Does everyone have an Emergency Fund

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stemikger
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Does everyone have an Emergency Fund

Post by stemikger » Wed Apr 30, 2014 5:39 pm

This is a part of personal finance I never really was able to control. Maybe it's because I'm not a high income earner but always wanted to max out my 401K or maybe every time I had a sizeable sum of money an emergency came up and it was gone.

I turn 50 this year, I'm maxing out my 401K to 23,000. I'm also cash flowing my daughter's college, so needless to say, the EF is getting harder to fund. However, last year I paid off my 30 year mortgage in 20 years. I have excellent credit and in the past have been able to get credit cards for 18 months at 0% interest. I recently applied for another and got the same deal.

I plan to retire in 10 years. Due to my excellent credit, I can use a 0% credit card to cover an emergency and pay it off as fast as I can. My question to any of you is, have any of you gone without worrying about an emergency fund and just maxed out retirement. I do not have any investments in a taxable space because quite honestly, in order to do this I would have to lessen my 401K which I rather not do. After my daughter finishes college, I plan to use that money for home improvements.

Would love to here some of your experiences.
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prudent
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Re: Does everyone have an Emergency Fund

Post by prudent » Wed Apr 30, 2014 5:43 pm

I would not be comfortable relying on the availability of credit to cover me in an emergency, but that's me. I feel the same about counting on a HELOC. Credit lines can be withdrawn unilaterally.

However, even if that were to happen you could still withdraw from a 401k and pay the penalty, so it's not as though credit is your only option.

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Re: Does everyone have an Emergency Fund

Post by MathWizard » Wed Apr 30, 2014 6:12 pm

Two possibilities:

1) Put some of the $23K into a ROTH, from which you can withdraw contributions penalty-free, and call that
your EF. Yo will pay taxes up from, but you avoid any penalties.

2) You can take a 401K loan, but it must be paid back. Reduce the 401K contributions after the loan,
and use that to pay back the loan.

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Re: Does everyone have an Emergency Fund

Post by mlipps » Wed Apr 30, 2014 6:18 pm

We currently only have an emergency fund of $4k (2 months necessary expenses) BUT

1. We don't own our home (the biggest one for me).
2. We're both working (for now, I'm leaving my job this fall) and could cover those $2k/month expenses with either income.
3. We both have enough credits in to get unemployment if we lost our jobs.
4. Our car is paid for & more of a luxury than a necessity.
5. We are paying for my husband's & soon to be mine as well graduate school & trying not to take out any loans.
6. We have 3 years of Roth contributions each.

I still felt more comfortable when we had a full 6 month emergency fund, but it came down to funding our 2014 Roth or having an emergency fund, and it seemed silly to waste that space given all of the above factors.

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Re: Does everyone have an Emergency Fund

Post by pjstack » Wed Apr 30, 2014 6:28 pm

No, I don't have an "emergency" fund.
I am retired on a military pension.
My mortgage is paid off.
My credit card(s) have been sufficient to handle any minor emergencies (car breakdown, house repairs, etc.)
If a "huge" emergency were to occur, I guess I'd have to tap my mutual fund(s).
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Re: Does everyone have an Emergency Fund

Post by veekay » Wed Apr 30, 2014 6:38 pm

No emergency fund here either. I had 8 or 9 months worth but just moved that into my brokerage account. If something bad were to happen, I can borrow on my credit cards. If that doesn't work out, I can liquidate some of my stock holdings. What are the chances that something will go wrong and I will not have access to either my credit cards or my stock holdings? In that case, I have enough in Roth IRA contributions to cover 7-8 months of expenses.

I'm still in my 20s so it makes little sense for me to tie up a nice part of my net worth in a savings account that pays less than 1% interest.

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Re: Does everyone have an Emergency Fund

Post by black jack » Wed Apr 30, 2014 6:44 pm

I don't have an emergency fund. I put all extra money into retirement savings.

If/when I need extra money immediately, I draw on a HELOC. If I needed more, I'd draw on our Roth IRAs.
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Re: Does everyone have an Emergency Fund

Post by RyeWhiskey » Wed Apr 30, 2014 6:49 pm

I'm 28 and I've had an emergency fund for the past four years. Has it come in handy? Absolutely.

The first time I had to tap it was due to an insurance incident in which the insurance company ended up owning me $1300 and it took them almost a year to pay that money back. The second time was while traveling and unexpected events arose which demanded that I have extra money on hand - fortunately I had my emergency fund which I was able to tap. The third time was just recently when I moved and finding a job was more difficult than I expected. Luckily I had my emergency fund to live off of for several months (with more to spare) until I started work.

I keep $3000 as an EF at the moment but intend to increase it to 10k as best I can. 5% on %10,000 is $500, 1% is $100. Is $400 a year worth not having that cushion and safety net? I think not - I can make that in credit card/checking account promos each year if I wanted. Personally, I think having the peace of mind of knowing that I'm covered should something happen is well worth the extra return I could be making by investing that cash. Just my thoughts. :beer
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Re: Does everyone have an Emergency Fund

Post by Johm221122 » Wed Apr 30, 2014 6:51 pm

I'd second the Roth , can play two rolls EF and tax diversification

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Re: Does everyone have an Emergency Fund

Post by Grt2bOutdoors » Wed Apr 30, 2014 6:58 pm

I have a savings account with one year of expenses. Everything else is invested with varying levels of risk, less risky investments (read: I bonds, EE bonds, cd's) would be liquidated first, retirement accounts are dead last on the liquidation spectrum including the ROTH which is very precious space.
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Re: Does everyone have an Emergency Fund

Post by treeofpain » Wed Apr 30, 2014 7:24 pm

I recommend some sort of emergency fund so that when an emergency occurs (car breaks down, minor illness, etc), it doesn't wreck your daily budgeting.

I understand that there will always be competing priorities - retirement contributions, college fund, whatever - but I would at least stow away a couple thousand for when the inevitable happens.

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Re: Does everyone have an Emergency Fund

Post by JDDS » Wed Apr 30, 2014 7:30 pm

Fortunately to cover my minimum expenses doesn't require all that much, so a several month emergency fund is reasonably small. I feel much better about having that money set aside. There's probably a higher chance of me needing to tap it because of an emergency that my mom or grandma faces.

Since the fixed rate on the ibonds last November at 0.20% matched what my local credit union's money market was paying, I now have two tiers. Tier 1 is still the local credit union; the rest of it is at least making something that's supposed to keep its value.

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Re: Does everyone have an Emergency Fund

Post by LowER » Wed Apr 30, 2014 7:45 pm

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Last edited by LowER on Sat Nov 01, 2014 11:49 am, edited 1 time in total.

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Re: Does everyone have an Emergency Fund

Post by Atilla » Wed Apr 30, 2014 7:57 pm

I have recent memories from 2008-2009 when it looked kinda bad. Wife lost a high paying job, markets taking a [(big loss) --admin LadyGeek]. Right then cash was king.

We had some cash on hand - enough to keep panic at bay - and we have cash now for the same reason.

It's a relatively small percentage (under 10%) of our net worth but we could live off it for a year or two if we had to.

Since then I've added liquor, guns and ammo to the emergency fund mix. At this point we could ride out a reasonably big financial/societal disaster better than many.
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Re: Does everyone have an Emergency Fund

Post by LadyGeek » Wed Apr 30, 2014 8:20 pm

The wiki has some background info: Emergency fund
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Re: Does everyone have an Emergency Fund

Post by cfs » Wed Apr 30, 2014 8:31 pm

Good conversation.

The question is, does everyone have an emergency fund? My answer is, yes we do, and it is part of our boring SWAN (sleep well at night) portfolio's asset allocation. We have short-term cash reserves, a de-facto emergency fund.

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Re: Does everyone have an Emergency Fund

Post by Tortoise » Wed Apr 30, 2014 8:44 pm

We have an emergency fund in the form of 12 5-year CDs that are paying roughly 2%. They were bought from Ally bank back when their early withdrawal penalty was only 60 day's of interest. The CDs would cover our expenses over the course of one year. If need be, we could also tap into our i-bonds.
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Re: Does everyone have an Emergency Fund

Post by jstrazzere » Wed Apr 30, 2014 8:50 pm

Due to my excellent credit, I can use a 0% credit card to cover an emergency and pay it off as fast as I can.
Once of the reasons I keep an emergency fund is to cover my expenses in the case where I get laid off. I have 100k in an online bank set aside for that purpose.

I wouldn't feel comfortable running up credit card balances for very long. And these days, unemployment could last a long time (particularly at an "advanced age"). Does your 0% credit card have a sufficiently high limit for your needs?

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Re: Does everyone have an Emergency Fund

Post by madbrain » Wed Apr 30, 2014 8:53 pm

I no longer have a dedicated emergency fund. In an emergency, I would likely liquidate part of the bond portion of my portfolio.

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Re: Does everyone have an Emergency Fund

Post by Clever_Username » Wed Apr 30, 2014 9:21 pm

I'm in the process of getting rid of mine.

I currently have six months' expenses in the bank. Tomorrow, I'm going to finally buy some Series I Bonds : about one month's expenses worth. By the end of the year, I'll be able to buy about $10,000 worth (by putting less into taxable investments, but without causing me to not max out my Roth IRA (already done) or 403(b) (will be done by the end of the year)).

When a year has passed after any given I-Bond purchase, I will consider it part of my emergency fund (and also part of my portfolio) and reduce my cash holdings in the bank, ultimately reducing it to about two months' expenses (I don't think I'll feel comfortable with any significant amount less than that) when I have four months' worth of expenses in I-Bonds that have been held for over a year. My eventual goal is to have at least ten months' worth of expenses in I-Bonds and two months in cash.

This is something of a compromise with myself for where I feel I don't need such a big emergency fund, but I wouldn't quite feel good enough without it (my taxable investments at the moment are slightly over $50k, some of which is earmarked towards my eventual next car).
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Re: Does everyone have an Emergency Fund

Post by Toons » Wed Apr 30, 2014 9:34 pm

I consider Vanguard Short Term Investment Grade as my emergency fund :happy
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Re: Does everyone have an Emergency Fund

Post by LowER » Wed Apr 30, 2014 10:57 pm

Atilla wrote:Since then I've added liquor, guns and ammo to the emergency fund mix.
Can I be your neighbor?

It reminds of that joke where someone says they spent most on hookers, booze, and drugs, and then squandered the rest.

I'm still laughing - thanks for that line. :sharebeer

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Re: Does everyone have an Emergency Fund

Post by mrpotatoheadsays » Wed Apr 30, 2014 11:09 pm

stemikger wrote:Have any of you gone without worrying about an emergency fund and just maxed out retirement?
Yes, but I have liquid assets I can access if needed; changes in the market would only effect them slightly, if at all.

I consider an Emergency Fund cold hard cash - not investments (like CDs or bond mutual funds).

I would never fall-back on credit cards or a HELOC. Never!

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Re: Does everyone have an Emergency Fund

Post by flyingaway » Wed Apr 30, 2014 11:10 pm

I have one month expenses (real) cash under my mattress, and additional 5 month expenses cash in a savings account. I don't like any debt, pay off credit cards every month, and decline all offers of loans from many banks.

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stemikger
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Re: Does everyone have an Emergency Fund

Post by stemikger » Thu May 01, 2014 12:17 am

Thanks for the feedback everyone! I appreciate all the replies!
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Re: Does everyone have an Emergency Fund

Post by EnjoyIt » Thu May 01, 2014 1:00 am

Atilla wrote:
Since then I've added liquor, guns and ammo to the emergency fund mix. At this point we could ride out a reasonably big financial/societal disaster better than many.
Alcohol? I knew I was forgetting something.
Still working on maximizing my ammo emergency fund.
I am thinking of getting an ammo loading kit and practice a little for incase of an emergency. Ammunition has gotten awfully expensive lately.

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Re: Does everyone have an Emergency Fund

Post by IlliniDave » Thu May 01, 2014 4:34 am

stemikger wrote:This is a part of personal finance I never really was able to control. Maybe it's because I'm not a high income earner but always wanted to max out my 401K or maybe every time I had a sizeable sum of money an emergency came up and it was gone.

I turn 50 this year, I'm maxing out my 401K to 23,000. I'm also cash flowing my daughter's college, so needless to say, the EF is getting harder to fund. However, last year I paid off my 30 year mortgage in 20 years. I have excellent credit and in the past have been able to get credit cards for 18 months at 0% interest. I recently applied for another and got the same deal.

I plan to retire in 10 years. Due to my excellent credit, I can use a 0% credit card to cover an emergency and pay it off as fast as I can. My question to any of you is, have any of you gone without worrying about an emergency fund and just maxed out retirement. I do not have any investments in a taxable space because quite honestly, in order to do this I would have to lessen my 401K which I rather not do. After my daughter finishes college, I plan to use that money for home improvements.

Would love to here some of your experiences.
I'm turning 50 within the next two weeks. I plan to retire in less than 5 years and 2 weeks. In reference to your topic on the other forum, I'm trying to glide my allocation down to 70/30 but can't seem to shovel money into bonds fast enough and seem stuck at 80/20.

I'm too old school to completely forgo an emergency fund. Around the time of my divorce 6 years ago when I was a single full-time parent to both my daughters and cash-flowing tuition and the like I lowered my 401k contribution for a few months once to knock out some debt and restore my emergency fund. I'm not recommending that, or against it, it's just a truthful recounting of my experience in the matter. In the last couple years I've managed to build up some taxable account assets, so about 3/4 of my emergency fund is now held in bonds (I use tax-exempt) at Vanguard. My emergency fund is generously sized, with my increasing skills at frugal living it would cover my basic living expenses for over a year. It's actually a lower dollar amount than it was 5 years ago when it was a 6-month fund, I've just eliminated a lot of clutter consumption from my life, plus I'm an empty-nester now.

There's ways to get at the 401k money in a pinch, though worst-case it could cost you a penalty tax. Using debt as a solution might work for some of life's smaller vagaries, but the thing I'd be most concerned about, especially as I enter my 50s, is a sustained disruption in income. Taking on debt seems like something that would complicate rather than alleviate that situation. So, it's not something I'd consider for myself.
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Re: Does everyone have an Emergency Fund

Post by MnD » Thu May 01, 2014 11:17 am

No, never had a dedicated emergency fund or significant amounts of cash.
I've had 50K to 200K in a taxable account with 100% equity for a couple decades however.
If needed we sell something in taxable and also sell bonds and buy stocks in retirement accounts to maintain AA.

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Re: Does everyone have an Emergency Fund

Post by Twins Fan » Thu May 01, 2014 11:24 am

I think the emergency fund thing is very situational. It seems when this is talked about everyone thinks "emergency" means losing one's job. That definitely would be an emergency and it would be nice to have some savings if that happened. Depends on someone's profession, I guess.

I'm not a high income earner either, but I have very stable employment. So that "emergency" isn't a big concern for me. I do have two houses though... a primary residence and a rental home. So, between the houses, cars, kids, and who knows what, I like to have some cash laying around in savings for whatever might come up.

OP, depending on the emergency I see ways you could have extra cash flow by cutting back on retirement contributions or cutting back on college funding... if ever needed that is. You have options. I also agree that in a serious pinch credit cards would do the job. But, I also don't like to rely on them... hence, why I keep some savings around.

I'd say it comes down to a comfort level thing.

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Re: Does everyone have an Emergency Fund

Post by lazyday » Thu May 01, 2014 11:30 am

I've generally gone without an emergency fund and have posted about why a few times.

In old threads, Bob's not my name has posted about how easy it can be to access tax advantaged retirement accounts without penalty in several types of emergencies. Not just Roths. Maybe this is also on the wiki page LadyGeek linked.

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Re: Does everyone have an Emergency Fund

Post by Grt2bOutdoors » Thu May 01, 2014 11:37 am

I hate to say this but if one is able to save a dollar, 5 dollars, ten dollars or 20 dollars a week from day one of employment - put it in a savings bond or savings account and NOT touch it - after 5, 10 or 20 years you would have your emergency fund. Unfortunately, most folks have a weakness, be it that cup of Starbucks or buying lunch every day or buying lottery tickets (like the fella I saw last week who was a blue collar worker but went ahead and picked up $75 worth of Powerball tickets for himself while I waited to buy a pack of gum). I recall Rusty Staub (ole Mets baseball utility player) in an interview stating he used to walk around with a little notebook detailing every expenditure made each day to track where his money was going and to be able to save/invest for his future, not saying to go to this extreme but it obviously worked for him. But the key is "not to touch it" unless you have a real true emergency - buying a car - not an emergency, breaking your leg is an emergency. Any excess funds after that not allocated to normal everyday expenses should be invested for the future - you decide on the asset allocation. The OP has 10 years left before projected retirement - strongly urge trying this method of e-fund accumulation. Depending on other people for funds via credit cards with teaser rates and HELOCs is a recipe for disaster; that should be used as worse case scenario financing. You just paid off your house, why put yourself at risk again, wasn't the whole premise of home mortgage payoff to reduce risk?
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Re: Does everyone have an Emergency Fund

Post by Middle » Thu May 01, 2014 12:23 pm

I third the Roth IRA recommendation for a couple of reasons. the first is that it fits your goals of funding retirement and then you have the contributions accessible for emergencies. Second, it gives you some tax flexibility in retirement with the different taxation of Roth vs. Traditional.

Personally, I do keep an EF but I don't have it all in cash, though I realize that is the preferred approach.

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Re: Does everyone have an Emergency Fund

Post by FelixTheCat » Thu May 01, 2014 12:33 pm

I don't believe in going into debt for a job loss (or any other emergency) by using credit cards or helocs. I don't believe in messing with my retirement by taking from a Roth.

This is why I have 2.5 years of an emergency fund and my house is paid off.
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Re: Does everyone have an Emergency Fund

Post by Random Musings » Thu May 01, 2014 12:59 pm

In the Boglehead world, emergency funds come in different forms, it's just a matter of placement (Roth, equities/ST bonds in taxable or whatever).

When one has no liquid assets (which typically isn't the case on this board), then one truly doesn't have an emergency fund.

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Re: Does everyone have an Emergency Fund

Post by Sibelius » Thu May 01, 2014 8:12 pm

No emergency fund, I have a freshman in college and all the previous available savings went to the oldest child for his college expenses. But at least he paid his own way for his MBA!

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Re: Does everyone have an Emergency Fund

Post by Zabar » Thu May 01, 2014 8:38 pm

I keep only $10K in an emergency fund that I have labeled on my spreadsheets as such. But I figure that the money I have in munis and in cash elsewhere would function as a backup emergency fund and, if those are depleted, my Roth and my wife's Roth would function as backup-backup emergency funds. Beyond that lies paranoia... :twisted:

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Re: Does everyone have an Emergency Fund

Post by poker27 » Thu May 01, 2014 8:48 pm

veekay wrote:No emergency fund here either. I had 8 or 9 months worth but just moved that into my brokerage account. If something bad were to happen, I can borrow on my credit cards. If that doesn't work out, I can liquidate some of my stock holdings. What are the chances that something will go wrong and I will not have access to either my credit cards or my stock holdings? In that case, I have enough in Roth IRA contributions to cover 7-8 months of expenses.

I'm still in my 20s so it makes little sense for me to tie up a nice part of my net worth in a savings account that pays less than 1% interest.
I am still in my 20s and I have a year+ sitting in savings and Ibonds. I then have tax exempt bonds in my taxable account available after that. It's not about the return, but the peace of mind for me. Not to long ago I had next to nothing, and remember thinking all too often what I were to do if something happened

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Re: Does everyone have an Emergency Fund

Post by IlliniDave » Thu May 01, 2014 8:48 pm

Zabar wrote:I keep only $10K in an emergency fund that I have labeled on my spreadsheets as such. But I figure that the money I have in munis and in cash elsewhere would function as a backup emergency fund and, if those are depleted, my Roth and my wife's Roth would function as backup-backup emergency funds. Beyond that lies paranoia... :twisted:
That's a good point. Every asset we have is part of the emergency fund when push comes to shove.

And one of the biggest emergencies people prepare for with an emergency fund is going for a time without income from a job. Which is what our retirement nest eggs are usually accumulated for.

That doesn't change what I do--I have an old-school rainy day fund. But I don't disagree with people who think that once you get to a certain level of wealth relative to ongoing needs, the lines begin to blur.
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Re: Does everyone have an Emergency Fund

Post by manwithnoname » Thu May 01, 2014 9:13 pm

an emergency fund is a waste of investible assets. If I need cash I would take the most tax efficient route- sell an asset or withdraw funds from roth IRA.

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Re: Does everyone have an Emergency Fund

Post by nisiprius » Thu May 01, 2014 9:31 pm

I don't think a credit card is a suitable emergency reserve, and I think this was proved during 2008-2009 when banks cut credit limits sharply on existing credit cards. Probably not because they wanted to be nasty, probably just because they were desperate themselves. But I don't think a "line of credit" is ever the same thing as cash.*

I think the point of an emergency fund is, basically, to know what your plan is if you need money and you are a) out of work, while b) the stock market is down. These can happen at the same time. They happened to me at the same time in 2008. More generally, what happens when you need money and it is difficult to raise cash from assets--either because of illiquidity or because you would have to sell at a crushing loss. The reason why the emergency fund is traditionally cash is that there is never any question of "how am I going to raise cash from cash." You don't have to sell cash to get cash, it already is cash!

Could the emergency fund be high-grade bonds, e.g. Vanguard Total Bond Market Fund? I certainly think of ours as a sort of second-tier emergency fund. It is probably liquid in a crisis--it was during 2008-2009. It is probably not going to be too far down in a crisis--it wasn't during 2008-2009. Neither were other high-grade bond funds; perhaps the worst were corporates and TIPS and they only lost about 10%. Having to sell an asset when it's 10% down doesn't seem unacceptable in an emergency.

The most commonly mentioned emergency is job loss, so in thinking about it you should try to find out what the unemployment insurance situation is like in your state. The emergency fund doesn't have to meet all your living expenses, it just has to make up the difference between unemployment benefits and living expenses.

I'm not sure where the commonly-mentioned number, six months, comes from. I don't know any statistics on the size and duration of the average "emergency." I think that, as with unemployment insurance itself, there is a hope that most people will be able to find a new job within about six months. That seems a little optimistic to me. Another way of thinking about the time period is: how much time does it take to restructure one's life and really cut back on expenses. Move, for example.

I suspect the traditional advice is really gauged to one specific situation: the young investor who is a) just getting started, and b) wants to speculate in individual stocks. And it is saying "don't have $0 in the bank, don't put all of your spare money into individual stocks, no matter how strongly you are convinced that they are going to go up. First get half a year's salary in the bank, then you can start buying individual stocks."

Personally, I think it is comforting to have a fat enough checking account (or linked savings account) that you don't have to start your job search by wondering how you are going to pay the month's bills, or how you are going to get the car fixed so you can drive to the job interview. Or by having to take time to sell valuable assets on a shaky market. Just how closely the emergency fund needs to resemble "cash" is certainly a matter for discussion, though.






*In the book William J. Bernstein recommended, Barrie A. Wigmore's Morgenthal & Co, investment bankers are constantly getting into trouble, trying to draw on their line of credit, and having the creditor bank say blandly "Why sure, no problem, just fax us your list of collateral." That is to say, they were still honoring the line of credit but changed the rules for drawing on it.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Shalashaska
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Re: Does everyone have an Emergency Fund

Post by Shalashaska » Thu May 01, 2014 9:45 pm

I had a small EF but didn't worry too much about it until I lost my job in 2012. :( I was unemployed for around 5 months which ate through my meager EF. Thank goodness I didn't have a major car repair or something else during that time as well. I'm in the process of building it back up and I'll make sure the shoring for the EF is stronger this time.

As someone else said though, I think it's somewhat of a case by case basis. I work in a fairly volatile industry so I have greater concern than somebody who has a very stable career.

Bacchus01
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Re: Does everyone have an Emergency Fund

Post by Bacchus01 » Fri May 02, 2014 6:13 am

I guess we do, but I don't call it that. It's more like the fund we have in case we need cash in a hurry. Yes, that can be an emergency, but also if I want to dip into the market fast, buy a piece of reL estate quickly, or spend some money on a whim for a vacation or a classic car (which I collect).

We always hold around 100k in cash, 50k in short term CDs, and 50k in short term corp bond fund. If we had to live on that, it's probably 2 years if modest living expenses.

We also have about 75k in Roths. So if we had to raise a lot if cash in the next week without any major tax penalty, we could get to about 250k.

scrabbler1
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Re: Does everyone have an Emergency Fund

Post by scrabbler1 » Fri May 02, 2014 6:44 am

I and others here have described layers, or tiers, of their portfolio we use as an emergency fund. As manwithnoname posted, I agree that it can be a waste of investible assets. While I was still working and since I have (early) retired, I have the same set of layers within my portfolio.

My first layer is an extra ~$750 in my local bank's checking account in case some small, unforeseen expenses arise in a given month. This extra amount is above the minimum daily account balance needed to avoid monthly fees. This money earns no interest but is highly secure and very accessible via personal check, ATM or bank teller withdrawal, and (rarely used) debit card, for example.

My next layer is about $40k in an intermediate-term muni bond fund. This covers me in case there are any large, unforeseen expenses in a given month which the local bank's checking account cannot cover. This money earns about 2% (annual), mostly tax-free interest but has some risk to principal. I have checkwriting privileges on this account and I can transfer money electronically in 2 business days to my local bank's checking account. I have not had to tap into this account often, sometimes going several years without a redemption. But it is there if I need it and if I have to sell shares at a small loss that is fine because it is earning the mostly tax-free interest every month (about $100 now).

Call_Me_Op
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Re: Does everyone have an Emergency Fund

Post by Call_Me_Op » Fri May 02, 2014 7:09 am

I include cash in my AA, so don't need a separate emergency fund.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

LeeMKE
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Re: Does everyone have an Emergency Fund

Post by LeeMKE » Sat May 03, 2014 3:39 pm

Me too. Emergency fund is considered to be one of the Roth IRAs that have matured enough to make withdrawals if necessary.

I've adjusted my allocation for emergency funds based on my income source. When employed by a large firm, I needed 6 months expenses in case I was laid off and in my 30s, 12 months expenses when I was in my 40s because a new job would take longer to find. When a consultant, I had a 6 month emergency fund plus a savings account to which I contributed monthly, for all my expenses that were not monthly (property taxes, insurance, etc.) so my reserves were often 12 months out.
The mightiest Oak is just a nut who stayed the course.

carofe
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Re: Does everyone have an Emergency Fund

Post by carofe » Sat May 03, 2014 4:30 pm

If you had an emergency, using an EF would affect less your Net Worth than using your retirement account or credit cards. Just to let you know, some emergencies are hard to pay in 1 year because of the amount (and you just said you have a low income), and credit card companies can raise your interest when you don't expect it depending on the amount and how much you pay a month.
Do the math and see.
US Total Stock Market + Intermediate Term Bond. That's it.

mnvalue
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Re: Does everyone have an Emergency Fund

Post by mnvalue » Sat May 03, 2014 5:23 pm

nisiprius wrote:I'm not sure where the commonly-mentioned number, six months, comes from.
I don't either, but I like 6 months because it lines up nicely with the optimal exclusion period on a disability insurance policy.

For this thread, I just reviewed our expense numbers. For any scenario that doesn't involve my employer going bankrupt, we could afford 6 months at our current standard of living with no emergency fund. This would be using her income and my 3 months of accrued vacation. If my employer goes bankrupt, we both lose our jobs at the same time, or she needs to quit her job so we can move to stabilize the long-term situation, we'd need some EF money. We'd definitely reduce our spending, but moving would add additional costs, so let's call that a wash.

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tfb
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Re: Does everyone have an Emergency Fund

Post by tfb » Sat May 03, 2014 5:30 pm

stemikger wrote:Does everyone have an Emergency Fund[?]
Everyone has an emergency fund, whether they officially designates it in their mind or not. That's the place they will tap when they have an emergency.
Harry Sit, taking a break from the forums.

yolli71
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Re: Does everyone have an Emergency Fund

Post by yolli71 » Sat May 03, 2014 8:26 pm

My emergency fund is my 100k HELOC. Like some others have mentioned, I believe emergency funds are really based on individual needs. I want to invest as much of my cash as possible, so I try to keep as little as possible in savings accounts, money markets, etc. That being said, my situation might be different than others in that my wife and I both work for the federal govt. (i.e., we have pretty secure jobs) and we both have our parents in the area. Fortunately for us, both our parents are financially secure so that if we ever were in some unexpected financial bind, they could probably help us if needed.

BradMajors
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Re: Does everyone have an Emergency Fund

Post by BradMajors » Sat May 03, 2014 11:13 pm

No. My stock dividends would be sufficient to cover my living expenses if I cut my living expenses to a minimum.

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