Are emergency funds for suckers?

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Shorty
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Are emergency funds for suckers?

Post by Shorty »

I believe an adequate emergency fund is a necessary milestone for most Americans who live paycheck to paycheck or are in an immature financial position.

However, for Bogleheads and those with assets and discipline is an e-fund a wasted effort? In my case, I have a solid job. My "lean" proposal would be 1-2 months expense, which covers bank autopays (mortgage, HOA, utilities) and credit card full monthly autopays (maximize spend through CC). The rationale is that credit cards can cover emergencies, taxable investment >> emergency fund requirements (although tax implication to withdraw, which is a low likely event). We make a good amount more than we spend, so things like auto or household repair easily "catch up" with the credit card cycle in the next paycheck period or two and we're good about tracking predicted large expenses. I'm basically proposing the use of my active checking account as a "buffer", which I do anyways, without a separate e-fund. More safety margin would translate to a larger buffer (e.g. 3 months instead of 1-2).

Thoughts on these?
Our emergency fund is exactly $0.00
Top 10 reasons for having an emergency fund – debunked (Part 1)
Top 10 reasons for having an emergency fund – debunked (Part 2)

Frugal Professor seems to agree.

In my particular case, DW likes to keep a lot of cash available for her comfort. It drives me less crazy than usual with such low interest rates. I'd love to have it "ready" for a buying opportunity, but that's not an option (we watched the market recently fall and recover with this money). However, I'm tempted to transfer ~$100k to my home loan at 2.75%, since it would otherwise sit for several years. Or I could play games with shifting new account welcome bonuses. This is the "compromise" of very different risk/investment styles. If it were entirely me, I'd carry max loan at 2.75% and invest (leverage without margin), but that's not an option. Our most probable "emergency" situation is wanting to move quickly (career change) and losing money getting out of the property (we decided to buy expensive at the beginning of COVID...yeah, I know...). Either way, I'll rebuild cash savings for the transaction (e.g. repairs, painting, etc) prior to selling. All other likely "emergency" scenarios are covered by our stable jobs and upcoming pensions, plus we have assets and are both very employable. No kids. Own everything. Disciplined with our budget. Supportive families. Life insurance. It's hard to imaging a de-railing emergency event short of a combination of simultaneous contrived events (auto accident, medical problems, get sued, robbed and identity stolen, stock and housing market crashes). In that case, I'm not sure how much help an e-fund would be.
Last edited by Shorty on Thu Aug 20, 2020 9:45 am, edited 3 times in total.
livesoft
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Re: Are emergency funds for suckers?

Post by livesoft »

Money is money. Money is fungible. If you can pay for an emergency without having an emergency fund, then that means you have money that is not in an emergency fund. That's all there is to it. One doesn't need 3 to 20 blog articles to tell you that.
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Nate79
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Re: Are emergency funds for suckers?

Post by Nate79 »

Nope, I think it's the other way around. Suckers don't have emergency funds. But hey, the average American is broke, in debt up to their eyeballs with no savings. The recent economic shock showed that anyone can be effected and need an emergency fund and without significant govt action there would have been a whole lot of people in significant world of hurt.
MrJedi
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Re: Are emergency funds for suckers?

Post by MrJedi »

Emergency fund is basically just a cash / short term fixed income bucket that a lot of people seem to like to stick in front of their asset allocation. Though in my opinion your actual risk in your asset allocation needs to include the emergency fund into your fixed income.
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Re: Are emergency funds for suckers?

Post by atdharris »

This is something I go back and forth on. If my taxable portfolio is over six-figures, I question why I keep $40,000 in CDs/HYSA and another $15,000 in bonds in my taxable account. I understand the notion that I need some cash in case of an emergency, but even when I did suffer an emergency, I had ways to pay for it (either through 0% loans and pay it down out of cash flow), etc. I suppose if I lost my job, it would be a different story..
Topic Author
Shorty
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Re: Are emergency funds for suckers?

Post by Shorty »

Cool, thanks. I get that. Point taken about "buffer" versus "e-fund" - no difference. Contrived example on the fungible side regarding liquidity.

Suppose I have the following:
1. Cash account with 2 years expenses.
2. Taxable account holding ~10 years expenses worth of TSLA stock with very little basis purchased 4 months ago.
3. $1M home loan @ 5%

Income somewhat greater than expenses.

Probably okay paying 12-18 months expense into home loan. What about paying 23 months expense? Probably a terrible idea because of the il-liquidity of the home loan and the tax implications of the stock.

Money is fungible. Other asset classes are not. My scenario is about liquidity.
livesoft wrote: Thu Aug 20, 2020 9:43 am Money is money. Money is fungible. If you can pay for an emergency without having an emergency fund, then that means you have money that is not in an emergency fund. That's all there is to it. One doesn't need 3 to 20 blog articles to tell you that.
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Re: Are emergency funds for suckers?

Post by bloom2708 »

Most starting out don't have a taxable account. People are focused on 401k and Roth and making monthly payments.

Once you have a taxable account with 2x or 3x your Emergency Fund, that makes an Emergency Fund not really necessary.

If you never need your EF, it is for suckers. If you need it, it is pretty nice to have.
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Re: Are emergency funds for suckers?

Post by sailaway »

MrJedi wrote: Thu Aug 20, 2020 9:52 am Emergency fund is basically just a cash / short term fixed income bucket that a lot of people seem to like to stick in front of their asset allocation. Though in my opinion your actual risk in your asset allocation needs to include the emergency fund into your fixed income.
This is why I don't understand the hate for emergency funds. It should only be a concern if you want to be 100% stocks.
atdharris wrote: Thu Aug 20, 2020 9:54 am This is something I go back and forth on. If my taxable portfolio is over six-figures, I question why I keep $40,000 in CDs/HYSA and another $15,000 in bonds in my taxable account. I understand the notion that I need some cash in case of an emergency, but even when I did suffer an emergency, I had ways to pay for it (either through 0% loans and pay it down out of cash flow), etc. I suppose if I lost my job, it would be a different story..
Why do you keep bonds in your taxable account? If you keep them in a tax deferred account, you can just rebalance if you need the money.
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Shorty
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Re: Are emergency funds for suckers?

Post by Shorty »

But when I play the scenario out, it doesn't make much difference (tax?). Nice to have that $55k if you lost your job. But otherwise, that $55k would have been part of your "six figure" taxable portfolio (presumably growing), which you'd liquidate, as necessary, after losing your job. Doesn't seem to matter beyond a "discipline" tool - e.g. I'll hold that money out of my 100% AA of leveraged TSLA short sales. :-)
atdharris wrote: Thu Aug 20, 2020 9:54 am This is something I go back and forth on. If my taxable portfolio is over six-figures, I question why I keep $40,000 in CDs/HYSA and another $15,000 in bonds in my taxable account. I understand the notion that I need some cash in case of an emergency, but even when I did suffer an emergency, I had ways to pay for it (either through 0% loans and pay it down out of cash flow), etc. I suppose if I lost my job, it would be a different story..
Last edited by Shorty on Thu Aug 20, 2020 10:04 am, edited 2 times in total.
Topic Author
Shorty
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Re: Are emergency funds for suckers?

Post by Shorty »

I really like this! It took me personally many years to get past zero debt + maximize sheltered investments + eFund/savings + a sound budget that we actually follow, all of which I wanted to happen prior to starting with a taxable account. At a certain point with a taxable account - I totally agree!
bloom2708 wrote: Thu Aug 20, 2020 9:56 am Most starting out don't have a taxable account. People are focused on 401k and Roth and making monthly payments.

Once you have a taxable account with 2x or 3x your Emergency Fund, that makes an Emergency Fund not really necessary.

If you never need your EF, it is for suckers. If you need it, it is pretty nice to have.
I like that - apt point!
MrJedi wrote: Thu Aug 20, 2020 9:52 am Emergency fund is basically just a cash / short term fixed income bucket that a lot of people seem to like to stick in front of their asset allocation. Though in my opinion your actual risk in your asset allocation needs to include the emergency fund into your fixed income.
Last edited by Shorty on Thu Aug 20, 2020 10:07 am, edited 1 time in total.
Seasonal
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Re: Are emergency funds for suckers?

Post by Seasonal »

Nate79 wrote: Thu Aug 20, 2020 9:48 am Nope, I think it's the other way around. Suckers don't have emergency funds. But hey, the average American is broke, in debt up to their eyeballs with no savings. The recent economic shock showed that anyone can be effected and need an emergency fund and without significant govt action there would have been a whole lot of people in significant world of hurt.
The median net worth was $97,300 (average was much higher) according to https://www.marketwatch.com/story/whats ... 2018-09-24 Do you have more recent data?

There are a whole lot of people in very precarious condition, but let's not exaggerate too much.
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Re: Are emergency funds for suckers?

Post by livesoft »

Many things provide liquidity, but some things do not. One needs to figure out liquidity for themselves. I do not have a job because I lost my job more than 5 years ago. When I lost my job I did not need an emergency fund from which I could withdraw 5 years of expenses in 2 hours.
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mega317
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Re: Are emergency funds for suckers?

Post by mega317 »

You are calling your wife a sucker. Good luck
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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Shorty
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Re: Are emergency funds for suckers?

Post by Shorty »

Point taken, but a lot of that NW could be tied to illiquid assets (primary residence, retirement accounts, or "stuff"), which is not liquid for "emergency fund" scenarios like losing their job. The link below discusses "average" debt, both credit card and total. I understand "mean" versus "median", so take it for what it's worth.

https://www.discover.com/credit-cards/r ... card-debt/

I would assume it's fair to say that many Americans don't have the liquid net worth to cover the intent of a solid emergency fund (6-12 months). Or do we think that all this COVID unemployment impact isn't actually a big deal? Many of my peers/relatives with good jobs effectively live paycheck to paycheck with sustained credit card debt. Their retirement plans and home equity fail to mitigate this sort of risk.
Seasonal wrote: Thu Aug 20, 2020 10:05 am
Nate79 wrote: Thu Aug 20, 2020 9:48 am Nope, I think it's the other way around. Suckers don't have emergency funds. But hey, the average American is broke, in debt up to their eyeballs with no savings. The recent economic shock showed that anyone can be effected and need an emergency fund and without significant govt action there would have been a whole lot of people in significant world of hurt.
The median net worth was $97,300 (average was much higher) according to https://www.marketwatch.com/story/whats ... 2018-09-24 Do you have more recent data?

There are a whole lot of people in very precarious condition, but let's not exaggerate too much.
Last edited by Shorty on Thu Aug 20, 2020 10:18 am, edited 2 times in total.
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Re: Are emergency funds for suckers?

Post by Shorty »

She married me :D
mega317 wrote: Thu Aug 20, 2020 10:10 am You are calling your wife a sucker. Good luck
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Re: Are emergency funds for suckers?

Post by pasadena »

"Emergency Fund" is just a name. Some people like to have one, others just call it "Money". Or.... "buffer"
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willthrill81
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Re: Are emergency funds for suckers?

Post by willthrill81 »

People don't need an emergency fund per se. They need access to funds to cover unexpected expenses. Many use an emergency fund to provide that access. Many others have little or no need for such access. We are in the latter group.
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Re: Are emergency funds for suckers?

Post by UpsetRaptor »

This comes up frequently. Here's another similar thread:
viewtopic.php?t=311324

I'm of similar mindset. It doesn't make much sense for a young accumulator in their 20s to stick their first 50-100K of savings into cash to hold forever. I guess that's the super safest thing, but...
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Re: Are emergency funds for suckers?

Post by atdharris »

Shorty wrote: Thu Aug 20, 2020 10:01 am But when I play the scenario out, it doesn't make much difference (tax?). Nice to have that $55k if you lost your job. But otherwise, that $55k would have been part of your "six figure" taxable portfolio (presumably growing), which you'd liquidate, as necessary, after losing your job. Doesn't seem to matter beyond a "discipline" tool - e.g. I'll hold that money out of my 100% AA of leveraged TSLA short sales. :-)
atdharris wrote: Thu Aug 20, 2020 9:54 am This is something I go back and forth on. If my taxable portfolio is over six-figures, I question why I keep $40,000 in CDs/HYSA and another $15,000 in bonds in my taxable account. I understand the notion that I need some cash in case of an emergency, but even when I did suffer an emergency, I had ways to pay for it (either through 0% loans and pay it down out of cash flow), etc. I suppose if I lost my job, it would be a different story..
Right. That $55k could be worth $75k if it was invested (or $30k if the market dropped). I go back and forth. I suppose the time to dump it all in was in March, but who could have predicted the market bounce?
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Re: Are emergency funds for suckers?

Post by Shorty »

Thanks all for validating and shaping my understanding! We'll re-consider as part of AA and decide on need. I'm trying to reconcile now that I "graduated" to a large enough taxed account. It helps me to think in "tiers" where cash is readily available versus available at a cost (e.g. tax or penalty).
willthrill81 wrote: Thu Aug 20, 2020 10:17 am People don't need an emergency fund per se. They need access to funds to cover unexpected expenses. Many use an emergency fund to provide that access. Many others have little or no need for such access. We are in the latter group.
pasadena wrote: Thu Aug 20, 2020 10:16 am "Emergency Fund" is just a name. Some people like to have one, others just call it "Money". Or.... "buffer"
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Re: Are emergency funds for suckers?

Post by willthrill81 »

UpsetRaptor wrote: Thu Aug 20, 2020 10:19 am This comes up frequently. Here's another similar thread:
viewtopic.php?t=311324

I'm of similar mindset. It doesn't make much sense for a young accumulator in their 20s to stick their first 50-100K of savings into cash to hold forever. I guess that's the super safest thing, but...
When you take into account the fact that money invested at a 7.2% real return (for the sake of illustration) doubles every decade, $50k when you're 25 is like $200k when you're 45, $400k when you're 55, and $800k when you're 65, the opportunity cost of holding on to so much cash when you're young seems to me to be at least as great as almost any sudden financial emergency they are likely at all to encounter, especially if they are insured appropriately.

I'm always saddened when I hear people rattle off 'everyone needs 3-6 months of expense in a very safe instrument' with no regard to individuals' specific needs. Certainly some people need that and even more, but many do not. Circumstances should weigh heavily when determining how much of one's capital one is willing to put on the sidelines and not in the game.
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Re: Are emergency funds for suckers?

Post by Shorty »

Agreed. I did want to invest in Apr/May - everything felt undervalued after the drop, but expected to wait years for the recovery, possibly riding another drop. For me it was tough to justify because I: relocated for work, bought a house, and listed sold a condo in the March->May timeframe. I bought in early June after the condo closed, which has been an unexpected run.
atdharris wrote: Thu Aug 20, 2020 10:23 am Right. That $55k could be worth $75k if it was invested (or $30k if the market dropped). I go back and forth. I suppose the time to dump it all in was in March, but who could have predicted the market bounce?
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Re: Are emergency funds for suckers?

Post by atdharris »

Shorty wrote: Thu Aug 20, 2020 10:29 am Agreed. I did want to invest in Apr/May - I figured everything was undervalued, but expected to wait years for the recovery. For me it was tough to justify because I: relocated for work, bought a house, and listed sold a condo in the March->May timeframe. I bought in June after the condo closed, which has been an unexpected run.
atdharris wrote: Thu Aug 20, 2020 10:23 am Right. That $55k could be worth $75k if it was invested (or $30k if the market dropped). I go back and forth. I suppose the time to dump it all in was in March, but who could have predicted the market bounce?
That and job uncertainty. My office has not laid anyone off, but when we were in peak panic, it seemed like the sky was falling. Hindsight is always 20/20. I still kept everything steady, upped my 401K purchases, and came out ahead.
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Re: Are emergency funds for suckers?

Post by qwertyjazz »

I am not sure I agree with your analysis of EF or no EF. You state cash flow can handle repairs so exclude them.
What are your explicit risk events? Job loss for x amount - excess medical costs - bail bondsman (don’t know you) etc and does having cash on hand help with them - next what are the chances those things happen

Basically do some scenario planning

So what are the risks you are concerned about?
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Hub
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Re: Are emergency funds for suckers?

Post by Hub »

My personal checking is one of those high interest accounts that requires transactions, but pays currently 2.5% on the 1st $30k. That works out to be plenty of cash on hand to also count as my "emergency fund," but it's all just in my main checking and not earmarked specifically.
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Re: Are emergency funds for suckers?

Post by m@ver1ck »

My AA including the EF is at 80/20. I just include my EF in the AA. Net AA is around 1.4M now. I now prefer bonds in taxable because the yields are so low.
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Re: Are emergency funds for suckers?

Post by Dude2 »

bloom2708 wrote: Thu Aug 20, 2020 9:56 am Most starting out don't have a taxable account. People are focused on 401k and Roth and making monthly payments.

Once you have a taxable account with 2x or 3x your Emergency Fund, that makes an Emergency Fund not really necessary.

If you never need your EF, it is for suckers. If you need it, it is pretty nice to have.
Agreed. Also note that the taxable account money should be "aged" appropriately to be able to cash it out at long term capital gains rate (which is currently 1 year, but who knows what the future holds).

The thinking behind the emergency fund is surely for trying to avoid the type of scenario where a person cannot cover a debt so bounces a check which charges additional fees, causes other checks to bounce, ad infinitum. In other words, a buffer can prevent reaching critical mass.
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absolute zero
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Re: Are emergency funds for suckers?

Post by absolute zero »

If you choose to hold 20% of your portfolio in bonds, whereas I hold only 15% of my money in bonds, should I look at you and think that you're a sucker?
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Re: Are emergency funds for suckers?

Post by terran »

If you don't have a lot of invested money then having a 3-12 month emergency fund is a very important goal to work towards. If you do have a lot of money invested then having a 3-12 month emergency fund won't appreciably hurt your financial future, so you should keep it if it makes you happy.
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Re: Are emergency funds for suckers?

Post by keystone »

I look at it as somewhat similar to the pay down mortgage vs. invest issue. Many people gain a psychological benefit from paying off their mortgage (which should not be understated), but that is often not the optimal move from a strictly financial perspective. Same thing with emergency funds. For anyone with significant invested liquid assets, the benefits of an emergency fund are largely psychological.
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Re: Are emergency funds for suckers?

Post by Ricola »

Like every emergency item, you don't need it until you do.
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Nate79
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Re: Are emergency funds for suckers?

Post by Nate79 »

Seasonal wrote: Thu Aug 20, 2020 10:05 am
Nate79 wrote: Thu Aug 20, 2020 9:48 am Nope, I think it's the other way around. Suckers don't have emergency funds. But hey, the average American is broke, in debt up to their eyeballs with no savings. The recent economic shock showed that anyone can be effected and need an emergency fund and without significant govt action there would have been a whole lot of people in significant world of hurt.
The median net worth was $97,300 (average was much higher) according to https://www.marketwatch.com/story/whats ... 2018-09-24 Do you have more recent data?

There are a whole lot of people in very precarious condition, but let's not exaggerate too much.
Net worth is a meaningless when it isn't reflected in day to day finances. Here is a past post detailing the pathetic financial pictures of the average American.
viewtopic.php?f=11&t=321611&p=5407696#p5407696


https://www.forbes.com/sites/maggiemcgr ... 10b7294e0d

>60% can't afford a $500-1000 emergency. And >60% dont even have $1000 in a checking or savings in total. 45% have zero savings.

https://www.statista.com/chart/20323/am ... k-savings/

Also about 40% of households have revolving credit card debt. 25% of Americans have student loans and 33% auto loans.

80% of workers live paycheck to paycheck:

https://www.cnbc.com/2019/01/09/shutdow ... check.html

The average person has about $40k in debt excluding mortgage and cant scrape together $600 to pay for an emergency. Living above their means, in debt (consumer, student loans, etc), with no real emergency fund = broke.

https://news.northwesternmutual.com/pla ... gress-2018

https://www.cnbc.com/2018/08/20/how-muc ... y-age.html
Last edited by Nate79 on Thu Aug 20, 2020 11:47 am, edited 1 time in total.
Impatience
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Re: Are emergency funds for suckers?

Post by Impatience »

I did some sloppy math and figured that I’m a lot more likely to earn more in the long run by keeping all my cash fully invested than I am likely to lose in interest if I charge all of my emergency spending to credit cards. So I only keep enough in my bank to cover my current CC bills and upcoming rent, etc. Everything else is 100% in equities. “Bond”, “CD”, “savings account” and “emergency fund” are not in my financial vocabulary.
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Re: Are emergency funds for suckers?

Post by Nate79 »

willthrill81 wrote: Thu Aug 20, 2020 10:26 am
UpsetRaptor wrote: Thu Aug 20, 2020 10:19 am This comes up frequently. Here's another similar thread:
viewtopic.php?t=311324

I'm of similar mindset. It doesn't make much sense for a young accumulator in their 20s to stick their first 50-100K of savings into cash to hold forever. I guess that's the super safest thing, but...
When you take into account the fact that money invested at a 7.2% real return (for the sake of illustration) doubles every decade, $50k when you're 25 is like $200k when you're 45, $400k when you're 55, and $800k when you're 65, the opportunity cost of holding on to so much cash when you're young seems to me to be at least as great as almost any sudden financial emergency they are likely at all to encounter, especially if they are insured appropriately.

I'm always saddened when I hear people rattle off 'everyone needs 3-6 months of expense in a very safe instrument' with no regard to individuals' specific needs. Certainly some people need that and even more, but many do not. Circumstances should weigh heavily when determining how much of one's capital one is willing to put on the sidelines and not in the game.
Wow Will, you are now projecting a 7.2% real return? :D
sedna273
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Re: Are emergency funds for suckers?

Post by sedna273 »

Hi there,

When I was just starting out, having an emergency fund was beneficial to my peace of mind - it took just about every penny in my paycheck to meet my daily living expenses while also putting money away into a Roth.

Now that I've gotten my financial feet under me, I prefer to hold ~1-2 months expenses with my credit union for the usual bills/pay off credit card debt, have a "spending shock" HYSA/short-term bond ladder in the amount of my highest insurance deductible ($6k), and would use my taxable accounts to cover anything beyond that, such as a job loss.

I consider a spending shock to be a large expense that isn't otherwise budgeted for, but could reasonably happen and would not be an ongoing cash outlay. Recently I used this account to cover my health insurance deductible for ER care. A friend has rambunctious children related expenses, mostly involving balls and his neighbors' property. :wink:

My taxable accounts are much greater than the 6mo-1 year recommended ER benchmark. As a young investor with a fairly stable job, I personally am comfortable with using my taxable accounts to cover anything beyond what would fall into the previous two categories - I don't consider the slim chance of having to sell down my taxable to be worth the trade off of losing money to inflation for an extended period of time. Your mileage will vary. :happy
Last edited by sedna273 on Thu Aug 20, 2020 11:38 am, edited 1 time in total.
H-Town
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Re: Are emergency funds for suckers?

Post by H-Town »

It's great that you do a sanity check on emergency funds.

Everyone's situation is different. You can't have a blanket emergency fund for everyone. So there is no simple answer that works for everyone.

However be careful to venture into mental accounting. Money is fungible. You should analyze your asset allocation as a whole, and not based on "buckets".
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Re: Are emergency funds for suckers?

Post by Nate79 »

willthrill81 wrote: Thu Aug 20, 2020 10:17 am People don't need an emergency fund per se. They need access to funds to cover unexpected expenses. Many use an emergency fund to provide that access. Many others have little or no need for such access. We are in the latter group.
I like to say people need an emergency plan. It's an important distinction vs just an emergency fund as you say.

When things go wrong, what do you do? There are all sorts of scenarios of things that can and do go wrong.
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Re: Are emergency funds for suckers?

Post by Seasonal »

Nate79 wrote: Thu Aug 20, 2020 11:20 am
Seasonal wrote: Thu Aug 20, 2020 10:05 am
Nate79 wrote: Thu Aug 20, 2020 9:48 am Nope, I think it's the other way around. Suckers don't have emergency funds. But hey, the average American is broke, in debt up to their eyeballs with no savings. The recent economic shock showed that anyone can be effected and need an emergency fund and without significant govt action there would have been a whole lot of people in significant world of hurt.
The median net worth was $97,300 (average was much higher) according to https://www.marketwatch.com/story/whats ... 2018-09-24 Do you have more recent data?

There are a whole lot of people in very precarious condition, but let's not exaggerate too much.
Net worth is a meaningless when it isn't reflected in day to day finances. Here is a past post detailing the pathetic financial pictures of the average American.
viewtopic.php?f=11&t=321611&p=5407696#p5407696


https://www.forbes.com/sites/maggiemcgr ... emergency/

>60% can't afford a $500-1000 emergency. And >60% dont even have $1000 in a checking or savings in total. 45% have zero savings.

https://www.statista.com/chart/20323/am ... k-savings/


Also about 40% of households have revolving credit card debt. 25% of Americans have student loans and 33% auto loans.

80% of workers live paycheck to paycheck:
https://www.cnbc.com/2019/01/09/shutdow ... check.html

The average person has about $40k in debt excluding mortgage and cant scrape together $600 to pay for an emergency. Living above their means, in debt (consumer, student loans, etc), with no real emergency fund = broke.

https://news.northwesternmutual.com/pla ... gress-2018

https://www.cnbc.com/2018/08/20/how-muc ... y-age.html
I wonder about the reliability of those surveys. For example, the 80% living paycheck to paycheck is from CareerBuilder. I'm a bit leery of surveys from companies I've never heard of and which have names suggesting an interest in the results. I especially wonder about surveys which appear to contradict data from the Federal Reserve, which tends to be good at gathering data.

I have no doubt many are in dire straits, especially under current conditions.

BTW, some of your links are broken.
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anon_investor
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Re: Are emergency funds for suckers?

Post by anon_investor »

MrJedi wrote: Thu Aug 20, 2020 9:52 am Emergency fund is basically just a cash / short term fixed income bucket that a lot of people seem to like to stick in front of their asset allocation. Though in my opinion your actual risk in your asset allocation needs to include the emergency fund into your fixed income.
+1. Which is why my "emergency fund" is counted as part of my "fixed income" allocation.
lostdog
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Re: Are emergency funds for suckers?

Post by lostdog »

willthrill81 wrote: Thu Aug 20, 2020 10:17 am People don't need an emergency fund per se. They need access to funds to cover unexpected expenses. Many use an emergency fund to provide that access. Many others have little or no need for such access. We are in the latter group.
Will,

What method landed you in the latter group?
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Re: Are emergency funds for suckers?

Post by Nate79 »

Seasonal wrote: Thu Aug 20, 2020 11:37 am
Nate79 wrote: Thu Aug 20, 2020 11:20 am
Seasonal wrote: Thu Aug 20, 2020 10:05 am
Nate79 wrote: Thu Aug 20, 2020 9:48 am Nope, I think it's the other way around. Suckers don't have emergency funds. But hey, the average American is broke, in debt up to their eyeballs with no savings. The recent economic shock showed that anyone can be effected and need an emergency fund and without significant govt action there would have been a whole lot of people in significant world of hurt.
The median net worth was $97,300 (average was much higher) according to https://www.marketwatch.com/story/whats ... 2018-09-24 Do you have more recent data?

There are a whole lot of people in very precarious condition, but let's not exaggerate too much.
Net worth is a meaningless when it isn't reflected in day to day finances. Here is a past post detailing the pathetic financial pictures of the average American.
viewtopic.php?f=11&t=321611&p=5407696#p5407696


https://www.forbes.com/sites/maggiemcgr ... emergency/

>60% can't afford a $500-1000 emergency. And >60% dont even have $1000 in a checking or savings in total. 45% have zero savings.

https://www.statista.com/chart/20323/am ... k-savings/


Also about 40% of households have revolving credit card debt. 25% of Americans have student loans and 33% auto loans.

80% of workers live paycheck to paycheck:
https://www.cnbc.com/2019/01/09/shutdow ... check.html

The average person has about $40k in debt excluding mortgage and cant scrape together $600 to pay for an emergency. Living above their means, in debt (consumer, student loans, etc), with no real emergency fund = broke.

https://news.northwesternmutual.com/pla ... gress-2018

https://www.cnbc.com/2018/08/20/how-muc ... y-age.html
I wonder about the reliability of those surveys. For example, the 80% living paycheck to paycheck is from CareerBuilder. I'm a bit leery of surveys from companies I've never heard of and which have names suggesting an interest in the results. I especially wonder about surveys which appear to contradict data from the Federal Reserve, which tends to be good at gathering data.

I have no doubt many are in dire straits, especially under current conditions.

BTW, some of your links are broken.
Thanks, links are fixed now. So much for copy/paste....
TimeTheMarket
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Re: Are emergency funds for suckers?

Post by TimeTheMarket »

Great post, OP.

We've never bothered with an efund either, partly because it's temptation but mostly opportunity cost. With our incomes and ability to cut spending to tread water on one income if needed, plus excellent credit, and assets in other areas (retirement, house, brokerage fund), I've never seen a point to it.

I just last night cleared out savings again so it has maybe $300 in it.
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Sufferlandrian
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Re: Are emergency funds for suckers?

Post by Sufferlandrian »

Some might think I'm a sucker if I have an emergency fund and don't need it.

I am a fool if I don't have an emergency fund and I do need it.
Learning to fish.
TimeTheMarket
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Re: Are emergency funds for suckers?

Post by TimeTheMarket »

Seasonal wrote: Thu Aug 20, 2020 11:37 am I wonder about the reliability of those surveys. For example, the 80% living paycheck to paycheck is from CareerBuilder. I'm a bit leery of surveys from companies I've never heard of and which have names suggesting an interest in the results. I especially wonder about surveys which appear to contradict data from the Federal Reserve, which tends to be good at gathering data.

I have no doubt many are in dire straits, especially under current conditions.

BTW, some of your links are broken.
80% paycheck to pay seems high.

But if we go with median networth half of americans' net worth is below that. And much if not most of their net worth is held in a house or cars. A lot of people borrow money for anything from a new roof to furniture and then pay it off over multiple years. Think of all the check cashing places. I had some neighbors I only learned last year they were behind mortgage a few months. This despite no job loss and driving a leased SUV and the guy had replaced his car with a nice new F150 within the year prior. Just utterly hopeless. Other friends of ours in their early 30's with young kid are still paying down student debt but talking to us about the new kitchen they are about to order. Also hopeless.

Some are on the bleeding edge such that if they lose a single pay check or it's delayed due to a bank error they are behind on bills immediately. And look at the average credit score...600 credit score for example is not from somebody with a bunch of money in a brokerage account (generally).
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Johm221122
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Re: Are emergency funds for suckers?

Post by Johm221122 »

No, emergency funds are not for suckers. My whole portfolio is my emergency fund. If something were to happen my whole portfolio would be my emergency fund.
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Re: Are emergency funds for suckers?

Post by nisiprius »

In my particular case, DW likes to keep a lot of cash available for her comfort.
Keep your wife comfortable. That what money is for.

Oh, and don't forget: Why women are better at investing
Last edited by nisiprius on Thu Aug 20, 2020 1:00 pm, edited 2 times in total.
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mega317
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Re: Are emergency funds for suckers?

Post by mega317 »

Shorty wrote: Thu Aug 20, 2020 9:37 am taxable investment >> emergency fund requirements
It sounds like you don't need a lot of cash in taxable. How much have you calculated you would be losing in opportunity costs? Now compare that number to the value you put on your wife's comfort.

Based on my own experience which obviously is not a random sample of US households (family, various people I work with who earn anywhere from 1MM to ~50k, old friends, employees and colleges of those friends, patients) I think the 80% might be in the ballpark.
Last edited by mega317 on Thu Aug 20, 2020 12:59 pm, edited 1 time in total.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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Re: Are emergency funds for suckers?

Post by Grt2bOutdoors »

Seasonal wrote: Thu Aug 20, 2020 10:05 am
Nate79 wrote: Thu Aug 20, 2020 9:48 am Nope, I think it's the other way around. Suckers don't have emergency funds. But hey, the average American is broke, in debt up to their eyeballs with no savings. The recent economic shock showed that anyone can be effected and need an emergency fund and without significant govt action there would have been a whole lot of people in significant world of hurt.
The median net worth was $97,300 (average was much higher) according to https://www.marketwatch.com/story/whats ... 2018-09-24 Do you have more recent data?

There are a whole lot of people in very precarious condition, but let's not exaggerate too much.
Median net worth including home equity. Try getting your home equity out in a severe recession when you’ve lost your job and the banks cut home equity lines. Cashing out ones retirement account is suboptimal as well due to the penalties involved. Finally, outside of this forum I agree with the poster who says many people are in a precarious state of personal finance.
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Re: Are emergency funds for suckers?

Post by ray.james »

I do use emergency fund for a completely different reason. We have access to 2 401k, 2 roths, 2 MBR. We do not even come close filling half of that. Since our major net worth will be stashed in retirement style accounts, I chose to have an emergency fund to avoid sub optimal cashout when "emergecy" arises. The drag is small compared to wealth we will be/are creating.
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Re: Are emergency funds for suckers?

Post by brad.clarkston »

When I was younger I worked contract work instead of permanent employment (military contractor, manufacturing mil/civ, etc) and could never tell when the contract would end or be rolled into anther one and I would get cut and it could take a month or so to line something else up. I still have the EF mindset due to well over a decade of that even now that I have a stable long term job.

At the start of summer our air conditioner and condenser died and needed replacing. The repair company asked how we wanted to pay for the $7k bill, card or there loan program which could take 3 to 4 days to complete. I said cash or check and they had the guys out withen an hour to install the new units and our banker had a bank check waiting. The worker bee said they bumped ours up to the top of the line due to that.

Fast cash is still king, slow cash not so much.
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