is over 100k? Seems like an awful lot is just sitting in a bank account losing to inflation
You could broaden you view of what an emergency fund consists of.

I am retired now. My income was over $100k/yr, not high by my definition but fits your definition. I never felt that keeping a large amount of cash UNinvested made any sense.

We never kept a large cash hoard for emergencies, anything like 6 months earnings or expenses. We had:
1) savings account to store cash for large expenses that did not occur monthly, e.g. real estate tax twice per year, college tuition for children twice per year, quarterly income tax payments;
2) Vanguard money market fund for general savings and emergencies;
3) a high limit credit card ($60k) which we did not use for normal expenses;
4) each of us had a credit card, used for regular expenses, which had enough credit limit ($15-20k) that they could cover most emergencies;
5) A taxable long-term investing account, which in a big emergency (like many months off work) could be used;
6) an own occupation disability policy, which would pay a small monthly benefit after 3 months of total disability.

For what it's worth it worked fine for us in the big emergency. At age 49 I was completely off work for over 3 months, and only slowly able to return to work over the next year, and never did fully recover.
Last edited by ruralavalon on Thu Nov 09, 2017 10:59 am, edited 2 times in total.
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jh-1391
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Re: What is a reasonable emergency fund for HI family?

Post by jh-1391 » Thu Nov 09, 2017 10:50 am

I guess it's a personal risk type of thing, but to me, I think everyone should have an emergency fund, regardless of income level.

I am a "HI" family...over 6 figures and single so I guess that counts. But I work in a volatile industry and if I'm getting let go, it will be close to impossible to find a similar job at similar pay any time soon. So I'm pretty conservative with my emergency fund and how much I hold. But that fund has grown as the rest of my portfolio has grown. I didn't forego retirement contributions or other savings while building my EF. When I started out, my EF was maybe 3 months of expenses, now it's 6 months of income.

So I have a large EF, but I also have a pretty healthy investment portfolio. My allocation of everything is where I want it to be to capture market gains while also having the knowledge that I have a healthy, nearly 100% liquid amount should I ever need it. An emergency fund, regardless of my income level, makes me feel secure in life. If you're comfortable having to sell equities in a down market, or struggling to make ends meet and increasing in credit card debt should a true emergency in your life ever happen, then by all means. I just can't make myself okay with it...I would be stressed to no end all of the time knowing I had no safety net.

I'm not 100% cash though. I have some portion in I bonds and a HYSA, so while it isn't equity-level returns, it's more than just my putrid 0.01% interest that I get from my regular bank.

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Re: What is a reasonable emergency fund for HI family?

Post by Jags4186 » Thu Nov 09, 2017 11:04 am

6 months expenses. So if you spend $5000 a month, that’s $30,000. That’s not that much and you can always count it as part of your fixed income in your AA. Our emergency fund is only 4% of our net worth.

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Re: What is a reasonable emergency fund for HI family?

Post by GoldenFinch » Thu Nov 09, 2017 11:36 am

jayk238 wrote:
Thu Nov 09, 2017 10:22 am
ivk5 wrote:
Thu Nov 09, 2017 6:53 am
GoldenFinch wrote:
Wed Nov 08, 2017 8:55 pm
soupcxan wrote:
Wed Nov 08, 2017 4:59 pm
Why would an emergency fund for a family in Hawaii be any different than in the continental US?
The cost of living in Hawaii is extremely high.
From context I think OP meant HI = High Income
My bad. I never knew why hawaii was brought up until you clarified this. Yes. I meant hi for high income.
I knew what the thread was about, but just responded to the soupcxan post. LOL :happy Trying to help. :wink:

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ruralavalon
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Re: What is a reasonable emergency fund for HI family?

Post by ruralavalon » Thu Nov 09, 2017 11:44 am

Jags4186 wrote:
Thu Nov 09, 2017 11:04 am
6 months expenses. So if you spend $5000 a month, that’s $30,000. That’s not that much and you can always count it as part of your fixed income in your AA. Our emergency fund is only 4% of our net worth.
In my opinion this varies a lot depending on stage of life and personal circumstances.

I am age 72, retired with no pension or annuity. A 6 months emergency fund net of Social Security would be 2.7% of our invested assets. Why bother?

I previously posted what we did in middle life. Still no large cash hoard for an emergency fund.

For a young or new investor $30k might be 100% of what they could spare after living expenses, and if held as a cash emergency fund might mean no contributions to investing at all.
Last edited by ruralavalon on Thu Nov 09, 2017 12:31 pm, edited 1 time in total.
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Re: What is a reasonable emergency fund for HI family?

Post by delamer » Thu Nov 09, 2017 12:24 pm

wrongfunds wrote:
Thu Nov 09, 2017 10:47 am
The wife and I bring in about 300K of income per year, not super high, but well within the 95th percentile.
Seriously? Are you claiming that 5% of the households in USA have more than $300K income per year? That is what it means when you say you are within 95th percentile.

This type of reply makes BH outlook extremely skewed from reality.
No, "well within" means that his family income is significantly higher than the cutoff for the 95th percentile. It does not mean that their income was at the cutoff.

One citation I found said the cutoff for the 95th percentile was about $225,000 in 2016. So it would be accurate to say that 5 percent of US households had an income of $225,000 or more.

Afty
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Re: What is a reasonable emergency fund for HI family?

Post by Afty » Thu Nov 09, 2017 12:47 pm

How do people who don't keep an emergency fund handle unexpected expenses or lumpy income? Do you sell equities from your taxable account and pay capital gains?

wrongfunds
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Re: What is a reasonable emergency fund for HI family?

Post by wrongfunds » Thu Nov 09, 2017 1:10 pm

One citation I found said the cutoff for the 95th percentile was about $225,000 in 2016. So it would be accurate to say that 5 percent of US households had an income of $225,000 or more.
Would it be accurate for the listed income of $300,000? My point was "not really high income, we only make $300,000" statement was laughable and unreal when taken as a whole.

jayk238
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Re: What is a reasonable emergency fund for HI family?

Post by jayk238 » Thu Nov 09, 2017 1:20 pm

wrongfunds wrote:
Thu Nov 09, 2017 10:47 am
The wife and I bring in about 300K of income per year, not super high, but well within the 95th percentile.
Seriously? Are you claiming that 5% of the households in USA have more than $300K income per year? That is what it means when you say you are within 95th percentile.

This type of reply makes BH outlook extremely skewed from reality.
As of may 2013 its 216k ( I ahd a typo earlier here) to be in the top 5% income.

hafjell
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Re: What is a reasonable emergency fund for HI family?

Post by hafjell » Thu Nov 09, 2017 1:41 pm

Does anyone disagree with counting your emergency fund as part of your AA? Since ideally I'd never use it, and I will eventually use the fixed/bond allocation, would it be ok to ignore the E.F. when planning investments and retirement?

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Re: What is a reasonable emergency fund for HI family?

Post by Jags4186 » Thu Nov 09, 2017 1:55 pm

ruralavalon wrote:
Thu Nov 09, 2017 11:44 am
Jags4186 wrote:
Thu Nov 09, 2017 11:04 am
6 months expenses. So if you spend $5000 a month, that’s $30,000. That’s not that much and you can always count it as part of your fixed income in your AA. Our emergency fund is only 4% of our net worth.
In my opinion this varies a lot depending on stage of life and personal circumstances.

I am age 72, retired with no pension or annuity. A 6 months emergency fund net of Social Security would be 2.7% of our invested assets. Why bother?

I previously posted what we did in middle life. Still no large cash hoard for an emergency fund.

For a young or new investor $30k might be 100% of what they could spare after living expenses, and if held as a cash emergency fund might mean no contributions to investing at all.
It’s all relative. As a single person who makes say $75k/yr and lives on say $2500/mo, it would take them 20 months to save up $15,000 while maxing their 401k. Say that single person meets another single person making $75,000/yr and they get married. Costs don’t double when people move in together so maybe instead of $5000 a month they live on $4500/mo. That’s a $27,000 emergency fund for a couple making $150,000/yr, living on $4500/mo, and saving $36,000 pretax plus another $1500/mo or so post tax.

Doesn’t seem that hard.

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Re: What is a reasonable emergency fund for HI family?

Post by KlangFool » Thu Nov 09, 2017 2:04 pm

Jags4186 wrote:
Thu Nov 09, 2017 1:55 pm
ruralavalon wrote:
Thu Nov 09, 2017 11:44 am
Jags4186 wrote:
Thu Nov 09, 2017 11:04 am
6 months expenses. So if you spend $5000 a month, that’s $30,000. That’s not that much and you can always count it as part of your fixed income in your AA. Our emergency fund is only 4% of our net worth.
In my opinion this varies a lot depending on stage of life and personal circumstances.

I am age 72, retired with no pension or annuity. A 6 months emergency fund net of Social Security would be 2.7% of our invested assets. Why bother?

I previously posted what we did in middle life. Still no large cash hoard for an emergency fund.

For a young or new investor $30k might be 100% of what they could spare after living expenses, and if held as a cash emergency fund might mean no contributions to investing at all.
It’s all relative. As a single person who makes say $75k/yr and lives on say $2500/mo, it would take them 20 months to save up $15,000 while maxing their 401k. Say that single person meets another single person making $75,000/yr and they get married. Costs don’t double when people move in together so maybe instead of $5000 a month they live on $4500/mo. That’s a $27,000 emergency fund for a couple making $150,000/yr, living on $4500/mo, and saving $36,000 pretax plus another $1500/mo or so post tax.

Doesn’t seem that hard.
Jags4186,

Except in the normal case, when they move in together, they buy a 450K to 600K house. Then, the cost more than double.

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Re: What is a reasonable emergency fund for HI family?

Post by HIinvestor » Thu Nov 09, 2017 2:13 pm

Another factor is that for folks near retirement age, the size of the emergency fund may be lower if a pension starts once employment ends, AND if there is health insurance at least partly covered by emoloyer in retirement.

To me, it really depends on the fixed spending of the individuals involved.

delamer
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Re: What is a reasonable emergency fund for HI family?

Post by delamer » Thu Nov 09, 2017 2:18 pm

wrongfunds wrote:
Thu Nov 09, 2017 1:10 pm
One citation I found said the cutoff for the 95th percentile was about $225,000 in 2016. So it would be accurate to say that 5 percent of US households had an income of $225,000 or more.
Would it be accurate for the listed income of $300,000? My point was "not really high income, we only make $300,000" statement was laughable and unreal when taken as a whole.

No, here are the cutoffs:

95% $225,196.00
96% $247,219.00
97% $273,886.00
98% $323,005.00
99%. $430,600.00

So with $300,000, probably about 2.5% of households are at that amount are above.

Relatively speaking, compared to the population as a whole, $300,000 is a very high income. But in certain areas of this country, $300,000 will provide a comfortable income but not a luxurious one.

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Taylor Larimore
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The "Emergency Fund" Myth

Post by Taylor Larimore » Thu Nov 09, 2017 2:21 pm

Bogleheads:

Investopedia's definition of an "Emergency Fund":
An emergency fund is an account used to set aside funds needed in the event of a personal financial dilemma, such as the loss of a job, a debilitating illness or a major expense.
In my opinion, most of us do not need a separate, low-yielding "emergency fund" because most of us can obtain emergency-money elsewhere. For example, if a personal "emergency" does occur, most of us can get money from our ATM, personal checking account, savings account, our portfolio, credit card(s), personal bank loan, mortgage loan, family, etc..

For someone with no source of money in event of an emergency, I do recommend building up an "emergency fund." A short-term bond fund in a Roth IRA can be an excellent emergency fund. Savings in a Roth IRA are available at any time. If not needed, a Roth IRA will be a good tax-efficient start for long-term retirement savings.

Thankfully, I have not had a separate Emergency Fund for many years. As a result, my portfolio is significantly larger than if I had kept the money in a low-yielding separate "emergency fund."

In my opinion, the idea that everyone must have a separate, low-yielding, may-never-be-used "emergency fund" is a myth.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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