How Much in Your Emergency Fund And Is It Used?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
stoptothink
Posts: 8687
Joined: Fri Dec 31, 2010 9:53 am

Re: Emergency Funds: YMMV

Post by stoptothink »

SQRT wrote:
beattherush wrote:
I think folks decrying credit as a source of emergency funding are missing one key issue: overall funds availability. A poster put it well up the thread a bit: At a certain level of wealth, emergency funds become a cashflow management issue, not a sufficiency-of-funds issue.


And that's maybe a concluding point: The recommendations for the general public are to make sure you have an emergency fund -- but that is because the general public does in fact have cash sufficiency issues. Most Bogleheads don't, and for that tier of wealth, different advice is perhaps appropriate.
Agree. Good points. I oversaw the liquidity risk management process at a very large bank. Having access to credit was certainly a significant part of this process. Each person will have different liquidity risks. A fallen tree might be a significant financial issue for many people, but not for me. Emergency fund? Even the name is misleading for many people. It really does become a cash flow/operating issue.
+2, and I know our assets are not in the same galaxy as yours. The opportunity cost of keeping several months of expenses in a low-yielding savings account makes little sense, other than "peace of mind", once you hit a certain level of wealth. I get the impression that most on this board have surpassed that threshold.
sambb
Posts: 2966
Joined: Sun Mar 10, 2013 3:31 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by sambb »

agree. emergency fund is one of the dumbest things i did, since i have money in taxables and could take out credit. Really dumb that i kept 6 months of expenses in it for so long.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by PFInterest »

6m. None.
Stormbringer
Posts: 1018
Joined: Sun Jun 14, 2015 7:07 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by Stormbringer »

About 2 years of expenses. I've been moving it into I-Bonds over time.

Prior to 2009 I considered a HELOC to be my emergency fund, and then in spring 2009 Wells-Fargo sent me a letter saying my home dropped in value and therefore they were immediately closing the account.
"Compound interest is the most powerful force in the universe." - Albert Einstein
sawhorse
Posts: 3595
Joined: Sun Mar 01, 2015 7:05 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by sawhorse »

sambb wrote:agree. emergency fund is one of the dumbest things i did, since i have money in taxables and could take out credit. Really dumb that i kept 6 months of expenses in it for so long.
Consider yourself lucky then. If you had to dip into your taxable at a bad market time, today you would be saying that's one of the dumbest things you did. Hindsight is perfect.
uchuu
Posts: 3
Joined: Sun Mar 12, 2017 10:51 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by uchuu »

I am quite young, but I hold about $2-3K for emergancies. Mostly just to cover any deductibles/usual CC bills. I can only recall enjoying this cushion once, when I had to get some major dental work this year. In the end though it really did not affect my emergancy fund as I just became more frugal following it to make up for the expense.

If I'm ever really in a bind (lose a job.... which is rather unlikely with my current company), I can rely on my parents for help, and I would have enough cash to cover moving back in with them. My parents have stated this constantly and I know they would be good on it. I make it a point to always pay my share of things with them, and not get any support from them, so they know I would only come to them in a real bind.

When I am older I will increase my emergency fund, but while I'm young, single and childless I'm investing as much as possible.

And worst comes to worst, 401K and ROTH IRA do allow for withdrawls early if needed. That is a last resort though.
Last edited by uchuu on Mon Mar 13, 2017 7:35 am, edited 1 time in total.
FedGuy
Posts: 1300
Joined: Sun Jul 25, 2010 3:36 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by FedGuy »

sawhorse wrote:
sambb wrote:agree. emergency fund is one of the dumbest things i did, since i have money in taxables and could take out credit. Really dumb that i kept 6 months of expenses in it for so long.
Consider yourself lucky then. If you had to dip into your taxable at a bad market time, today you would be saying that's one of the dumbest things you did. Hindsight is perfect.
Agreed. Having my emergency fund in a savings account when I unexpectedly lost my job and was unemployed for over a year during the recession convinced me that a cash EF is the only way to go for me. Yeah, I lost some interest over the years, but at least I didn't have to sell off half my brokerage account or Roth IRA for a fraction of what I paid for it.
SQRT
Posts: 1469
Joined: Sat Feb 05, 2011 9:44 am

Re: Emergency Funds: YMMV

Post by SQRT »

stoptothink wrote:
The opportunity cost of keeping several months of expenses in a low-yielding savings account makes little sense, other than "peace of mind", once you hit a certain level of wealth. I get the impression that most on this board have surpassed that threshold.
Probably. My point is simply that each person should assess their own liquidity risk and mitigate it as appropriate. Someone just starting out would probably want an "emergency fund" but someone who is retired and financially independent will probably be more concerned with cash flow and regular operating issues. Either way, you have to manage the risk.
beattherush
Posts: 41
Joined: Thu Feb 16, 2017 7:09 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by beattherush »

Consider yourself lucky then. If you had to dip into your taxable at a bad market time, today you would be saying that's one of the dumbest things you did. Hindsight is perfect.
Yeah, I lost some interest over the years, but at least I didn't have to sell off half my brokerage account or Roth IRA for a fraction of what I paid for it.
Why is that relevant?

Instead you had to forego investment income on your emergency fund.

You are making an argument for asset allocation strategies, not for an emergency fund. Being in bonds would have helped you in that situation and not had you foregoing 6-8% a year net return.

Dollars are fungible. Selling during a downturn is selling low, no matter the source of the funds.
guitarguy
Posts: 1829
Joined: Mon Dec 20, 2010 4:10 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by guitarguy »

Tier 1: $5k (2 months expenses) in Ally savings acct. We pulled $500 from it to replace our washing machine recently. Put it back over a couple of months. Didn't really have to...but that's what we did. That's what it's there for.

Tier 2: $10k (another 4 month's expenses) in contributions Vanguard Roth IRA in a bond fund

We also have separate savings "buckets" (Ally accounts) for our next car, our "escrow" for prop taxes and homeowners insurance, a savings account where I stick deposits for band gigs (may as well earn a few bucks on them), vacation fund, and a general cash savings account for non-specific stuff like future home down payment, home remodeling, or whatever else may come up that we need/want to spend money on.

In a true emergency we have plenty of cash on hand to keep us comfortable...and any/all of the "buckets" can be tapped. We just like to separate our savings for specific goals.
slowbutsteady
Posts: 100
Joined: Fri Feb 27, 2015 9:42 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by slowbutsteady »

Intestesting discussion and a few surprising comments. For us, we aim to keep about 3 months in cash (Ally). It's down currently and looking to build back up soonest. The lost interest/growth is a small portion of our world; and DW appreciates good ol' cash.

I'm guessing a few of the responses against cash EF may be due to age, good luck, and the recent bull run. We should revisit this question during/after a major bear market and see how the responses line-up.

I agree with the sentiment that everyone needs to assess their risk tolerance and manage their EF needs/perspective accordingly.
The tortoise wins every time I read that story.
User avatar
Geneyus
Posts: 328
Joined: Fri Jan 01, 2016 11:49 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by Geneyus »

I keep about $20k for my wife and I in an emergency fund. My main motivation for keeping that minimum amount is to cover expenses in case one of us loses our job. If that happened, we could pay our bills for a long time if we cut back on spending and with the other person's income still coming in. Luckily, my occupation is very stable, no matter what the economy is doing.
Fargonian
Posts: 9
Joined: Wed Feb 01, 2017 11:00 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by Fargonian »

$50,000 invested in VCSH
misscourtneyk
Posts: 44
Joined: Mon Dec 19, 2016 11:42 am
Location: The Great South

Re: How Much in Your Emergency Fund And Is It Used?

Post by misscourtneyk »

I'm mid twenties and single with no kids. I keep about 7-8K in cash in a savings account for emergencies which amounts to about 8 months of expenses for me (I have a roommate and no debt so my expenses are low). To me an emergency is a busted HVAC, sudden major car repair, or job loss. I feel better having the cash sitting around. I used to keep 10-12K but dropped it when I started upping my investment contributions.

The only time I have ever touched my EF was to repair a foundation issue that came up with my house a year ago. Cost me 8K to fix and being able to pay cash and not worry about being able to afford it was the best feeling of security ever.
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.
S17C
Posts: 208
Joined: Wed Jan 18, 2017 1:05 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by S17C »

I maintain the emergency fund at 12 months of usual living expenses. Untouched.
bcarlson65
Posts: 4
Joined: Thu Mar 16, 2017 9:20 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by bcarlson65 »

Typically 15-30k in Cash/CD. About same in company stock that is low risk. In a pinch about 50k could be raised.

If more than this is required , in priority order:
1) Roth IRA withdrawl (hardship)
2) 401k loan (not to exceed 2%)
3) Home Equity Loan
My wife and I joke and call the first items the "limo account" (see the movie Get Shorty).
We would indeed pay with credit card (if possible) to capture the benefits from the "gimmick cards" and pay off immediately that month.

I believe that every family should ave this dicipline in place. Believe me, it takes work, and wreckless behavior in my 20s has led me to this.
Teach your kids!
s0me0nesmind1
Posts: 146
Joined: Mon Aug 05, 2013 3:15 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by s0me0nesmind1 »

Personally have ~110k in liquid cash assets scattered around different accounts.

I am at a point where I'm starting to not like it - especially since interest rates have started going up but banks are not reflecting it in their Savings/CD interest rates. This is pretty much a first for me, since it's only recently that I have comfortably maxed out my retirement accounts and built up this emergency fund.

Yet as much as I say that, I always look ahead and see..
DW wants a new vehicle with kid #1 on the way
In 5 Years (prior to kid #1 going to school) we want to move to a place with a better school district (and better housing in general).
ROTH Contributions for 2017.... and I have one left still to do for 2016.

I think once we get the vehicle for DW and we have the next stock market correction (whenever that may be) that may be the point of entry where I dump the majority of it into the market in taxable investments finally. I'm thinking of backing down and leaving only ~20-30k after it's all said and done.
User avatar
T-Wrench
Posts: 59
Joined: Mon Feb 13, 2017 4:36 pm
Location: Detroit area, Michigan

Re: How Much in Your Emergency Fund And Is It Used?

Post by T-Wrench »

4 months of expenses (saving to work up to 6, max out at a year if DW and I agree on that). Emergencies for its use include things breaking down that I didn't know about (if I checked the car and saw problems, then I knew about it then and should've started addressing it), losing a job, or unexpected medical bills (my daughter's birth went from a covered expense to 50/50 coinsurance, for example). Not vacations, not wants, just needs and barebones needs at that.

I don't really consider any job to be completely safe, and mine is certainly not (it may not be here in the same form in 10 years). Whenever I think about how much more interest I could be making, I think of Taylor's stories about the Depression and other board members' stories about the 2008 recession. Those inform my decisions about an EF; YMMV.
JDP
Posts: 47
Joined: Wed Mar 15, 2017 10:39 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by JDP »

About $3,000 right now. I'm increasing it to $10,000, which would cover 6 months of barebone expenses. I'm young, live in a LCOL area, have no kids and split bills with my girlfriend. My half for apartment rent and utilities each month is $325-350. Thinking about transitioning a portion of it into a Roth IRA.

I haven't used it yet.
User avatar
N1CKV
Posts: 852
Joined: Wed Mar 21, 2012 8:18 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by N1CKV »

Back in August of last year I was sitting on 6 months of emergency funds + a sizable amount dedicated to down payment on my next house.

August 13th I the water started to rise, literally. I fled my home in my truck with very little, barely escaping an impending flood. My home was built 2' over the base flood elevation/ record flood, therefore I carried no flood insurance. A few days later I could access my house and I found that it along with my wife's paid for 2012 model car took on about 3' of water. So yeah, I used my emergency fund.

This definitely met the criteria of an emergency. This massive cache of cash gave me the edge I needed to get a head start on recovery. Once I had all of my belongings along with the lower 4' of my house on the front lawn my house was stable and in drying mode. I took advantage of this cash position and acquired my wife a new replacement vehicle almost a month before I received the official word that her car would be totaled under comprehensive. Those that had to wait for the insurance check had very slim selection on the car lots (several dealers lost all of their inventory magnifying the problem). I was able to acquire a dehumidifier to get my house drying even faster and place replacement cabinets on order (3 week normal turnover turned in to over 3 months quickly for many after me). As soon as my house was dry I had the funds ready to go for insulation, sheetrock and plumbing. Cabinets were delivered and my granite was ordered, again ahead of those still waiting for cabinets. Interior doors were scarce, it wasn't a matter of what style you wanted and where the best deal, it was a matter of if the doors existed. A fantastic deal came along for flooring and I was able to seize that opportunity. I was spending so much on my credit cards I was risking going over the limits on a few of them all at once - something I never dreamed possible - but I had the cash to pay it off (home improvement stores were 5% cash back for 3rd quarter :greedy ).

Did I mention a few months before of all of this I had a torn ACL in my right knee? Yeah, I had that fixed while this was going on. A properly funded HSA served me well.

Is my emergency fund worth it? YES. It is my security blanket and it kept me VERY comfortable in an otherwise stressful time that I can not even begin to describe. The lost earnings is chump change to the comfort I get from knowing I can "weather the storm" - literally, because that is exactly what I did.
BogleMelon
Posts: 2529
Joined: Mon Feb 01, 2016 11:49 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by BogleMelon »

$15K for EF in Ally, just decide to convert it over time to I bonds
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
jh-1391
Posts: 135
Joined: Mon Apr 07, 2014 9:14 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by jh-1391 »

I have 5 months of income in pure "emergency" dollars, an additional month in fluctuating dollars (vacations, semi-annual expenses, checking buffer, etc.). This comes out to about 10 months of 100% necessary monthly expenses if I didn't want to move or sell anything.

I'm single and work in a volatile industry, so I'm a little more conservative with my cash than most. I'm nearing my 5th year in my career and I'll start vesting soon, so my EF structure will likely change. I'm currently sitting in, mostly, a low yield savings account with my bank and a small portion in a HYSA earning 0.85%, which I use strictly because I get an additional 10% match on my CC cashback dollars. I'm working on shifting towards I Bonds over the course of this year.

I'm thinking something like...1 month of income at my bank + my fluctuating accounts, then 5 months in I bonds, then maybe an additional 6 in a lower risk fund/allocation at a brokerage.

I've used my EF every now and then, but not yet for a true emergency. Usually just when I mis-calculated something or accidentally paid my full mortgage twice in the span of a week.
FailedTheTuringTest
Posts: 17
Joined: Sun Jul 03, 2016 1:03 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by FailedTheTuringTest »

I think this thread has changed my mind on the arithmetic of an emergency fund. If I keep, say, $20k in cash, the opportunity cost over 20 years assuming 5% returns on the stock market is about $33k (i.e. if the money were in the market instead of in cash, I'd have earned $33k on it instead of approximately zero). That's the price of protecting​ myself against the chance of an emergency occurring during a major stock market downturn and having to sell off investments on a really bad day. But even if the really bad day is a 50% downturn, the probability of disaster within 20 years would still have to be nearly certainty over that period to make it worthwhile to hold the emergency fund in cash. Of course there are lots of different assumptions one could make, but it seems hard to justify. This is changing my thinking. I still think i need some 'float' cash liquidity, but not nearly as large an emergency fund as I used to think I needed.
User avatar
aj76er
Posts: 842
Joined: Tue Dec 01, 2015 11:34 pm
Location: Austin, TX

Re: Emergency Funds: YMMV

Post by aj76er »

beattherush wrote:
Being one of the posters who does not bother with a savings account or CD's, the way I look at it is this: Let's say your emergency fund needs to be $100K. Nice round number.

I can put that in a CD or savings account and earn something like 1%, probably -2% to -3% real return. Or I can invest it and earn a real return in the 4%+ range. So my emergency fund is costing me something on the order of $7K a year, maybe more.
You are being overly pessimistic about holding cash.

The 4% long term "opportunity cost" is only realized if you get to control the timeframe over which the withdrawals are made.

For example, in year 1, if the stock market has a 50% correction at the same time you have an emergency, then your opportunity cost is negative. The 7% average gain you are citing only comes about if you get to hold your equity investments for 10-15 years (based on historical data). By the definition of an emergency, you may not have this luxury.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
MnD
Posts: 4617
Joined: Mon Jan 14, 2008 12:41 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by MnD »

Low 6-figures taxable account we accumulated in the mid-late 1980's when we were double income no kids for 7 years.
Always 100% in equities for now ~30 years and have added nothing to it since the initial accumulation.
With the gains we've bought a few new cars for cash and a fair portion of State U college costs.

Fortunately have not had to use a significant part of it for a real emergency.
We use our bank "spending account" first plus credit card float for any monthly mismatch in cash flows.
Have not had a systematic shortfall in income versus expenses that would require a sustained draw from emergency fund as we are very conservative on debt, real estate, cars etc. but not conservative on spending in good times. So when tough times hit we cover a lot of the mismatch with spending cuts.

100% equity seems kind of unorthodox versus a cash emergency fund but it seems to have worked out well.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
David Scubadiver
Posts: 522
Joined: Thu Mar 24, 2016 8:40 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by David Scubadiver »

Whatever cash I have, when the market crashes, gets thrown into the market. So, I suppose my dry powder is used in market emergencies. And if I have some other need for the money, it gets used for that.

But we are all in different situations. Kids, no kids, secure job or not, consistent income or not, homeowner or not, car owner or not, among of liquid assets, all impact one's potential need for emergency cash.
quantAndHold
Posts: 5174
Joined: Thu Sep 17, 2015 10:39 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by quantAndHold »

I have an actual "emergency" fund of a few hundred dollars, in cash, in a safe, in preparation for "the big one." After the earthquake, when the power is out, the guy at the mini market selling sandwiches and batteries isn't going to take credit cards. At least, that been my experience in the past. Having a little cash during the first few days of a natural disaster is very useful.

I've always had enough income to be able to cash flow the normal minor disasters. Car repairs, hot water heater, tree falling down, vet bills, etc.

Back in the 90's I read an article in Money magazine that said that the average time to find a job at that time was about one month per 10k in income. My biggest risk has always been being laid off during the middle of a recession, so I always kept a month of living expenses per $10k of income, until I had a year of living expenses, and figured that a year would be long enough in pretty much any scenario I could think of. I also was always fully insured (life, health, car, disability, umbrella). The money was placed in tiered short term savings, money market, bonds, or cd's based on how soon I was likely to need it.

Now that I'm (maybe) retired, its all just part of my overall asset allocation.
Yes, I’m really that pedantic.
ndpage
Posts: 47
Joined: Tue Jan 11, 2011 7:02 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by ndpage »

Coming back to this thread after a few months. I'm in a position with both some health issues needing cleanup and with paying for my father's retirement village that I'm going to have some substantial "planned emergencies" in 2019 and 2020, to the tune of about $150k in expenses and lost wages, which is one year's typical gross income as well as ~15% of my net wealth (I have net wealth of just over $1M).

So I've been working this year on getting my 2018 expenses to the point that all I have to do is pull my 2018 mortgage and property taxes out of my HELOC (about $11k, the house is getting sold late in 2019 and even that 11k will leave me with more than 50% equity), and have the rest of my 2018 expenses come out of a series of laddered Ally CDs. That will let me save 100% of my after-tax 2018 income and put me in a good position to handle 2019 when it comes along.

Since these are relatively short term events (20-40 months), I'm planning on just using Ally for the 2018 paycheck savings.

If you had told me 5 years ago that I needed a $150k emergency fund, I would have laughed at you.
Jags4186
Posts: 5350
Joined: Wed Jun 18, 2014 7:12 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by Jags4186 »

AlohaJoe wrote:$0

I have credit cards, CDs, bonds, and equities I can all use in the case of an emergency.

Two years ago I had an emergency and needed $160,000 so keeping a few months living expenses in a savings account wouldn't have helped anyway.
I would hope any $160,000 emergency I could be involved in would be covered by insurance. Do you mind if I ask what you needed to come up with $160k for?
ndpage
Posts: 47
Joined: Tue Jan 11, 2011 7:02 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by ndpage »

In my case, my dad's retirement community costs me about $45k/year. He's in his mid 80s, widowed, and with some emerging memory care challenges, so cutting back on that is really not an option. So two years of that will be $90k. Then I'm going to end up being on some sort of partial disability for 3-4 months to deal with my medical issue, which is going to cost me roughly $20k in lost income. Meanwhile, I'll be in the process of moving so I'm going to have some renovation/staging costs for my house ($25k but I have a HELOC for that) and some relocation expenses (another $15k).

Three years ago, the only thing on that list would have been the pre-sale home improvements. It's not that the others weren't there, I just didn't know that they needed to be on the list at that magnitude.
hightower
Posts: 859
Joined: Mon Dec 12, 2016 2:28 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by hightower »

I've recently changed my philosophy on emergency funds. I used to keep 20k on hand at all times. But, with debt to pay off, that no longer makes sense to me.
My current emergency fund is the principle in our Roth IRAs and my taxable account. I wouldn't dare touch those funds unless I had no other choice. I keep a few thousand cash on hand generally at all times. I would first try to wait until my next paycheck(s) if possible, if that wasn't an option I would try to use credit cards and make sure I could pay them off before interest charges kick in. We have a decent HSA account for medical emergencies. I also have good disability insurance. All other emergencies that I could imagine would revolve around me losing my job. Generally speaking if that happened I could find another job fairly quickly. I'm a physician and licensed to practice in two states. The chances of me being unable to find work in a matter of a few months is pretty slim. The only way I could see that happening would be if I got into some sort of legal trouble and ended up in jail. I'm not a criminal, so I don't really have to worry much about that.
Additionally, I think the best way to be prepared for emergencies is to live well below my means. That's something I'm actively trying to do right now. Also, being debt free is another way to help in an emergency. If I don't owe anyone anything, I don't have to worry too much about making ends meet.
Be adaptable. That's a better strategy in an emergency situation than a pile of cash. If worse came to worse we could sell everything we own and move in with family. We would find a way to make ends meet.
Broken Man 1999
Posts: 5595
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, inland on high ground!

Re: How Much in Your Emergency Fund And Is It Used?

Post by Broken Man 1999 »

We don't really have a specific "emergency fund."

However, we have lots of easily convertible assets to cover most anything life might throw our way, including well-stocked retirement funds, high limit credit cards, and $150K of Series I and EE Savings bonds that are a mere visit to a bank away from being cash. Though, I would hesitate to use the savings bonds due to the high rate they are earning (most 3% or above fixed rate).

Thus far in our near 46 years of marriage wife and I haven't had anything thrown at us that we couldn't handle in our normal budget, and for that I am grateful.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
kathyauburn
Posts: 192
Joined: Thu May 07, 2015 12:25 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by kathyauburn »

2 years. Makes me comfortable.
User avatar
whodidntante
Posts: 9578
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: How Much in Your Emergency Fund And Is It Used?

Post by whodidntante »

slowbutsteady wrote:Intestesting discussion and a few surprising comments. For us, we aim to keep about 3 months in cash (Ally). It's down currently and looking to build back up soonest. The lost interest/growth is a small portion of our world; and DW appreciates good ol' cash.

I'm guessing a few of the responses against cash EF may be due to age, good luck, and the recent bull run. We should revisit this question during/after a major bear market and see how the responses line-up.

I agree with the sentiment that everyone needs to assess their risk tolerance and manage their EF needs/perspective accordingly.
One thing that may be getting lost is the reason for not having a big pile of fixed income in taxable. For me, it's that I'm in a pretty high tax bracket and I have several years expenses in taxable investments. I'm not too keen on adding a bunch of CD interest that I owe marginal tax rate for federal and state on every year. The favorable tax treatment of equity index ETFs means I can cut my tax liability a bit each year by placing those in taxable, and tax defer the long-term capital gains. Yet, my ability to ride through a worst case downturn combined with job loss isn't negatively impacted by what I am doing. My portfolio is just as resilient as the guy who started with a lot of fixed income in taxable.
rattlenap
Posts: 324
Joined: Wed May 25, 2016 6:22 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by rattlenap »

I have 6 months/$10k sitting in a Vanguard Federal Money Market Fund in a taxable account.
HornedToad
Posts: 1036
Joined: Wed May 21, 2008 12:36 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by HornedToad »

I think this discussion is partly confusing because of the vast differences in financial circumstances.

The discussion of how much to have in emergency fund for someone who has hundreds of thousands in taxable savings is relatively meaningless. It's really just an asset allocation question and whether you want to pay cash or credit cards but you have the money available.

But for someone who is evaluating whether to put more money in 401ks, Roth IRA's, or further pay down their mortgage vs. holding the money in a savings account is much more relevant. At that point the money is relatively locked up and not easily accessible and if there is an emergency or job loss then it becomes a much tougher decision regarding where to get accessible cash. In some ways this is where choosing to invest in taxable vs. pay down mortgage helps out since the taxable account becomes an extended Emergency fund.

For me I prefer to keep ~$25-35k available and then the rest would go to tax-deferred accounts or paying down mortgage. It feels like enough but I have considered raising it some. It also fluctuates as I'll pull out of it to pay some planned expenses and then repay it in coming months. With an upcoming car purchase then I'm starting to accumulate more but consider that separate funds from this.
pasadena
Posts: 1002
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

Re: How Much in Your Emergency Fund And Is It Used?

Post by pasadena »

Mine is around 25k. That's about 7 months of regular expenses, but really I chose that number because it would cover a new car, or repatriation, with some buffer.

I recently decided to up my cash savings on top of it, because my situation at work became a bit uncertain and simultaneously opened a host of options I will have in a year or two. Which means reducing risk to insure total freedom of choice.
Mickey7
Posts: 164
Joined: Tue Jun 20, 2017 1:52 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by Mickey7 »

And the one answer is - there is no one answer. It appears that everyone has their own particular definition as to what constitutes an "emergency fund" and how it is to be accessed. For myself this is money that I can get my hands on right here right now without touching anything else, a safe harbor of sorts.
I have been keeping $30k in my savings account at my bank, which as we all know is paying a miniscule interest rate. Recently I moved $25k of this over to a Money Market at only a marginally higher rate. Still this is there for the "What if" that hopefully will never occur. When and if something pops its ugly head up I do not want to worry about juggling credit cards or home loans, I will want money on hand. I don't want to know if I will have the clearest head in an emergency or will have the funds readily available if I do.
I am also building my HSA, but I have not had to tap it as I want it there for an emergency. For any procedures that have occurred I have paid from my checking. An emergency is an emergency, that which is not I'll pay now.
Yes I do understand those who say that doing this is a draw down on potential accumulations, but it is a decision that I have made for my own piece of mind - and I cannot put a price tag on that.
User avatar
FrugalProfessor
Posts: 326
Joined: Thu May 25, 2017 11:34 am
Contact:

Re: How Much in Your Emergency Fund And Is It Used?

Post by FrugalProfessor »

This has been a fascinating discussion. I'm in the "what emergency fund?" camp. I sit on close to zero in the bank, but several hundred thousand in assets that can be liquefied in a day or two (taxable brokerage + Roth IRAs), in addition to credit cards, if an emergency arose.

I think we all have to acknowledge that the correlation of market returns and most idiosyncratic emergencies (funeral expenses, car repairs, etc) is pretty low. As a result, I think the no emergency fund strategy is pretty robust.

If, on the other hand we're talking job loss, then the correlation is not zero (probability of losing job during horrible recession when stocks are down) and should probably be accounted for by holding extra cash.

Moral of the story: if you're protecting against job loss, hold some cash. If that's not a concern, don't bother because you can liquefy your assets.
I blog. Taxes are the lowest hanging source of alpha. I eat tax alpha for breakfast.
mikeyzito22
Posts: 504
Joined: Sat Dec 02, 2017 5:42 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by mikeyzito22 »

bayview wrote: Wed Mar 08, 2017 7:31 pm
supersecretname wrote:
bayview wrote:A HELOC (or CC with cash advance) can be great while it's there, but don't think that your bank won't close it in a heartbeat when they get the jitters, despite your wonderful history and rock-solid financial status. It's kinda scary as a safety net IMO.
I think that under normal circumstances, LOCs and CCs can be a useful source of funding for unpleasant surprises, but don't ever rely on them to be there if there is a systemic financial problem going on. This is contrasted to an individual personal financial problem, independent of whatever is going on in the economy, when that massive oak tree falls on your house and ruins your roof and a couple of rooms underneath. Put the two together: 2008 + job loss + unexpected expenses = a pretty nasty situation if you thought your LOCs and CCs would be there for you.
So no home insurance with the Oak tree?
bling
Posts: 759
Joined: Sat Jan 21, 2012 12:49 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by bling »

i used to be in the "$0" camp, but i guess not anymore because i recently discovered a credit union offering 4.6% on their checkings account, up to 20k -- so i moved that much from my bond allocation there :sharebeer

nonetheless, since my AA didn't change i still don't consider me having an EF, although it's just semantics at this point. IMO, in a true "emergency", your entire portfolio is at play, therefore it doesn't matter if you have one or not.
Afty
Posts: 1516
Joined: Sun Sep 07, 2014 5:31 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by Afty »

We keep a relatively large emergency fund (9-12 months of expenses), which we also use to buffer lumpy expenses. In the last 6 months, we've used it for:
  • Property taxes
  • Plumbing repair
  • Car repair
  • Living expenses while we front-load our 401ks
  • Paying for summer vacations
  • Paying for summer camps for the kids
  • etc...
IMO, the line between emergency expenses and lumpy expenses is blurry. One could argue that if you are driving a 10 year old car, you should be setting aside money for the inevitable repairs. Or similarly for home repairs. I don't see this as any different from keeping a general emergency fund and using it for those things.

For the people with $0 emergency funds and large taxable savings, how do you handle emergency/lumpy expenses? Do you really sell taxable investments and pay capital gains every time one of them comes down the line? Or do you keep other cash accounts that are earmarked for those lumpy expenses?
namartima
Posts: 7
Joined: Thu Jul 05, 2018 6:55 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by namartima »

300K in a HELOC + 80K in employer vested RSUs.
drk
Posts: 1949
Joined: Mon Jul 24, 2017 10:33 pm
Location: AWOL

Re: How Much in Your Emergency Fund And Is It Used?

Post by drk »

Afty wrote: Sat Jul 14, 2018 1:45 pm For the people with $0 emergency funds and large taxable savings, how do you handle emergency/lumpy expenses? Do you really sell taxable investments and pay capital gains every time one of them comes down the line? Or do you keep other cash accounts that are earmarked for those lumpy expenses?
I have a lumpy expense coming up in a few weeks. My plan is to sell my most recent taxable purchases as tax-efficiently as possible. If that produces some short-term capital gains, that's okay. They are taxed at the same rate as interest on a savings account, and I don't really see the downside to having higher after-tax return. If that produces some short-term capital losses, even better.
bling
Posts: 759
Joined: Sat Jan 21, 2012 12:49 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by bling »

Afty wrote: Sat Jul 14, 2018 1:45 pm For the people with $0 emergency funds and large taxable savings, how do you handle emergency/lumpy expenses? Do you really sell taxable investments and pay capital gains every time one of them comes down the line? Or do you keep other cash accounts that are earmarked for those lumpy expenses?
just sell and rebalance. you can do it in a tax efficient manner as well, as explained in the wiki: https://www.bogleheads.org/wiki/Placing ... ed_account
mortfree
Posts: 2487
Joined: Mon Sep 12, 2016 7:06 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by mortfree »

bling wrote: Sat Jul 14, 2018 7:19 pm
Afty wrote: Sat Jul 14, 2018 1:45 pm For the people with $0 emergency funds and large taxable savings, how do you handle emergency/lumpy expenses? Do you really sell taxable investments and pay capital gains every time one of them comes down the line? Or do you keep other cash accounts that are earmarked for those lumpy expenses?
just sell and rebalance. you can do it in a tax efficient manner as well, as explained in the wiki: https://www.bogleheads.org/wiki/Placing ... ed_account
I think you also have to remember that some people keep $10,000 (+/-) in their checking but don’t call it EF.

I keep $25.00 in my checking account and transfer in from my money market that usually has 3-5k sitting there. My real cash EF is at CapOne (40k-50k)
KlangFool
Posts: 19033
Joined: Sat Oct 11, 2008 12:35 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by KlangFool »

Afty wrote: Sat Jul 14, 2018 1:45 pm
For the people with $0 emergency funds and large taxable savings, how do you handle emergency/lumpy expenses? Do you really sell taxable investments and pay capital gains every time one of them comes down the line? Or do you keep other cash accounts that are earmarked for those lumpy expenses?
Afty,

1) I keep 1 year of the emergency fund.

2) My taxable account is large enough that my annual interest/dividend/distribution can refill my emergency fund after I spend some of the EF for the lumpy expenses.

KlangFool
SQRT
Posts: 1469
Joined: Sat Feb 05, 2011 9:44 am

Re: How Much in Your Emergency Fund And Is It Used?

Post by SQRT »

Afty wrote: Sat Jul 14, 2018 1:45 pm
For the people with $0 emergency funds and large taxable savings, how do you handle emergency/lumpy expenses? Do you really sell taxable investments and pay capital gains every time one of them comes down the line? Or do you keep other cash accounts that are earmarked for those lumpy expenses?
I don’t view my liquidity as an “emergency” fund. I keep a fair bit in savings/checking accounts to cover lumpy expenses. Recent examples would include new boats($100k), new dock ($30k), vacations($40-100k), reno at condo(($110k). These expenses were generally planned for but timing and amount was uncertain. For us unexpected large expenses are almost always discretionary. True emergencies like a sewer backup(Arizona) or appliance repairs are just not financially material. I sell investments from time to time but as markets allow, not when a lumpy expense comes up.

Discussing “emergency funds” out of context relating to level of wealth, stage of life, or risk makes little sense.
mikeyzito22
Posts: 504
Joined: Sat Dec 02, 2017 5:42 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by mikeyzito22 »

jharkin wrote: Sat Mar 11, 2017 11:44 am 40 y.o, married. 2 kids in grade school.

My target right now is to have 6-12mo of what my bare minimum living expense are in short term cash - about 25-50k. As a second level I have access to another 12 months spending in Roth IRA basis money (50-60k) that could be liquidated if really necessary.

I was at 6 months but last year I needed it - a giant maple tree came down in a storm and crushed the garage roof damaging both cars in the process.

Right now rebuilding it back up.. At 3 months right now, targeting to get back to 6 months by next year and then 12 months the year after. I'd be more aggressive but we are on one income right now and I dont want to scale back things like 401k......

...
Interesting that I see a lot of people are using credit as their emergency fund. I never even considered that as an option but if need be I could access a couple hundred $K via CC's, home equity, 401k loan.... I would hate to touch any of those however.
This is almost my exact same situation, minus the maple tree. Were you able to build it back up and were you still able to contribute to Roths or Iras knowing you wanted to keep that 6-12 months available?
User avatar
ginmqi
Posts: 360
Joined: Sat Feb 22, 2014 4:35 pm

Re: How Much in Your Emergency Fund And Is It Used?

Post by ginmqi »

SQRT wrote: Sun Jul 15, 2018 8:11 amI don’t view my liquidity as an “emergency” fund. I keep a fair bit in savings/checking accounts to cover lumpy expenses. Recent examples would include new boats($100k), new dock ($30k), vacations($40-100k), reno at condo(($110k). These expenses were generally planned for but timing and amount was uncertain. For us unexpected large expenses are almost always discretionary. True emergencies like a sewer backup(Arizona) or appliance repairs are just not financially material. I sell investments from time to time but as markets allow, not when a lumpy expense comes up.

Discussing “emergency funds” out of context relating to level of wealth, stage of life, or risk makes little sense.
Very good point.

Someone said it above, but at a certain level of wealth/financial stage, it becomes a cash flow management issues and not a cash sufficiency issue.

I am fortunate to be at a point where I am no longer in need of worrying about cash sufficiency but how to manage my EF with these points in mind:
Maximizing liquidity and ease of access
Maximizing inflation hedge.
Minimizing tax liabilities

Liquidity - self explanatory.
Tax treatment - keeping it in an ally HY savings acct is very liquid and easy but the taxable interest at the marginal rate is less than optimal. I need to read more into tax exempt bonds/funds, but it seems liquidity may suffer.
Inflation hedge - self explanatory. A HY Savings acct usually should keep up with the inflation on an indirect basis.

Seems like for a beginner - EF is a separate bucket than your investment portfolio.
As you gather wealth, the EF becomes part of your overall investment portfolio as you have to start taking into account tax and inflation and access/liquidity factors.
Post Reply