Phase out EF [Emergency Fund]?

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H-Town
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Re: Phase out EF [Emergency Fund]?

Post by H-Town »

bstewie wrote: Sun Jul 14, 2019 3:39 pm At what point might it make sense to fold your EF into your taxable? Let’s ignore tax-advantaged accounts and short term cash liabilities (e.g., I know I need to spend X on Y soon). I often struggle with holding so much “cash”. For those of you who don’t carry an EF in “cash”, at what point did you decide to merge the two? When your taxable was 2x desired EF? 3x? 10x?

In general we try to not time the market. A classic argument is the market could go down 50% but maybe it goes up 100% before that occurs. In general, emergencies are sparse events. When assets are small, I understand the intent of keeping “cash”, but at a certain point it seems overzealous to be missing out on years of growth of the EF basis when emergencies are few and far between.

Thoughts?
I've been through this so I can understand the desire to have every last dollar invested and making money. However, when your portfolio reach a certain point, it will allow you to NOT have every dollar invested. When you get there, you will be able to afford to have 5-10 years of expense sitting in cash, CD, short-term bonds. This is now not really EF, but rather living expenses for 5-10 years.
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Wiggums
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Re: Phase out EF?

Post by Wiggums »

Dandy wrote: Mon Jul 15, 2019 7:25 am In my accumulation years with 2 kids, college, 4 cars at one time and a stay at home spouse I had a decent cash-cash like allocation. Good thing - wife had serious illness and lost my job at 52 while all this was happening. It was helpful to have a stash of "safe" assets since there was so much else to be focused on. All things worked out well.

In retirement with "enough" I have about 1/2 my fixed income allocation in cash-like assets and short term bond funds. I don't have the "need" to take much risk and am satisfied with a 43/57 overall allocation. I don't see fixed income allocation as any driver of growth -- that is what the equity side is supposed to do with its associated risk. The difference between intermediate bonds, short term bonds and decent cash alternative is not a big deal to me. My fixed income is for stability and asset preservation.
Sorry to hear about your challenges, but glad that things worked out for you. It never hurts to hold some cash...
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willthrill81
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Re: Phase out EF?

Post by willthrill81 »

bstewie wrote: Mon Jul 15, 2019 9:52 am
willthrill81 wrote: Mon Jul 15, 2019 9:35 am
bstewie wrote: Mon Jul 15, 2019 9:30 am
KlangFool wrote: Mon Jul 15, 2019 9:22 am
bstewie wrote: Mon Jul 15, 2019 9:03 am

In absolute terms, .2% matters a lot over 30 years.
bstewie,

Only if you are fully-employed continuously over the 30 years. But, if you are wiped out in one of the multiple recessions over the 30 years, it won't matter at all. Make sure that you can survive the next coming recession first.

You need to survive in order to succeed.

KlangFool
Correct. Again though, we are discussing in context of a taxable account that is already a multiple of expenses, and adding more multiples of expenses with a lot of runway to go. We are ignoring tax advantaged accounts altogether (which are maxed).
bstewie, don't let fear mongering dissuade you from logical analysis of your situation. Other very intelligent people have come to the same conclusion as you.
Agreed. I suppose the net result of this discussion could be that I feel I have too large of an EF? Maybe if I start unwinding a portion into AA, I find a happy medium between some cash equivalents but at a smaller overall %?
As long as you're going into this with your eyes wide open, you should be able to reduce your EF to whatever level you feel comfortable with and be fine.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
mortfree
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Re: Phase out EF [Emergency Fund]?

Post by mortfree »

As with any thread related to EF, please be cautious of those who say they don’t have one.

They sometimes leave out the fact that they have a large pile of money in their checking account - $10k or more in some cases.

It’s great to hear all of the other practices but do what works for you.
Shael_AT
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Re: Phase out EF [Emergency Fund]?

Post by Shael_AT »

I've always held an 18-month EF in high interest savings accounts, ever since I started working in 2007. At first, 18 months EF was truly, literally ~12,000 dollars, because #BachlorLife. This sounds excessive, but the psychological trauma from our last recession was close and personal.

However, I experienced the bliss of having this on hand during the financial meltdown and my first layoff less than 2 years out of the house. Best friend committed suicide when he lost his marriage, house and job in a 3 month span. Half of the homes in my neighborhood were outright abandoned or for sale. No one was hiring. I remember seeing the unemployment line and the debates over extending that support for people. Perhaps it was my age and the timing of it all, but its still so vivid to me, like it was just yesterday.

Now, my 18-month EF is $126,000 (including $500 a month towards vacations, can cut this during deep economic turmoil), but my total NW after debts/liabs is 2.6 million.

Something sickly , so very satisfying about, in the back of my mind, knowing if everything I am invested in loses 40-60% again, I can let it sit and "ride it out" for a couple of years, easily. No lifestyle changes. If I cut back, I could make it work for 2-3 years.

Personal finance is Personal. I know I can invest that money, I know the long term impact of not doing so. I get it, really, I do. But this is an emotional decision for most people and it allows me to have perfect, complete, aggressive focus and energy to bettering my life, health and career as a result. Can't fire me if my EF total is higher than almost 100% of my bosses total NW's, right?? No - I fire you. /s
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abuss368
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Re: Phase out EF [Emergency Fund]?

Post by abuss368 »

$7,000 for a water heater seems a bit high.
John C. Bogle: “Simplicity is the master key to financial success."
WS1
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Re: Phase out EF [Emergency Fund]?

Post by WS1 »

mortfree wrote: Mon Jul 15, 2019 3:31 pm As with any thread related to EF, please be cautious of those who say they don’t have one.

They sometimes leave out the fact that they have a large pile of money in their checking account - $10k or more in some cases.

It’s great to hear all of the other practices but do what works for you.
+1

“I don’t have an EF but between cash earmarked for this months credit card bills and irregular wants/needs, and the fact I never let my checking account balance dip below 1 paycheck, I have $40,000 in cash.”
-Someone on this website
HEDGEFUNDIE
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Re: Phase out EF [Emergency Fund]?

Post by HEDGEFUNDIE »

mortfree wrote: Mon Jul 15, 2019 3:31 pm As with any thread related to EF, please be cautious of those who say they don’t have one.

They sometimes leave out the fact that they have a large pile of money in their checking account - $10k or more in some cases.

It’s great to hear all of the other practices but do what works for you.
Then let’s just ask the question objectively:

“How many months of regular expenses do you keep in cash / cash-like equivalents?”
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willthrill81
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Re: Phase out EF [Emergency Fund]?

Post by willthrill81 »

abuss368 wrote: Mon Jul 15, 2019 8:02 pm $7,000 for a water heater seems a bit high.
That was my thought as well, about 7 times too high.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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abuss368
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Re: Phase out EF [Emergency Fund]?

Post by abuss368 »

Maybe there was more included.
John C. Bogle: “Simplicity is the master key to financial success."
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willthrill81
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Re: Phase out EF [Emergency Fund]?

Post by willthrill81 »

abuss368 wrote: Mon Jul 15, 2019 10:47 pm Maybe there was more included.
No, he made it clear here that it was pulled from thin air.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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abuss368
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Re: Phase out EF [Emergency Fund]?

Post by abuss368 »

We still have an emergency fund.
John C. Bogle: “Simplicity is the master key to financial success."
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