Spending after exhausting emergency fund

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am
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Joined: Sun Sep 30, 2007 9:55 am

Spending after exhausting emergency fund

Post by am » Sun May 12, 2013 10:34 am

Is the preference after emergency fund to use:

1. Taxable stocks

2. 529

3. IRAs/401ks

4. HSA

5. Home equity line of credit (probably can not get when unemployed)

6. Credit cards?

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Spending after exhausting emergency fund

Post by livesoft » Sun May 12, 2013 11:08 am

I suppose it will depend on whether one would pay a penalty for 401(k)/IRA withdrawals or not.

If the emergency was a health/medical emergency wouldn't you use your HSA first?

If equities needed to be rebalanced out of, wouldn't you use taxable equities even before exhausting the "emergency fund"?

My point is that where one gets the money from should depend on one's personal circumstances. I imagine there are no general preferences.
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Twins Fan
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Joined: Fri Mar 08, 2013 1:02 pm

Re: Spending after exhausting emergency fund

Post by Twins Fan » Sun May 12, 2013 11:14 am

What happened that the emergency fund got exhausted? And, what is so urgent that more spending is necessary?

My answer.... Depends on what's going on. :happy

am
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Re: Spending after exhausting emergency fund

Post by am » Sun May 12, 2013 11:17 am

How about long term unemployment without any special circumstances for someone under 50 say?

allsop
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Re: Spending after exhausting emergency fund

Post by allsop » Sun May 12, 2013 11:17 am

To add to the above you can withdraw contributions from a ROTH with no penalty, thus the often given advice to fund a ROTH before a taxable EF.

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Aptenodytes
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Re: Spending after exhausting emergency fund

Post by Aptenodytes » Sun May 12, 2013 11:22 am

If it were me, I would go in this order:

1) 529
2) HSA funds already covered through out of pocket medical expenses
3) Taxable stocks if tax hit not significant (some combination of low gains / low marginal rates)
4) Credit card if you can arrange ultra low interest rate (e.g. promotional balance transfer) and you are highly confident you'll be able to pay off the debt after the promotion
5) Taxable stocks with significant tax hit
6) Loan against 401-K if you are highly confident you can pay it off within 5 years and if the amount borrowed isn't too big relative to your retirement needs.
7) HELOC if you are highly certain you can pay it off reasonably quickly./
8) HSA funds not already covered through out of pocket expenses
9) Credit card at non-promotional rate
10) IRA / 401 -K withdrawal

You are bound to get people telling to be more frugal. I assume you are already doing that and just want feedback on where to get the cash you need even after reducing your expenses. I listed a few borrowing options, some pretty high in the batting order (e.g. promotional credit card balance transfers). But behaviors vary enormously with respect to debt and credit cards in particular. Don't do this lightly unless you belong to the group of people that can stay on top of your debts and avoid getting sucked into a debt trap. A large promotional balance transfer can be a very cheap source of emergency funds for some people, but for people who can't plan scrupulously for the day that the balance must be paid off, they are just another way to in deeper trouble.

Good luck navigating these difficult waters!

stan1
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Re: Spending after exhausting emergency fund

Post by stan1 » Sun May 12, 2013 11:23 am

If the situation is unemployment of greater than 6 months one needs to have contingency plans for involuntary early retirement, long term underemployment, or starting over. Spending and asset allocation would be tied to one of those outcomes.

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