Emergency fund size

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bubbasour
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Emergency fund size

Post by bubbasour » Fri Aug 31, 2018 9:36 am

Hi,

I have read in the forums that some have $50k as emergency fund. Is there any guidance around what the size of a emergency savings should be. I was guess somewhere $30-50k, but is there any measurement in terms of months of wage or similar so that I can ballpark what is reasonable? Thank you in advance for advice. Bubba

Rupert
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Re: Emergency fund size

Post by Rupert » Fri Aug 31, 2018 9:39 am

Depends on circumstances, e.g., how stable is your job? in your field, how long would it probably take to find a new job? do you have a spouse who works and could cover expenses and provide benefits (esp. health insurance) during your unemployment? etc. A good rule of thumb for most people, I think, is to save 6 months to 1 year of expenses -- your actual expenses, not some made-up round number. Don't forget to factor in the cost of health insurance under COBRA, etc.

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lthenderson
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Re: Emergency fund size

Post by lthenderson » Fri Aug 31, 2018 9:46 am

Yes, the rule of thumb should be based on so many months of expenses, not amount. Someone who spends $20k per month will have a different sized emergency fund than someone who spend $1k per month.

When I was younger, I always kept six months worth of expenses. As we get older and life more complicated, i.e. we aren't as flexible to just pick up and move at a moments notice, I keep a years worth of expenses in my emergency fund.

jehovasfitness
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Re: Emergency fund size

Post by jehovasfitness » Fri Aug 31, 2018 9:50 am

Rupert wrote:
Fri Aug 31, 2018 9:39 am
Depends on circumstances, e.g., how stable is your job? in your field, how long would it probably take to find a new job? do you have a spouse who works and could cover expenses and provide benefits (esp. health insurance) during your unemployment? etc. A good rule of thumb for most people, I think, is to save 6 months to 1 year of expenses -- your actual expenses, not some made-up round number. Don't forget to factor in the cost of health insurance under COBRA, etc.
This.

At first I took the standard advice and tried to aim for that.

But after looking at this site, I took into account my high degree of job stability and my wife's much lower one and based our EF off our 6 month expenses minus my take home pay since our most likely scenario which we've faced before is having to survive off just my salary.

I also take into account unemployment benefits for her that could at least last 6 months.

That said, I still have a higher buffer for emergency high cost house repairs, etc.

To put it in perspective, my original goal was a $30k EF, but factoring in the above, I'm more comfortable being at $12k
Last edited by jehovasfitness on Fri Aug 31, 2018 9:50 am, edited 1 time in total.

mx711yam
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Re: Emergency fund size

Post by mx711yam » Fri Aug 31, 2018 9:50 am

I keep 50k but expense wise I only need 36. But I sleep better with 50.

goodlifer
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Re: Emergency fund size

Post by goodlifer » Fri Aug 31, 2018 10:03 am

A really easy way to figure would be to multiply your take home pay by however months you would estimate to be out of work, plus add in the cost of COBRA or private insurance. But speaking as someone that had to live on my EF for almost 2 years, it isn't that easy. Our health insurance was sky high because I have health problems, my husband wouldn't cancel or downgrade our cable and internet, our fridge, microwave, and dishwasher all broke within months of each other, and so on. An EF isn't good unless you also have an emergency plan that details what you would be willing to forgo (and your spouse, if applicable), how long to be unemployed before you will try for just any old job that pays a wage (that one caused the most arguments between us), along with anything else you can think of that would gum up your plans in this type of situation.

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JoMoney
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Re: Emergency fund size

Post by JoMoney » Fri Aug 31, 2018 10:09 am

Dave Ramsey recommends having an "emergency fund" of 3 to 6 months expenses.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Sandtrap
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Re: Emergency fund size

Post by Sandtrap » Fri Aug 31, 2018 10:19 am

Emergency Fund Size depends on the following, amongst others:

1. Stability and size of income stream (especially "net" income stream")
2. Expenditure spending horizon and predictability of such.
3. Lifestyle, employment, medical expense, and other potential changes that may effect finances drastically.
4. Staying power (amount of other assets able to be tapped into in case of emergency)
5. Diversification of income streams.
6. Liabilities
7. Net worth.
8. etc.

IMHO: There is really no "one size fits all" in terms of duration or dollar amount because of the above variables.

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TierArtz
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Re: Emergency fund size

Post by TierArtz » Fri Aug 31, 2018 10:25 am

I sleep fine with only about 10K in cash accounts. I'm going to let savings climb as high as 25K (ready to fund 2 IRAs on 02 Jan) before putting new cash into taxable indexes. As others have stated, or implied, the amount depends on each family's situation. We're blessed with a pension, military health care, and enough in taxable to live on. Thus, keeping too much in cash seems like a wasted opportunity.

KlangFool
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Re: Emergency fund size

Post by KlangFool » Fri Aug 31, 2018 10:29 am

OP,

1 year of expenses. Recession/economy crisis occurred regularly. At least one US recession every 10 years since 1836. We are long overdue for another one. The last recession was 2008/2009.

KlangFool

KlangFool
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Re: Emergency fund size

Post by KlangFool » Fri Aug 31, 2018 10:33 am

OP,

Another factor which may or may not apply to you. Are you obligated to help your extended family? Parents? Parents-in-law? Cousins? Nephews? Nieces?

My niece's house was flooded by the hurricane. We (uncles and aunties) pooled our money to help her to fix her house.

KlangFool

MichCPA
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Re: Emergency fund size

Post by MichCPA » Fri Aug 31, 2018 10:43 am

KlangFool wrote:
Fri Aug 31, 2018 10:29 am
OP,

1 year of expenses. Recession/economy crisis occurred regularly. At least one US recession every 10 years since 1836. We are long overdue for another one. The last recession was 2008/2009.

KlangFool
If you could plan for recessions would they be emergencies? I do agree that you should have 6 months of expenses in cash in addition to any unemployment benefits, severance and some CDs or short bonds getting you to a total of 9 to 12 months of liquid resources. I just disagree that you should time your EF to the market unless you know something specific about your situation like a bad financial forecast at work or some rumors of layoffs. Recessions aren't on a timer and that cuts both ways. Australia hasn't had one since 1991 and the Netherlands went from 1982 to 2008. On the flip side, recent recessions in Greece and Italy wouldn't imply that they have more runway to the next recession. Have discipline to make the EF about preparation for emergencies, not market timing.

nomadgecko
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Re: Emergency fund size

Post by nomadgecko » Fri Aug 31, 2018 10:49 am

Great question, and I expect you'll continue to get a lot of "it depends on x, it depends on y, etc.".

Here's what we do. For context, my wife and I work full time and live in a HCOL area. I would say my job is "medium" stability and her's is "high" based on my subjective judgment. My thinking on the emergency fund has evolved over time, and as of today, I think of it in traunches.

First wave: Money market fund that covers 9 months of us both not working. This is sitting in a taxable account.
Second wave: Roth IRA contributions to-date. I don't want to tap this (ever), but conceivably I could if absolutely needed.
Third wave: We have some I-bonds currently earmarked for our kids' college fund, but if dire, I'd raid them.
Fourth wave: We have an untapped HELOC.

MichCPA
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Re: Emergency fund size

Post by MichCPA » Fri Aug 31, 2018 11:02 am

nomadgecko wrote:
Fri Aug 31, 2018 10:49 am
Great question, and I expect you'll continue to get a lot of "it depends on x, it depends on y, etc.".

Here's what we do. For context, my wife and I work full time and live in a HCOL area. I would say my job is "medium" stability and her's is "high" based on my subjective judgment. My thinking on the emergency fund has evolved over time, and as of today, I think of it in traunches.

First wave: Money market fund that covers 9 months of us both not working. This is sitting in a taxable account.
Second wave: Roth IRA contributions to-date. I don't want to tap this (ever), but conceivably I could if absolutely needed.
Third wave: We have some I-bonds currently earmarked for our kids' college fund, but if dire, I'd raid them.
Fourth wave: We have an untapped HELOC.
+1 , On some level all of your assets and credit lines are an 'emergency fund'. I break it down by separating my assets into investing, saving and emergency fund. You should have an idea of how you would progress through these layers as the severity of the emergency increases (ie EF, savings, then probably TLH, bonds, stocks, and finally retirement accounts).

Jack FFR1846
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Re: Emergency fund size

Post by Jack FFR1846 » Fri Aug 31, 2018 11:08 am

Suze Orman says 8 months expenses. I have savings bonds that are included in both my bond allocation and my ef. I have about 7 years of expenses there
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Rupert
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Re: Emergency fund size

Post by Rupert » Fri Aug 31, 2018 11:12 am

MichCPA wrote:
Fri Aug 31, 2018 11:02 am
nomadgecko wrote:
Fri Aug 31, 2018 10:49 am
Great question, and I expect you'll continue to get a lot of "it depends on x, it depends on y, etc.".

Here's what we do. For context, my wife and I work full time and live in a HCOL area. I would say my job is "medium" stability and her's is "high" based on my subjective judgment. My thinking on the emergency fund has evolved over time, and as of today, I think of it in traunches.

First wave: Money market fund that covers 9 months of us both not working. This is sitting in a taxable account.
Second wave: Roth IRA contributions to-date. I don't want to tap this (ever), but conceivably I could if absolutely needed.
Third wave: We have some I-bonds currently earmarked for our kids' college fund, but if dire, I'd raid them.
Fourth wave: We have an untapped HELOC.
+1 , On some level all of your assets and credit lines are an 'emergency fund'. I break it down by separating my assets into investing, saving and emergency fund. You should have an idea of how you would progress through these layers as the severity of the emergency increases (ie EF, savings, then probably TLH, bonds, stocks, and finally retirement accounts).
+ another 1. This is an important point. Emergency funds do not have to be held in cash in a special account designated for that purpose. Many people (perhaps most?) hold their ER in tiers. Some of the money may actually be earmarked for other purposes (e.g., in a Roth IRA for retirement), but they could be accessed for living expenses in a true emergency such as prolonged unemployment or a health crisis.

KlangFool
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Re: Emergency fund size

Post by KlangFool » Fri Aug 31, 2018 11:21 am

MichCPA wrote:
Fri Aug 31, 2018 10:43 am
KlangFool wrote:
Fri Aug 31, 2018 10:29 am
OP,

1 year of expenses. Recession/economy crisis occurred regularly. At least one US recession every 10 years since 1836. We are long overdue for another one. The last recession was 2008/2009.

KlangFool
If you could plan for recessions would they be emergencies? I do agree that you should have 6 months of expenses in cash in addition to any unemployment benefits, severance and some CDs or short bonds getting you to a total of 9 to 12 months of liquid resources. I just disagree that you should time your EF to the market unless you know something specific about your situation like a bad financial forecast at work or some rumors of layoffs. Recessions aren't on a timer and that cuts both ways. Australia hasn't had one since 1991 and the Netherlands went from 1982 to 2008. On the flip side, recent recessions in Greece and Italy wouldn't imply that they have more runway to the next recession. Have discipline to make the EF about preparation for emergencies, not market timing.
MichCPA,

<<Recessions aren't on a timer and that cuts both ways. Australia hasn't had one since 1991 and the Netherlands went from 1982 to 2008.>>

And, how is that relevant to the USA?

<<Have discipline to make the EF about preparation for emergencies, not market timing.>>

I always keep 1 year of EF regardless of when I think the recession is coming. So, how is that market timing?

Historically, the US has at least one recession every 10 years since 1836. The last recession was 2008/2009. So, based on historical trend, the likelihood of a recession is high between now and 2019.

KlangFool

KlangFool
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Re: Emergency fund size

Post by KlangFool » Fri Aug 31, 2018 11:24 am

nomadgecko wrote:
Fri Aug 31, 2018 10:49 am
Great question, and I expect you'll continue to get a lot of "it depends on x, it depends on y, etc.".

Here's what we do. For context, my wife and I work full time and live in a HCOL area. I would say my job is "medium" stability and her's is "high" based on my subjective judgment. My thinking on the emergency fund has evolved over time, and as of today, I think of it in traunches.

First wave: Money market fund that covers 9 months of us both not working. This is sitting in a taxable account.
Second wave: Roth IRA contributions to-date. I don't want to tap this (ever), but conceivably I could if absolutely needed.
Third wave: We have some I-bonds currently earmarked for our kids' college fund, but if dire, I'd raid them.
Fourth wave: We have an untapped HELOC.
nomadgecko,

What investment do you hold in the Roth IRA? If it is 100% stock, how does that helps you?

KlangFool

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Re: Emergency fund size

Post by abuss368 » Fri Aug 31, 2018 11:29 am

bubbasour wrote:
Fri Aug 31, 2018 9:36 am
Hi,

I have read in the forums that some have $50k as emergency fund. Is there any guidance around what the size of a emergency savings should be. I was guess somewhere $30-50k, but is there any measurement in terms of months of wage or similar so that I can ballpark what is reasonable? Thank you in advance for advice. Bubba
I look at it as more of an individual decision based on risk tolerance and circumstances. Personally we contribute to consistently.
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KlangFool
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Re: Emergency fund size

Post by KlangFool » Fri Aug 31, 2018 11:56 am

MichCPA wrote:
Fri Aug 31, 2018 11:02 am
nomadgecko wrote:
Fri Aug 31, 2018 10:49 am
Great question, and I expect you'll continue to get a lot of "it depends on x, it depends on y, etc.".

Here's what we do. For context, my wife and I work full time and live in a HCOL area. I would say my job is "medium" stability and her's is "high" based on my subjective judgment. My thinking on the emergency fund has evolved over time, and as of today, I think of it in traunches.

First wave: Money market fund that covers 9 months of us both not working. This is sitting in a taxable account.
Second wave: Roth IRA contributions to-date. I don't want to tap this (ever), but conceivably I could if absolutely needed.
Third wave: We have some I-bonds currently earmarked for our kids' college fund, but if dire, I'd raid them.
Fourth wave: We have an untapped HELOC.
+1 , On some level all of your assets and credit lines are an 'emergency fund'. I break it down by separating my assets into investing, saving and emergency fund. You should have an idea of how you would progress through these layers as the severity of the emergency increases (ie EF, savings, then probably TLH, bonds, stocks, and finally retirement accounts).
MichCPA,

I have a similar system except my EF is 1 year of my current annual expense.

KlangFool

mmmodem
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Re: Emergency fund size

Post by mmmodem » Fri Aug 31, 2018 12:35 pm

TierArtz wrote:
Fri Aug 31, 2018 10:25 am
I sleep fine with only about 10K in cash accounts. I'm going to let savings climb as high as 25K (ready to fund 2 IRAs on 02 Jan) before putting new cash into taxable indexes. As others have stated, or implied, the amount depends on each family's situation. We're blessed with a pension, military health care, and enough in taxable to live on. Thus, keeping too much in cash seems like a wasted opportunity.
Ditto above. I look at the EF differently than most on this board. The EF is money I need to utilize immediately. That means 1 month of expenses in a savings account is the minimum for my needs. I can liquidate taxable accounts or a Roth IRA within those 30 days in case of a prolonged job loss. When I was younger, I didn't have taxable accounts, therefore, the Roth IRA was my sole second tier EF.

We currently keep $20k in a high yield savings account which covers several month of expenses (The actual number of months beyond 1 is inconsequential as I've explained) The additional amount is to cover the down payment on emergency home repairs or our car is totaled, and other emergency situations requiring cash immediately.

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John151
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Re: Emergency fund size

Post by John151 » Fri Aug 31, 2018 3:49 pm

I handle it somewhat differently. My preferred asset allocation is 5% in cash, 60% in bonds, and 35% in stocks. My cash allocation is my emergency fund. It’s invested in a money market fund, and it’s enough for me to live on for several years. It isn’t paying very much, but I like knowing that it’s there if I need it.

jebmke
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Re: Emergency fund size

Post by jebmke » Fri Aug 31, 2018 3:53 pm

MichCPA wrote:
Fri Aug 31, 2018 11:02 am
+1 , On some level all of your assets and credit lines are an 'emergency fund'.
This is our approach. We have not had an emergency fund for the last 25 years.
When you discover that you are riding a dead horse, the best strategy is to dismount.

MathWizard
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Re: Emergency fund size

Post by MathWizard » Fri Aug 31, 2018 4:32 pm

Roth IRA contributions can be withdrawn without penalty or tax (you already paid them) ,
this makes the ROTH perfect for funding retirement, but also providing for a 2nd or 3rd tier of
your emergency fund.

Normally, you do not want to touch this money, but if you have to put food on the table, it is there,
without penalty.

If you have enough money to max your 401k and fill your ROTH, then you can keep an EF in taxable,
but few people who need an EF have that much money.

Personally, I try to keep $30K in savings at my local credit union for short term expenses and first tier EF,
and max out my retirement accounts.
$30K will replace anything that needs replacing, appliance, car, roof, etc.
The only time we would need more than that would be if we both lose our jobs,
Then it would pay for about 6 months expenses, including medical insurance.

So the only time I would need more than the first tier is if we both lose our jobs, and
we can't get something else within 6 months. I have has some sort of a job since 16 yrs. old,
worked 20-30 hrs per week though grad school, and full time without interruption for over 30 years.

I could probably do consulting gigs if I had to, but if for some reason we could not find jobs, we
would just declare ourselves retired.

Broken Man 1999
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Re: Emergency fund size

Post by Broken Man 1999 » Fri Aug 31, 2018 5:08 pm

jebmke wrote:
Fri Aug 31, 2018 3:53 pm
MichCPA wrote:
Fri Aug 31, 2018 11:02 am
+1 , On some level all of your assets and credit lines are an 'emergency fund'.
This is our approach. We have not had an emergency fund for the last 25 years.
Same here. We were blessed with stable employment when we worked. When much younger, I knew we could draw on Bank of Dad. Now we are in retirement, we can draw on Bank of Daughters, who both keep WAY too many $$ in savings accounts. :shock:

So many ways to have funds made available: Transfer from Vanguard, sell I Bonds, charge or cash advance via credit cards, deposit 0% for X months checks from credit cards, write check on Vanguard funds, borrow from daughters, pull regular monthly draws for expenses early.... probably many more.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

srt7
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Re: Emergency fund size

Post by srt7 » Fri Aug 31, 2018 7:02 pm

bubbasour wrote:
Fri Aug 31, 2018 9:36 am
Hi,

I have read in the forums that some have $50k as emergency fund. Is there any guidance around what the size of a emergency savings should be. I was guess somewhere $30-50k, but is there any measurement in terms of months of wage or similar so that I can ballpark what is reasonable? Thank you in advance for advice. Bubba
Gross pay minus unemployment benefits of 3 months minimum, 6 months to be safe but shoot for 1 year.

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Re: Emergency fund size

Post by daveydoo » Fri Aug 31, 2018 7:32 pm

Sandtrap wrote:
Fri Aug 31, 2018 10:19 am

IMHO: There is really no "one size fits all" in terms of duration or dollar amount because of the above variables.
+1. We ran through most of ours for a variety of reasons -- some expected and some not. But it's kind of a shell game -- we're not out of money; we would just need to sell some very short-term stuff to refill it if a major hit occurred. I think it really matters if it's almost all of your assets -- as in don't spend it all on cars and rent. The rest is mostly psychological, imo.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

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Re: Emergency fund size

Post by ThePrince » Fri Aug 31, 2018 7:40 pm

MathWizard wrote:
Fri Aug 31, 2018 4:32 pm
Roth IRA contributions can be withdrawn without penalty or tax (you already paid them) ,
this makes the ROTH perfect for funding retirement, but also providing for a 2nd or 3rd tier of
your emergency fund.

Normally, you do not want to touch this money, but if you have to put food on the table, it is there,
without penalty.

If you have enough money to max your 401k and fill your ROTH, then you can keep an EF in taxable,
but few people who need an EF have that much money.

Personally, I try to keep $30K in savings at my local credit union for short term expenses and first tier EF,
and max out my retirement accounts.
$30K will replace anything that needs replacing, appliance, car, roof, etc.
The only time we would need more than that would be if we both lose our jobs,
Then it would pay for about 6 months expenses, including medical insurance.

So the only time I would need more than the first tier is if we both lose our jobs, and
we can't get something else within 6 months. I have has some sort of a job since 16 yrs. old,
worked 20-30 hrs per week though grad school, and full time without interruption for over 30 years.

I could probably do consulting gigs if I had to, but if for some reason we could not find jobs, we
would just declare ourselves retired.
A Roth IRA is a horrible place to stash your emergency fund—you can never put that money back in.

NextMil
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Re: Emergency fund size

Post by NextMil » Fri Aug 31, 2018 7:44 pm

jebmke wrote:
Fri Aug 31, 2018 3:53 pm
MichCPA wrote:
Fri Aug 31, 2018 11:02 am
+1 , On some level all of your assets and credit lines are an 'emergency fund'.
This is our approach. We have not had an emergency fund for the last 25 years.
I think it’s dangerous to suggest to someone starting out to use credit lines as their emergency fund. Maybe after they build a serious warchest in retirement taxable etc its ok, but if disaster hits, you have no money set aside, and credit lines dry up, well....you know.

Personally I have 6 months of expenses hoping to grow slowly to a year’s worth.

HelenaJustina
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Re: Emergency fund size

Post by HelenaJustina » Fri Aug 31, 2018 7:50 pm

ThePrince wrote:
Fri Aug 31, 2018 7:40 pm
MathWizard wrote:
Fri Aug 31, 2018 4:32 pm
Roth IRA contributions can be withdrawn without penalty or tax (you already paid them) ,
this makes the ROTH perfect for funding retirement, but also providing for a 2nd or 3rd tier of
your emergency fund.

Normally, you do not want to touch this money, but if you have to put food on the table, it is there,
without penalty.

If you have enough money to max your 401k and fill your ROTH, then you can keep an EF in taxable,
but few people who need an EF have that much money.
A Roth IRA is a horrible place to stash your emergency fund—you can never put that money back in.
You can’t lose Roth space you never had.

bubbasour
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Re: Emergency fund size

Post by bubbasour » Sat Sep 01, 2018 9:32 am

Thanks everyone for your suggestions and sharing how you've implemented your EF! I realized there are so many ways of building your emergency fund. :happy
A few things I learnt: :idea:

1. There is no one size fits all to solve this.
2. Tiered EF, can be Tier1 Cash + Tier2/Tier3: Bonds/Saving bonds/Fixed Deposits etc.
3. All investments and savings in one or another form can be used for real emergency situations.

I'm planning to do
1. $10k, Cash in my bank account.
2. $20k, FixedDeposit 12m 1.84% , can be terminated early for 0.25% pa fee quarterly prorated.
3. $Xk, Last resort, sell some of my retirement saving bonds that can be sold at no penalty/exit fee. I can redeem any amount+gained interest.

thx bubba

KlangFool
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Re: Emergency fund size

Post by KlangFool » Sat Sep 01, 2018 9:46 am

bubbasour wrote:
Sat Sep 01, 2018 9:32 am
Thanks everyone for your suggestions and sharing how you've implemented your EF! I realized there are so many ways of building your emergency fund. :happy
A few things I learnt: :idea:

1. There is no one size fits all to solve this.
2. Tiered EF, can be Tier1 Cash + Tier2/Tier3: Bonds/Saving bonds/Fixed Deposits etc.
3. All investments and savings in one or another form can be used for real emergency situations.

I'm planning to do
1. $10k, Cash in my bank account.
2. $20k, FixedDeposit 12m 1.84% , can be terminated early for 0.25% pa fee quarterly prorated.
3. $Xk, Last resort, sell some of my retirement saving bonds that can be sold at no penalty/exit fee. I can redeem any amount+gained interest.

thx bubba
bubbasour,

Many money market fund is paying about that rate now. So, it may not make any sense to put any money into a 1.84% fixed deposit now.

KlangFool

Nissanzx1
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Re: Emergency fund size

Post by Nissanzx1 » Sat Sep 01, 2018 9:54 am

It depends on what distance you want between possible chaos and your life. We probably have 12 month or so actual expenses in ours but some will be fine with 3. Really not a wrong answer as long as you are putting distance between you and life.

bubbasour
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Re: Emergency fund size

Post by bubbasour » Sat Sep 01, 2018 9:58 am

KlangFool wrote:
Sat Sep 01, 2018 9:46 am
bubbasour wrote:
Sat Sep 01, 2018 9:32 am
Thanks everyone for your suggestions and sharing how you've implemented your EF! I realized there are so many ways of building your emergency fund. :happy
A few things I learnt: :idea:

1. There is no one size fits all to solve this.
2. Tiered EF, can be Tier1 Cash + Tier2/Tier3: Bonds/Saving bonds/Fixed Deposits etc.
3. All investments and savings in one or another form can be used for real emergency situations.

I'm planning to do
1. $10k, Cash in my bank account.
2. $20k, FixedDeposit 12m 1.84% , can be terminated early for 0.25% pa fee quarterly prorated.
3. $Xk, Last resort, sell some of my retirement saving bonds that can be sold at no penalty/exit fee. I can redeem any amount+gained interest.

thx bubba
bubbasour,

Many money market fund is paying about that rate now. So, it may not make any sense to put any money into a 1.84% fixed deposit now.

KlangFool
Thx Klangfool, appreciate the advice. I'm a NRA, so I would need to pay 30% withholding tax on the dividends from these funds I believe. Are there any funds you can think of for this purpose? I googled and found VMFXX not sure if this is the right one..
But I would need a fund domiciled in Ireland to cap my dividend tax to 15% rather than 30%. The 1.84% I mentioned is with a local bank so it's quite straightforward. thx bubba

KlangFool
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Re: Emergency fund size

Post by KlangFool » Sat Sep 01, 2018 10:06 am

bubbasour wrote:
Sat Sep 01, 2018 9:58 am
KlangFool wrote:
Sat Sep 01, 2018 9:46 am
bubbasour wrote:
Sat Sep 01, 2018 9:32 am
Thanks everyone for your suggestions and sharing how you've implemented your EF! I realized there are so many ways of building your emergency fund. :happy
A few things I learnt: :idea:

1. There is no one size fits all to solve this.
2. Tiered EF, can be Tier1 Cash + Tier2/Tier3: Bonds/Saving bonds/Fixed Deposits etc.
3. All investments and savings in one or another form can be used for real emergency situations.

I'm planning to do
1. $10k, Cash in my bank account.
2. $20k, FixedDeposit 12m 1.84% , can be terminated early for 0.25% pa fee quarterly prorated.
3. $Xk, Last resort, sell some of my retirement saving bonds that can be sold at no penalty/exit fee. I can redeem any amount+gained interest.

thx bubba
bubbasour,

Many money market fund is paying about that rate now. So, it may not make any sense to put any money into a 1.84% fixed deposit now.

KlangFool
Thx Klangfool, appreciate the advice. I'm a NRA, so I would need to pay 30% withholding tax on the dividends from these funds I believe. Are there any funds you can think of for this purpose? I googled and found VMFXX not sure if this is the right one..
But I would need a fund domiciled in Ireland to cap my dividend tax to 15% rather than 30%. The 1.84% I mentioned is with a local bank so it's quite straightforward. thx bubba
bubbasour,

Sorry. I do not know.

KlangFool

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willthrill81
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Re: Emergency fund size

Post by willthrill81 » Sat Sep 01, 2018 12:11 pm

It sounds trite, but whether one even has a specifically designated emergency fund, let alone how big it should be, hinges greatly on the specifics of one's situation.

I honestly believe that many of the so-called emergencies that are often cited in favor of a sizable emergency fund are fairly predictable expenses that should just be budgeted for. For instance, one's car breaking down shouldn't be an emergency; if you own a vehicle, it's bound to need repairs at some point. The same can be said of owning a home. Insurance can obviously remove most of the financial burden of otherwise disastrous events. If our house burned to the ground, for instance, we'd lose our $1,000 deductible, and that's it, aside from some objects with sentimental value. The same goes for our vehicle. The most that we could be out of pocket for health expenses in a year, including all members of our family, is $8,000, and we can cover that with our HSA. The likelihood that we would need more than $10,000 for emergencies in a single year is truly remote.

Aside from medical expenses in some situation, unemployment seems to be the biggest potential financial emergency out there for most people. But this isn't the case for everyone. I'm blessed to always work under multi-year contracts, so this is a non-issue for us. For dual income households with a high savings rate, one spouse losing their job might only result in a temporary reduction or elimination of savings until they regain employment.

I think that the knee-jerk advice of 'three to six months of expenses' is probably fine for most in the accumulation phase, but it's certainly not appropriate for all. Certainly once one is financially independent, the need for a specified emergency fund likely disappears.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

MathWizard
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Re: Emergency fund size

Post by MathWizard » Sun Sep 02, 2018 11:36 am

ThePrince wrote:
Fri Aug 31, 2018 7:40 pm
MathWizard wrote:
Fri Aug 31, 2018 4:32 pm
Roth IRA contributions can be withdrawn without penalty or tax (you already paid them) ,
this makes the ROTH perfect for funding retirement, but also providing for a 2nd or 3rd tier of
your emergency fund.

Normally, you do not want to touch this money, but if you have to put food on the table, it is there,
without penalty.

If you have enough money to max your 401k and fill your ROTH, then you can keep an EF in taxable,
but few people who need an EF have that much money.

Personally, I try to keep $30K in savings at my local credit union for short term expenses and first tier EF,
and max out my retirement accounts.
$30K will replace anything that needs replacing, appliance, car, roof, etc.
The only time we would need more than that would be if we both lose our jobs,
Then it would pay for about 6 months expenses, including medical insurance.

So the only time I would need more than the first tier is if we both lose our jobs, and
we can't get something else within 6 months. I have has some sort of a job since 16 yrs. old,
worked 20-30 hrs per week though grad school, and full time without interruption for over 30 years.

I could probably do consulting gigs if I had to, but if for some reason we could not find jobs, we
would just declare ourselves retired.
A Roth IRA is a horrible place to stash your emergency fund—you can never put that money back in.
You also can only put so much into an IRA in any year.

A ROTH doubling as an EF is quite common.
Check the wiki on using a ROTH IRA as an Emergency Fund (especially a tiered EF.

Not everyone make enough to be maxing all tax advantaged space, especially when they are young.

The idea is to fund an IRA every year, if at all possible. In years that you cannot fund an IRA from income,
moving money from your EF to ROTH, and still counting the contribution as part of your EF is a good
idea, since if you have more money coming in the next year, you can fund the next year's ROTH and replenish your EF.
But if you don't fund the ROTH and have extra the next year, you can not retroactively fund last year's IRA.

Suppose you have
Suppose you have $60K in an EF, and you do not have enough to fund your ROTH that year.

Do you keep the $60K in a taxable EF and contribute nothing to the ROTH, or do you move $5500 to the ROTH,
while still considering it part of your EF.

jnet2000
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Re: Emergency fund size

Post by jnet2000 » Sun Sep 02, 2018 11:39 am

Whatever allows you to sleep well at night. We own a small business that is seasonal and unstable so we have 2+ years of expenses accessible, 100+ grand in Cds and a savings account.
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing" Warren Buffet

bling
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Re: Emergency fund size

Post by bling » Sun Sep 02, 2018 8:11 pm

since no one appears to have said it yet, i'm in the camp of "no emergency fund", i have an "emergency plan".

on the same tangent as willthrill81, you must define what an emergency is. for me, that means an unexpected expense which cannot be put on a credit card. i honestly can't think of a single thing that qualifies under that definition. i have health/car/home insurance, so expenses there are capped as well.

the situation only changes in the event of a job loss, which means i wouldn't be able to "float" any expenses because i would be unable to pay the credit card bill the month after.

here's where my "emergency plan" kicks in. i have the option of drawing from my taxable investments, HELOC, 529s, IRAs, 401ks, etc. until i get a job. yes, this is not "optimal", and it might feel better to have cash ready in hand for such an event. however, the opportunity cost is very real. if you had 6 months of expenses invested in VTI at the beginning of 2010, you would have tripled the amount today.

passiveTiger
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Re: Emergency fund size

Post by passiveTiger » Sun Sep 02, 2018 10:11 pm

bubbasour wrote:
Fri Aug 31, 2018 9:36 am
Hi,

I have read in the forums that some have $50k as emergency fund. Is there any guidance around what the size of a emergency savings should be. I was guess somewhere $30-50k, but is there any measurement in terms of months of wage or similar so that I can ballpark what is reasonable? Thank you in advance for advice. Bubba
I think that there should be two funds. One for anecdotal expense occurrences that exceed standard cash flow ability and one for extended duration income disruptions.

https://www.nerdwallet.com/blog/banking ... ency-fund/

This PDF discusses minor emergencies, major emergencies, and job loss and the preparation for each.

http://info.hellowallet.com/rs/hellowal ... encies.pdf

For me, I have one fund that represents a year of income. I think it’s a conservative amount.

Nate79
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Location: Delaware

Re: Emergency fund size

Post by Nate79 » Sun Sep 02, 2018 11:51 pm

I also agree to have an emergency plan, which is much more robust that just an emergency fund of some arbitrary amount. At a minimum it gets you planning for possible things that can go wrong. I stress test my plan against a variety of emergencies to see how many months it would last. For example, lost job plus need new roof on the house (or major repair)? For lost job I also include unemployment insurance payments as well.
Last edited by Nate79 on Mon Sep 03, 2018 9:29 am, edited 1 time in total.

SQRT
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Re: Emergency fund size

Post by SQRT » Mon Sep 03, 2018 8:25 am

We are retired with very stable cash flow (pensions and dividends) so don’t really need an emergency fund per se. Divs and expenditures can be quite lumpy though so having a reasonable cash buffer is needed to manage this. After 12 years of retirement I have determined that low to mid 6 digits of cash seems to be sufficient. Most of our lumpy expenses are discretionary items so we can control their timing to a large extent. If we ever needed funds in a real hurry (ransom?) I could sell some stock or tap our substantial margin lines.

Regular emergencies, like storms, car crashes, health care emergencies (we are Canadian),funerals, etc, easily covered by cash balances.
Last edited by SQRT on Tue Sep 04, 2018 2:40 pm, edited 2 times in total.

nolesrule
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Re: Emergency fund size

Post by nolesrule » Mon Sep 03, 2018 8:55 am

We don't have an emergency fund. We have an Income Replacement fund of 6 months expenses, in case of job loss (I've been laid off twice this decade). We budget and save money for expenses expected to be incurred in a timeframe that does not warrant investing the money on a pace that means we will have all the money in cash at the time we expect to spend it. The rest gets invested tax efficiently.

Car and home maintenance/repair isn't an issue because we save $50/month per car (average cost over the past 5 years) and follow the 1% rule for home maintenance/repair. We have an HSA for medical which has more than year max OOP.

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whodidntante
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Re: Emergency fund size

Post by whodidntante » Mon Sep 03, 2018 9:05 am

You can have as much taxable cash as you like, Bubba. I like to have none.

cherijoh
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Location: Charlotte NC

Re: Emergency fund size

Post by cherijoh » Mon Sep 03, 2018 9:07 am

lthenderson wrote:
Fri Aug 31, 2018 9:46 am
Yes, the rule of thumb should be based on so many months of expenses, not amount. Someone who spends $20k per month will have a different sized emergency fund than someone who spend $1k per month.

When I was younger, I always kept six months worth of expenses. As we get older and life more complicated, i.e. we aren't as flexible to just pick up and move at a moments notice, I keep a years worth of expenses in my emergency fund.
I think a lot of people get complacent and don't reevaluate their circumstances as they age (as you so sensibly did). Just because you found it easy to find a new job in your 30s doesn't mean it will be that easy a decade or two later. Especially if your job loss occurs during a broad economic downturn when it is an "employer's market" with the number of job seekers far outstripping the number of job openings.

goodlifer wrote:
Fri Aug 31, 2018 10:03 am
A really easy way to figure would be to multiply your take home pay by however months you would estimate to be out of work, plus add in the cost of COBRA or private insurance. But speaking as someone that had to live on my EF for almost 2 years, it isn't that easy. Our health insurance was sky high because I have health problems, my husband wouldn't cancel or downgrade our cable and internet, our fridge, microwave, and dishwasher all broke within months of each other, and so on. An EF isn't good unless you also have an emergency plan that details what you would be willing to forgo (and your spouse, if applicable), how long to be unemployed before you will try for just any old job that pays a wage (that one caused the most arguments between us), along with anything else you can think of that would gum up your plans in this type of situation.
I hope you have recovered from your financial misfortunes. I was underemployed during the Great Recession and know a lot of people who have stories very similar to yours. It is even more difficult and stressful when spouses aren't on the same page as to what sacrifices need to be made.

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Re: Emergency fund size

Post by cherijoh » Mon Sep 03, 2018 9:14 am

nomadgecko wrote:
Fri Aug 31, 2018 10:49 am
Great question, and I expect you'll continue to get a lot of "it depends on x, it depends on y, etc.".

Here's what we do. For context, my wife and I work full time and live in a HCOL area. I would say my job is "medium" stability and her's is "high" based on my subjective judgment. My thinking on the emergency fund has evolved over time, and as of today, I think of it in traunches.

First wave: Money market fund that covers 9 months of us both not working. This is sitting in a taxable account.
Second wave: Roth IRA contributions to-date. I don't want to tap this (ever), but conceivably I could if absolutely needed.
Third wave: We have some I-bonds currently earmarked for our kids' college fund, but if dire, I'd raid them.
Fourth wave: We have an untapped HELOC.
Good plan, although you should be aware that in circumstances like the last housing crisis, the lender may reduce your credit line on a HELOC if the value of your home declines.

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flamesabers
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Re: Emergency fund size

Post by flamesabers » Mon Sep 03, 2018 9:31 am

OP,

I think a reasonable EF is one in which you don't have a fear of becoming insolvent should you suddenly become unemployed, but you're also not second guessing yourself about whether you could put some of the EF to better use elsewhere.

cherijoh
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Re: Emergency fund size

Post by cherijoh » Mon Sep 03, 2018 9:55 am

bling wrote:
Sun Sep 02, 2018 8:11 pm
since no one appears to have said it yet, i'm in the camp of "no emergency fund", i have an "emergency plan".

on the same tangent as willthrill81, you must define what an emergency is. for me, that means an unexpected expense which cannot be put on a credit card. i honestly can't think of a single thing that qualifies under that definition. i have health/car/home insurance, so expenses there are capped as well.

the situation only changes in the event of a job loss, which means i wouldn't be able to "float" any expenses because i would be unable to pay the credit card bill the month after.

here's where my "emergency plan" kicks in. i have the option of drawing from my taxable investments, HELOC, 529s, IRAs, 401ks, etc. until i get a job. yes, this is not "optimal", and it might feel better to have cash ready in hand for such an event. however, the opportunity cost is very real. if you had 6 months of expenses invested in VTI at the beginning of 2010, you would have tripled the amount today.
You are essentially gambling with your future financial security to goose up your return. How about contemplating what could have happened had you been without an emergency fund and lost your job during the Great Recession:
  • Your taxable investments are dropping in values like stones - you are jobless and wondering whether or not there is a light at the end of the tunnel. Do you stay the course or do you panic and sell?
  • Your lender very well may cut your credit limit on your HELOC because the value of your house no longer supports that limit
  • Penalties apply to withdrawals for 529s, IRAs and 401ks as well as taxes at your marginal rate. Since you are all about opportunity cost I'm sure you have aggressive AAs for each of these accounts so, like your taxable investments, their value is dropping like a stone
You basically have locked yourself into a situation where in case of job loss or another emergency you were forced to convert paper losses into permanent ones and paid taxes and penalties through the nose on most of those accounts to boot. Any withdrawals for tax advantaged accounts also meant that you couldn't replace the contributions for previous years when you get another job and are trying to repair the damage. That is the opportunity cost for NOT having a cash or cash equivalent emergency fund.

The person with the adequate emergency fund? They stayed the course and watched their money recover and triple in value since the beginning of 2010.

You may think this is an exaggeration, but I know people who lost their houses and the prospect of a comfortable retirement by following a plan similar to yours.

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TD2626
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Re: Emergency fund size

Post by TD2626 » Mon Sep 03, 2018 12:14 pm

John151 wrote:
Fri Aug 31, 2018 3:49 pm
I handle it somewhat differently. My preferred asset allocation is 5% in cash, 60% in bonds, and 35% in stocks. My cash allocation is my emergency fund. It’s invested in a money market fund, and it’s enough for me to live on for several years. It isn’t paying very much, but I like knowing that it’s there if I need it.
I tend to like a specific percentage in cash, like 5%. (Note - by cash, I mean mostly high-yield savings accounts or money markets that earn interest - not a 0% yield checking account or actual currency - which lose to inflation).

However, if someone is just starting investing, they can't have 5% cash if their portfolio is only a few thousand dollars. I think that's why an emergency fund is recommended for new investors.

A good compromise in my opinion might be to have an investment policy statement say"5% of portfolio size or 12 month's living expenses in cash, whichever is greater".

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TD2626
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Re: Emergency fund size

Post by TD2626 » Mon Sep 03, 2018 12:46 pm

Also - you can look at potential future known possible large expenses. These are things that would suddenly require large amounts of money but that are at least somewhat predictable. For example, if your car is 15 years old and you know if it has a significant mechanical problem costing for more than the value of the car to fix, you'd buy a new car, you have a $25,000 expense coming up in the next "several" years that may suddenly spring up on you. Or, for example, if you have an appliance that has been "having problems" and you think it might go out at some point (but you just don't know when). Or you can look at the potential for large medical expenses based on what your health coverage deductible is.

Basically, you can look at your potential for suddenly needing significant amounts of cash and potentially adjust the size of an emergency fund based on that.

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