Emergency Fund: do you subtract dividends?

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Carousel
Posts: 109
Joined: Thu Aug 02, 2018 3:06 pm

Emergency Fund: do you subtract dividends?

Post by Carousel »

People often suggest holding one or two years' expenses in cash. When they make this suggestion, are they thinking [living expenses MINUS expected dividends from the portion of your portfolio that is in taxable space] or are they ignoring dividends?
Thanks!
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anon_investor
Posts: 7586
Joined: Mon Jun 03, 2019 1:43 pm

Re: Emergency Fund: do you subtract dividends?

Post by anon_investor »

Carousel wrote: Wed Jul 21, 2021 1:19 pm People often suggest holding one or two years' expenses in cash. When they make this suggestion, are they thinking [living expenses MINUS expected dividends from the portion of your portfolio that is in taxable space] or are they ignoring dividends?
Thanks!
I would never include dividends, those are not guaranteed, companies cut dividends all the time, just look at who cut dividends in 2020 and 2008.
Doctor Rhythm
Posts: 972
Joined: Mon Jan 22, 2018 3:55 am

Re: Emergency Fund: do you subtract dividends?

Post by Doctor Rhythm »

There’s no rule or consensus “right way” to do the math. I don’t think most people factor in expected dividends though. Too much looking stuff up and doing arithmetic involved - which takes up time that can be better spent debating whether your EF should be considered part of your portfolio or how much international to hold.
Mike Scott
Posts: 1789
Joined: Fri Jul 19, 2013 2:45 pm

Re: Emergency Fund: do you subtract dividends?

Post by Mike Scott »

Dividends are for reinvesting until it is time to spend them. Do the math however you want.
UpperNwGuy
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Joined: Sun Oct 08, 2017 7:16 pm

Re: Emergency Fund: do you subtract dividends?

Post by UpperNwGuy »

All the dividends from the mutual funds in my taxable accounts are automatically reinvested, so I consider them to be part of my investment portfolio, not part of my emergency fund.

The interest earned on the certificates of deposit and the high yield savings accounts where my emergency fund resides are indeed part of my emergency fund.
Dandy
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Joined: Sun Apr 25, 2010 7:42 pm

Re: Emergency Fund: do you subtract dividends?

Post by Dandy »

Emergency Funds are usually held in accounts that safe and liquid. They don't usually keep up with even modest inflation so it would make sense to reinvest keep the dividends in the E fund.
Strifey
Posts: 68
Joined: Thu Apr 01, 2021 4:15 pm

Re: Emergency Fund: do you subtract dividends?

Post by Strifey »

Seems like alot of extra work for no reason, your Emergency Fund isn't an exact science and dividends are variable. So for me I just have $20K in a HYSA for ~6 months of expenses and set it and forget it.

I re-invest dividends anyways, although I turn off DRIP so I can target the fund I want since I TLH.
motiv8ed
Posts: 62
Joined: Fri Jul 03, 2020 9:37 pm

Re: Emergency Fund: do you subtract dividends?

Post by motiv8ed »

For my EF, I ignore:
  • Dividends: Paid quarterly, so not guaranteed to be available in the event of a sudden emergency. Also, if the emergency were huge, I'd end up selling some of the mutual funds anyway and the amount of dividends would decrease.
  • Bank interest: So little nowadays, this is just roundoff error.
  • The lump sum I expect to receive from vacation time payout: Not every emergency involves the loss of a job, plus there's always the chance of megacorp going the way of Enron and Arthur Anderson.


motiv8ed
JustThisGuy
Posts: 52
Joined: Sat Sep 12, 2020 2:38 pm

Re: Emergency Fund: do you subtract dividends?

Post by JustThisGuy »

Carousel wrote: Wed Jul 21, 2021 1:19 pm People often suggest holding one or two years' expenses in cash. When they make this suggestion, are they thinking [living expenses MINUS expected dividends from the portion of your portfolio that is in taxable space] or are they ignoring dividends?
Thanks!
You can't spend money you don't have. Dividends are nice to have, but are not guaranteed. For that matter, bank account interest rates aren't guaranteed (ignoring CD's and some edge cases). I would think of both of those as found money that is a pleasant surprise. The only cash you can count on is cash you generate yourself. By all means use dividends and account interest to pad the account, but don't use them for planning.

In other words, and in my opinion, the best option is the conservative one: If you want an EF of a certain amount, plan on deploying that much of your present and future income to that purpose. There are no shortcuts, unfortunately.
doobiedoo
Posts: 4
Joined: Fri Jul 23, 2021 1:10 pm

Re: Emergency Fund: do you subtract dividends?

Post by doobiedoo »

Carousel wrote: Wed Jul 21, 2021 1:19 pm People often suggest holding one or two years' expenses in cash. When they make this suggestion, are they thinking [living expenses MINUS expected dividends from the portion of your portfolio that is in taxable space] or are they ignoring dividends?
Thanks!
No.
I don't even include Social Security or annuity payments when computing an emergency fund.
hi_there
Posts: 985
Joined: Sat Aug 29, 2020 7:00 pm

Re: Emergency Fund: do you subtract dividends?

Post by hi_there »

If you want to include dividends from our portfolio as part of an emergency fund, then why not just use your investment portfolio in general for emergency expenses?
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