How big is your emergency fund?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

How big is your Emergency Fund?

Less than $2,000
20
7%
$25,000 - $75,000
117
42%
$76,000 - $150,000
49
17%
$76,000 - $150,000
49
17%
$160,000 - $250,000
15
5%
Greater than $250,000
31
11%
 
Total votes: 281

SP-diceman
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Post by SP-diceman » Wed May 25, 2011 4:01 pm

If push comes to shove, every dime I have is my emergency fund.


Thanks
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matt
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Post by matt » Wed May 25, 2011 4:22 pm

I'd like to hear responses from those folks who say that they don't need an emergency fund separate from their portfolio.

Scenario: It's September 11, 2001. You (or someone you love) is directly impacted by terrorist attacks. Due to this, you or they need an immediate source of cash, let's say $5,000 (or pick an amount that is $1 higher than what you have in your bank accounts today that is not needed for current spending).

The U.S. stock market was closed on September 11 and did not re-open until September 17. U.S. bond markets also closed on September 11 and remained mostly closed until September 17; however the U.S. Treasury bond market opened up a little earlier, I believe. On 9/11, of course, you didn't even know when any of these would trade again. Not a single one of your mutual funds or ETFs could be redeemed until September 17 and then you have to wait for settlement. Yes, that includes foreign funds. Go check your Vanguard prospectus where you'll find the note: "NAVs are calculated only on days that the New York Stock Exchange (NYSE) is open for trading (a business day)." It didn't matter that the foreign markets were open. If the U.S. market is closed, U.S. mutual funds do not trade.

Banks and credit unions, however, were generally open for business. Obviously those at or near the attack sites were not open.

So the question is: Where are you going to get that $5,000?

P.S. I think your answers will lead to the conclusion that what you have is an emergency fund that is great, as long as there is never a real emergency.

livesoft
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Post by livesoft » Wed May 25, 2011 4:44 pm

We've been through what constitutes an emergency on this forum many times. So far, only bail money seems to be the only thing that needs cash in 2 hours.

My house was hit by a tornado. All the homes across the street were destroyed. Do you think I was thinking about how to find $5000 and spend it?

My house was affected by hurricanes and all power was lost for a week. No gas stations were open. No stores were open. I could not have spent $5000 in cash if I had it in my pocket.

I was driving with family across the country in a motor home. The engine died. Do you think a rental car company is going to take cash?

My car was broadsided by another driver and totaled. Did I need cash to get a new car? No. I needed a rental car to drive to the dealers and scope out my choices.

On our honeymoon in the 80s, my wife threw out the travelers checks accidently. We were in a remote area where there were no places to get them replaced. We just used our charge cards and got strangers to give us cash when we charged meals for them.

OK, how about -> while travelling your car is towed from a restaurant parking lot accidently and the impound place will not give it back to you unless you pay them $1000 in cash. You're not gonna get $1000 in cash from the ATM anyways, so what do you do? You probably bum a ride to a hotel. So it's the same day as a terrorist attack and all power goes out and cell phones don't work. What do you do then? You probably just hang out.

I imagine I could get other members of my family to wire cash to me, but I cannot fathom a reason why.

Please someone please list an emergency that needed cold hard cash that afternoon. Please. Real-life experiences would be good to know.
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FafnerMorell
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Post by FafnerMorell » Wed May 25, 2011 4:45 pm

On 9/11, of course, you didn't even know when any of these would trade again.
Yes, because the free world was on the verge of surrendering. :roll:

I'd write a check or use a credit card or savings account.

Sidney
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Post by Sidney » Wed May 25, 2011 4:59 pm

matt wrote:I'd like to hear responses from those folks who say that they don't need an emergency fund separate from their portfolio.

Scenario: It's September 11, 2001. You (or someone you love) is directly impacted by terrorist attacks. Due to this, you or they need an immediate source of cash, let's say $5,000 (or pick an amount that is $1 higher than what you have in your bank accounts today that is not needed for current spending).

The U.S. stock market was closed on September 11 and did not re-open until September 17. U.S. bond markets also closed on September 11 and remained mostly closed until September 17; however the U.S. Treasury bond market opened up a little earlier, I believe. On 9/11, of course, you didn't even know when any of these would trade again. Not a single one of your mutual funds or ETFs could be redeemed until September 17 and then you have to wait for settlement. Yes, that includes foreign funds. Go check your Vanguard prospectus where you'll find the note: "NAVs are calculated only on days that the New York Stock Exchange (NYSE) is open for trading (a business day)." It didn't matter that the foreign markets were open. If the U.S. market is closed, U.S. mutual funds do not trade.

Banks and credit unions, however, were generally open for business. Obviously those at or near the attack sites were not open.

So the question is: Where are you going to get that $5,000?

P.S. I think your answers will lead to the conclusion that what you have is an emergency fund that is great, as long as there is never a real emergency.
What was the emergency? What you described was the environment.
I always wanted to be a procrastinator.

matt
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Post by matt » Wed May 25, 2011 5:15 pm

Sidney wrote:What was the emergency? What you described was the environment.
It doesn't matter what the emergency was and it didn't actually have to be related to the attacks themselves, it just seemed like a good narrative. The fact is that the U.S. markets were closed for everyone for those 4 days, whether you were in NYC or LA. If you needed cash that week, you weren't going to get it from Vanguard. Several responses on this thread claimed that all of their funds are very liquid in their portfolio. But liquidity of these investments requires an open market, which can not always be taken for granted.

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pjstack
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Post by pjstack » Wed May 25, 2011 5:57 pm

Credit card(s).

I have two; both have approx 20K limits.

No, I don't have a separate emergency fund.
pjstack

matt
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Post by matt » Wed May 25, 2011 6:05 pm

livesoft wrote:We've been through what constitutes an emergency on this forum many times. So far, only bail money seems to be the only thing that needs cash in 2 hours.
What you have shown is that not all emergencies are financial emergencies. But that does not mean that there are no financial emergencies.
Please someone please list an emergency that needed cold hard cash that afternoon.
You missed the point, partly because of the way I framed it. The point is not that something dramatic happened today and you need cash at this moment. The point is that what you call your emergency fund was completely unavailable for at least 4 days. Who's to say a closure of U.S. markets can't happen again and that it won't be much longer the next time around? Banking holidays can happen, too. To be solely dependent on either option is to place yourself at unnecessary risk.

livesoft
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Post by livesoft » Wed May 25, 2011 6:17 pm

It's a risk I am willing to take whether unnecessary or not.

There are many more unnecessary risks that folks take routinely with perhaps more dire consequences.
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Atilla
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Post by Atilla » Wed May 25, 2011 6:24 pm

My wife and I are in our mid-40's and both work good jobs. We live cheap enough to get by on one income if we had to.

So - we have about 1 year's worth of expenses in savings and is considered our "emergency" fund. It's a bit less than 10% of our net worth.

Then there's the $1,000 in fifties and hundreds in the home safe for apocalyptic GTFO cash.

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Post by nisiprius » Wed May 25, 2011 6:38 pm

From another age, but worth mentioning. In the 1970s, my mom had to take my dad to the hospital. I do not remember the exact circumstances, I lived a thousand miles away. It did not warrant an ambulance and the emergency room, but the doctor's instructions were to take my dad "immediately" to the "nearest" hospital and meet the doctor there. My folks had Blue Cross.

My mom called ahead--and was told to bring $500 in "cash," equivalent of $1800 today.

My mom said "When you say cash, you mean a check, right?" And was told no, it had to be cash, folding currency. No cash, no admission. Blue Cross or no Blue Cross. This was, of course, before ATM machines were common, and when banks still typically were open "bankers' hours," 10 a.m. to 3 p.m. M-F, and this wasn't one of those times. She of course succeeded in borrowed enough from friends....

It couldn't happen that exactly that way today, but I wonder...
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Post by epilnk » Wed May 25, 2011 6:47 pm

Hmmm. I suppose I could allocate a large e-fund to a jar under the porch. Though we don't have a porch, so that probably wouldn't work well.

We always have cash in our direct deposit linked local checking account, which is used for bills. Sometimes it has $5k, sometimes not; the amount is allowed to fluctuate quite a bit but I would never let it get down to the last $500. It's not an e-fund, it's an ordinary living expenses account, but I can get my hands on whatever cash is in there as long as my bank is operating. If it's not I'll just have to rely on the $20 bill stashed in my car and a couple in my nightstand, and beyond that beg from the neighbors who I imagine are having their own emergency since all financial institutions are down. But in in the extreme situation it doesn't matter what I called my e-fund or how I allocated it since I wouldn't be getting access in any case. There's a limit to scenarios I can optimally defend against.

SP-diceman
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Post by SP-diceman » Wed May 25, 2011 7:42 pm

matt wrote:I'd like to hear responses from those folks who say that they don't need an emergency fund separate from their portfolio.

Scenario: It's September 11, 2001. You (or someone you love) is directly impacted by terrorist attacks. Due to this, you or they need an immediate source of cash, let's say $5,000 (or pick an amount that is $1 higher than what you have in your bank accounts today that is not needed for current spending).

The U.S. stock market was closed on September 11 and did not re-open until September 17. U.S. bond markets also closed on September 11 and remained mostly closed until September 17; however the U.S. Treasury bond market opened up a little earlier, I believe. On 9/11, of course, you didn't even know when any of these would trade again. Not a single one of your mutual funds or ETFs could be redeemed until September 17 and then you have to wait for settlement. Yes, that includes foreign funds. Go check your Vanguard prospectus where you'll find the note: "NAVs are calculated only on days that the New York Stock Exchange (NYSE) is open for trading (a business day)." It didn't matter that the foreign markets were open. If the U.S. market is closed, U.S. mutual funds do not trade.

Banks and credit unions, however, were generally open for business. Obviously those at or near the attack sites were not open.

So the question is: Where are you going to get that $5,000?

P.S. I think your answers will lead to the conclusion that what you have is an emergency fund that is great, as long as there is never a real emergency.
Well, the question was about emergency funds.
I keep that money in my outlier fund.
(the backup for the emergency fund)


Thanks
SP-diceman

avalpert
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Post by avalpert » Wed May 25, 2011 7:44 pm

livesoft wrote:
Please someone please list an emergency that needed cold hard cash that afternoon. Please. Real-life experiences would be good to know.
Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.

You have flat tire and a flat spare driving across the Arizona desert, phone at the only service station is out and he wants cash for a replacement.

You have a bone sticking out your arm, wander into a rural hospital that doesn't recognize your insurance and refuses to serve without a cash deposit.

Really, your question is just one of lack of imagination and the bigger point with your posture is that it is poor risk management for very little benefit. The drag of having $10,000 accessible in a regular bank checking account plus a few hundred in cash is near zero. Yet the cost at times (as rare as they may be) that you would need them can be devastating (like life and death) and the need immediate.

You are welcome to take that risk, and the odds are you'll be fine. But it is bad risk management to ignore magnitude and velocity of risk and only consider likelihood - and it should be consider irresponsible to do so when the cost is virtually nothing. And that you seem so proud of this position on this board is baffling to me (and I am not a risk averse person by any stretch, but I am risk intelligent).

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Post by avalpert » Wed May 25, 2011 7:45 pm

livesoft wrote:
Please someone please list an emergency that needed cold hard cash that afternoon. Please. Real-life experiences would be good to know.
Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.

You have flat tire and a flat spare driving across the Arizona desert, phone at the only service station is out and he wants cash for a replacement.

You have a bone sticking out your arm, wander into a rural hospital that doesn't recognize your insurance and refuses to serve without a cash deposit.

Really, your question is just one of lack of imagination and the bigger point with your posture is that it is poor risk management for very little benefit. The drag of having $10,000 accessible in a regular bank checking account plus a few hundred in cash is near zero. Yet the cost at times (as rare as they may be) that you would need them can be devastating (like life and death) and the need immediate.

You are welcome to take that risk, and the odds are you'll be fine. But it is bad risk management to ignore magnitude and velocity of risk and only consider likelihood - and it should be consider irresponsible to do so when the cost is virtually nothing. And that you seem so proud of this position on this board is baffling to me (and I am not a risk averse person by any stretch, but I am risk intelligent).

avalpert
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Post by avalpert » Wed May 25, 2011 7:45 pm

livesoft wrote:
Please someone please list an emergency that needed cold hard cash that afternoon. Please. Real-life experiences would be good to know.
Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.

You have flat tire and a flat spare driving across the Arizona desert, phone at the only service station is out and he wants cash for a replacement.

You have a bone sticking out your arm, wander into a rural hospital that doesn't recognize your insurance and refuses to serve without a cash deposit.

Really, your question is just one of lack of imagination and the bigger point with your posture is that it is poor risk management for very little benefit. The drag of having $10,000 accessible in a regular bank checking account plus a few hundred in cash is near zero. Yet the cost at times (as rare as they may be) that you would need them can be devastating (like life and death) and the need immediate.

You are welcome to take that risk, and the odds are you'll be fine. But it is bad risk management to ignore magnitude and velocity of risk and only consider likelihood - and it should be consider irresponsible to do so when the cost is virtually nothing. And that you seem so proud of this position on this board is baffling to me (and I am not a risk averse person by any stretch, but I am risk intelligent).

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Post by Sidney » Wed May 25, 2011 7:53 pm

avalpert wrote: Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.
Emergency fund or no emergency fund, I don't carry $500 around in my pocket. In fact, I am lucky if I have $20 in my wallet at any point. I hope she likes prison food.
I always wanted to be a procrastinator.

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Post by SP-diceman » Wed May 25, 2011 8:43 pm

avalpert wrote: Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.
Realize for some that’s not even an emergency.:)
There is such a thing as inconvenience, you’re still alive, your not broke, your not starving to death.
The definition of an emergency fund isn’t to solve any imaginable problem instantly.
(snakes, wolves, zombie infestation, earth asteroid hit, alien attack)
avalpert wrote: You have flat tire and a flat spare driving across the Arizona desert, phone at the only service station is out and he wants cash for a replacement.
Then I would just wait.
I would converse all day long with the station owner about the joys of passive investment.
I would walk him thru “age in bonds” and “rebalance“.
(he will either call the authorities, or get me on my way)
avalpert wrote:You have a bone sticking out your arm, wander into a rural hospital that doesn't recognize your insurance and refuses to serve without a cash deposit.
Interesting hospital.
So the “doctors” would watch me die?
I think that’s against the law.
Of course if their that disreputable, they could let me die even after I paid.


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avalpert
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Post by avalpert » Wed May 25, 2011 9:03 pm

SP-diceman wrote:
avalpert wrote: Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.
Realize for some that’s not even an emergency.:)
There is such a thing as inconvenience, you’re still alive, your not broke, your not starving to death.
The definition of an emergency fund isn’t to solve any imaginable problem instantly.
(snakes, wolves, zombie infestation, earth asteroid hit, alien attack)
This raises a fair question - what is our definition of 'emergency fund'. I have no doubt different people are using different definitions. For me, it is the availability of monetary funds in as wide a range of possible scenarios as practicable. So for me, it would include access to cash in circumstances such as this, as well as a larger liquid fund accessible broadly such as a traditional bank account, an even larger reserve that may be slightly less likely to be available but of greater magnitude such as my credit cards etc.

Aand this scenario above can be more than an inconvenience - if I didn't have the cash to cover the bribe the border authorities in Zhangmu insisted I owed I'm not convinced I was getting out of there alive.
avalpert wrote: You have flat tire and a flat spare driving across the Arizona desert, phone at the only service station is out and he wants cash for a replacement.
Then I would just wait.
I would converse all day long with the station owner about the joys of passive investment.
I would walk him thru “age in bonds” and “rebalance“.
(he will either call the authorities, or get me on my way)
You hope. It seems less costly to me to carry a stash of cash when you are travelling in the wilderness than to hope the guy doesn't fall for my charm and want me to stay indefinitely.
avalpert wrote:You have a bone sticking out your arm, wander into a rural hospital that doesn't recognize your insurance and refuses to serve without a cash deposit.
Interesting hospital.
So the “doctors” would watch me die?
I think that’s against the law.
Of course if their that disreputable, they could let me die even after I paid.
It wasn't uncommon in the past in this country (probably less so today) and it is certainly the norm in many parts of the world where I have needed medical aid.

Remember, health care is a privilege not a right...

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iceport
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Re: How big is your emergency fund?

Post by iceport » Wed May 25, 2011 9:23 pm

epilnk wrote:
petrico wrote:I've settled into using something like a sinking fund in a credit union savings account that I add to with every paycheck, just like I add to a defined contribution plan. The difference is, I know I'm going to use it eventually. Need a car? Pay with cash from the sinking fund. Want to upgrade your furnace? Glad that fund is there.

I can't imagine having the discipline to withdraw from a retirement portfolio for those sorts of things without losing control. If not a separate fund, what do you use? Then if you have that separate fund for the expected larger expenses of life, the beauty is, it doubles nicely as an emergency fund.

--Pete
Cars come out of the portfolio too. Every large expense does, emergency or not.

When we bought our current home we estimated the cost of renovating the seriously dreadful kitchen and held back that much of the down payment. Since we were planning to spend it almost immediately we kept that somewhat separate as a large cash component of the portfolio. But we figured out how to make the absurd floor plan kind of work by doing a much smaller and fairly inexpensive renovation, so we rolled the difference into our regular allocation. Four years later when we decided to spend that amount on a backyard pool instead, we just paid for it out of the taxable portion of our vanguard portfolio and rebalanced. The assets we sold may or may not have been worth more in 2006 than they were in 2010 - I didn't check - but we're happy with the approach and we find it easy to manage.
livesoft wrote:Sinking fund? Sounds suspicious to me.

I have sold equities in taxable (I have no cash in taxable) a few times in the past 12 months in order to make ends meet. If the transaction messes up my asset allocation, then I rebalance by an exchange a suitable amount of bonds in tax-advantaged to replace the equities. The transactions are more trivial to do than typing in this post to this thread.

Need a new car? Sell $80K of equity funds in taxable. <---- :shock: Did you find a "Buy 4, Get 1 Free" deal?
Need to pay off the mortgage? Sell $200K of equity funds in taxable.
Need to pay college expenses for the month? Sell $5K of equity funds in taxable.
Need to pay off that no-fee 0%-interest credit card cash advance? Sell $50K of equity funds in taxable.

There is absolutely no withdrawal of any money from a retirement account for any of this.

And there really is no need for a 'separate cash fund' for any of these expenses.
epilnk & livesoft,

You two are probably either way more disciplined that me, or you're way closer to financial independence -- or both. Don't get me wrong, I follow the method. I operated like that for about a year after I bought a house, but it was really uncomfortable. First big withdrawal after the down payment was a new roof. It felt like if I kept it up, I'd soon be deccumulating rather than accumulating. Where do you end up drawing the line?

If your four-car-at-once purchase doesn't zap your portfolio anymore than a typical down day in the market, no problem. If it's effect is more like a "correction," you might not want to do that very often.

Seriously, the two things that have helped me stay on track for the past many years now has been 1) automating before-tax and after-tax savings; and 2) keeping a firewall between the retirement portfolio and other accounts. I've never made a withdrawal from my Vanguard accounts since they were opened six years ago, and I don't intend to until I retire. Compensation for a feeble resolve? Maybe. But it works for me.

--Pete

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Post by livesoft » Wed May 25, 2011 9:30 pm

avalpert wrote:Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.

You have flat tire and a flat spare driving across the Arizona desert, phone at the only service station is out and he wants cash for a replacement.

You have a bone sticking out your arm, wander into a rural hospital that doesn't recognize your insurance and refuses to serve without a cash deposit.
Thanks for trying.

I used to work in a small rural hospital in the '70s, so I have memories of folks off the highway pulling up to the ER in the middle of the night.

And my last trip to the ER was because of a comminuted fracture, though the bone was trying very hard, it was not sticking out. I had X-rays, but was never charged any fees nor was my insurance company. Didn't see a doctor either.

Bail was one of my examples, so my wife sleeps in jail overnight.
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Post by pjstack » Wed May 25, 2011 9:35 pm

I give up Avalpert, if only cash will do, then I'm out of luck!

I'm not going to walk around with $500 (is that enough?) in my pocket.

That's not my idea of an "emergency fund"; that's my idea of being a mugging target!
pjstack

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Post by livesoft » Wed May 25, 2011 9:51 pm

@petrico, don't get me wrong. We are not withdrawing any money from a retirement account to pay for mundane things. We have a rather large taxable account, so we can afford all our expenses. It's just that we don't keep cash in our taxable account.

Besides, I made up the numbers. For example, my McMansion cost less than $200K, so the mortgage was never that large in the first place.
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Post by avalpert » Wed May 25, 2011 9:54 pm

pjstack wrote:I give up Avalpert, if only cash will do, then I'm out of luck!

I'm not going to walk around with $500 (is that enough?) in my pocket.

That's not my idea of an "emergency fund"; that's my idea of being a mugging target!
Bring the right equipment for the situation. If I'm travelling off-road in the desert I am bringing cash (and of course it isn't in my pocket). If I'm shopping at the mall I have enough for parking.

It really isn't about being difficult but the notion that there could never be a situation where I need immediate access to cash is just close-minded and unimaginative; and when it comes to risk management that is the posture that sets you up for disaster.

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Post by iceport » Wed May 25, 2011 9:59 pm

livesoft wrote:@petrico, don't get me wrong. We are not withdrawing any money from a retirement account to pay for mundane things. We have a rather large taxable account, so we can afford all our expenses. It's just that we don't keep cash in our taxable account.

Besides, I made up the numbers. For example, my McMansion cost less than $200K, so the mortgage was never that large in the first place.
Oh, OK. I didn't catch that the numbers were random.

But yes, I know your method. It's very clever and effective. What I'm saying is that I, personally, need to keep a separate retirement portfolio. I have more than a third of it in taxable accounts, but I refuse to touch them. It would mess up my mental accounting. :roll:

--Pete

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Post by avalpert » Wed May 25, 2011 10:01 pm

livesoft wrote:
avalpert wrote:Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.

You have flat tire and a flat spare driving across the Arizona desert, phone at the only service station is out and he wants cash for a replacement.

You have a bone sticking out your arm, wander into a rural hospital that doesn't recognize your insurance and refuses to serve without a cash deposit.
Thanks for trying.

I used to work in a small rural hospital in the '70s, so I have memories of folks off the highway pulling up to the ER in the middle of the night.

And my last trip to the ER was because of a comminuted fracture, though the bone was trying very hard, it was not sticking out. I had X-rays, but was never charged any fees nor was my insurance company. Didn't see a doctor either.

Bail was one of my examples, so my wife sleeps in jail overnight.
I really don't get why you are so obtuse on this. It isn't even about the examples (though your anecdotes of course don't dispose of the possibility that the scenarios exist - as Nispirius' post above relays - and I could make them more serious so staying overnight is the type of event that ruins your life going forward but it really is beside the point) - one may not be able to foresee the scenario they will find themselves in but that is no excuse for not having the tools to deal with them, particularly when those tools are so cheap and easy.

Your insistence seems little different than the teenager who doesn't wear a helmet because they haven't fallen off their bike in years - it seems more stubbornness for the sake of stubbornness than any rationed response.

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Post by bpp » Wed May 25, 2011 10:09 pm

livesoft wrote:Please someone please list an emergency that needed cold hard cash that afternoon. Please. Real-life experiences would be good to know.
Earthquake.

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Post by livesoft » Wed May 25, 2011 10:18 pm

Somebody reading this must've at some point in their life needed instantly a large amount of cash that they can report on.

We have seen reports of 'pay the fine or go to jail' or 'need bail' in the past. The rest of the stories are just mythical.

I have plenty of stories where it appeared that cash might be necessary, but only on the surface. Cash was never really needed in the end, so I won't bore you with them.

@bpp, how does cash help you in an earthquake? How did you use cash in an earthquake? During natural disasters that I experienced, no one was around to take your cash.
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MnD
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Post by MnD » Wed May 25, 2011 10:26 pm

Emergency fund by your definition, $3K to 12K depending on timing of paychecks and bills but I could come up with $200K immediately and $500K within a few days.

The only time I had a significant emergency fund was when we were in our 20's, very little investment net worth and saving for a 20% down payment and all the other costs associated with buying the first home.

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Post by bpp » Wed May 25, 2011 10:38 pm

livesoft wrote:@bpp, how does cash help you in an earthquake? How did you use cash in an earthquake? During natural disasters that I experienced, no one was around to take your cash.
I used cash to buy food, water, batteries, etc. All of which were very hard to come by after the first day.

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Post by avalpert » Wed May 25, 2011 11:07 pm

livesoft wrote:Somebody reading this must've at some point in their life needed instantly a large amount of cash that they can report on.
I already gave one above, I needed a cash bribe and the China/Nepal border.

When in Nepal the bus we were taking back to Kathmandu was stopped do to a local strike. Because I had enough cash on me I was able to hitch a ride to an airport and fly back to Kathmandu, thereby not missing my flight back to the states and having to buy new tickets thus saving far more than the drag of having an emergency fund for the last decade.

When my car broke down in the desert in Arizona, it was far more convenient and cost effective to be able to write a check to the service station that wouldn't take credit and be on my way - rather than contact the nearest rental car facility over a hundred miles a way, find some taxi that took credit to get there and then figure out how to have my car towed to a station that would take credit.

And this is from a relatively short life that isn't nearly as outlandish as others whose paths I have crossed.

What is the root of your argumentativeness here? Why are you so opposed to the tiny cost of some liquidity risk protection?

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Post by letsgobobby » Wed May 25, 2011 11:27 pm

I'm not going to play the game of kidnapping and ransom, but this is what I envision as a potential 'emergency' and why I keep 6 months of expenses:

I lose my job with 90 days' notice, shortly thereafter my 15 year old car dies and I need another, and this all occurs at a time when the stock market is down 50%.

It's not accessing actual greenbacks that is the problem, it's having the liquidity to continue on for 3 to 6 to 12 months without having to liquidate investments at their low point.

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Post by Sidney » Wed May 25, 2011 11:32 pm

letsgobobby wrote:I'm not going to play the game of kidnapping and ransom, but this is what I envision as a potential 'emergency' and why I keep 6 months of expenses:

I lose my job with 90 days' notice, shortly thereafter my 15 year old car dies and I need another, and this all occurs at a time when the stock market is down 50%.

It's not accessing actual greenbacks that is the problem, it's having the liquidity to continue on for 3 to 6 to 12 months without having to liquidate investments at their low point.
Bonds
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Post by Sidney » Wed May 25, 2011 11:34 pm

letsgobobby wrote:I'm not going to play the game of kidnapping and ransom, but this is what I envision as a potential 'emergency' and why I keep 6 months of expenses:

I lose my job with 90 days' notice, shortly thereafter my 15 year old car dies and I need another, and this all occurs at a time when the stock market is down 50%.

It's not accessing actual greenbacks that is the problem, it's having the liquidity to continue on for 3 to 6 to 12 months without having to liquidate investments at their low point.
That is when I would sell bonds -- which you need to anyway to re-balance your equity account. Just sell a little more for spending.
I always wanted to be a procrastinator.

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Post by Winthorpe » Thu May 26, 2011 12:10 am

avalpert wrote:Your wife is being held by a not above board sheriff in a small town for $500 'bail', the only bank in town refuse to take credit cards for cash advances.

You have flat tire and a flat spare driving across the Arizona desert, phone at the only service station is out and he wants cash for a replacement.

You have a bone sticking out your arm, wander into a rural hospital that doesn't recognize your insurance and refuses to serve without a cash deposit.
You've got to be kidding me! The last time I really wanted cash on me was about 2004. I went to a Subway, ordered my sandwich, and when I got to the cashier to pay for the fabulous sandwich I was informed they did not take credit cards. I felt like a real schmuck. It felt like an emergency at the time because I was hungry and embarrassed, but in retrospect, I came through it just fine.

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Post by epilnk » Thu May 26, 2011 12:50 am

letsgobobby wrote:I'm not going to play the game of kidnapping and ransom, but this is what I envision as a potential 'emergency' and why I keep 6 months of expenses:

I lose my job with 90 days' notice, shortly thereafter my 15 year old car dies and I need another, and this all occurs at a time when the stock market is down 50%.

It's not accessing actual greenbacks that is the problem, it's having the liquidity to continue on for 3 to 6 to 12 months without having to liquidate investments at their low point.
Yes, this is my definition of an emergency as well. (I neither carry a fat wad of bail money at all times nor need to rebalance my portfolio every time the check engine light comes on.) When you don't maintain a separate cash efund you are at risk of a disproportionate impact during sudden or protracted downturns. It is only really appropriate after your assets reach the level where you can afford to absorb that degree of risk. In our case we no longer maintain significant cash reserves, but we more or less rolled the cash component into the bond allocation so our overall allocation became more conservative than we originally planned.

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Post by livesoft » Thu May 26, 2011 6:56 am

avalpert wrote:I already gave one above, I needed a cash bribe and the China/Nepal border.
...
When my car broke down in the desert in Arizona,
...

What is the root of your argumentativeness here? Why are you so opposed to the tiny cost of some liquidity risk protection?
I'm sorry, I thought we were talking about cash in an emergency fund and not the normal cash in our checking account used for everyday expenses like food and gas money. Nor was I asking about extra money that one might take when they travel overseas. Did you use your ATM card to withdraw $5000 in Nepal in order to hitchhike? I don't think one could withdraw large amounts of cash from an ATM and I wouldn't want to be carrying large amounts of cash on my person.

I am not opposed at all to walking-around and vacation liquidity, so I think we are in agreement on that.
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Post by Jacotus » Thu May 26, 2011 7:16 am

avalpert wrote:
livesoft wrote:Somebody reading this must've at some point in their life needed instantly a large amount of cash that they can report on.
I already gave one above, I needed a cash bribe and the China/Nepal border.

When in Nepal the bus we were taking back to Kathmandu was stopped do to a local strike. Because I had enough cash on me I was able to hitch a ride to an airport and fly back to Kathmandu, thereby not missing my flight back to the states and having to buy new tickets thus saving far more than the drag of having an emergency fund for the last decade.
What a ridiculous example for an "emergency fund".

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Post by lazyday » Thu May 26, 2011 7:34 am

bpp wrote:I think this is the key thing, really. In the case of a disaster, natural, man-made or some combination (tornado, earthquake, tsunami, hurricane/typhoon, flood, nuclear meltdown, terrorist attack...), I think one should always have enough money available immediately (less than one day) to get one's family out of town and set up temporarily somewhere else, while waiting to be able to tap less immediately liquid funds.
bpp wrote:I used cash to buy food, water, batteries, etc. All of which were very hard to come by after the first day.
Might be different than US, but could you tell us anything about how useful credit cards, atm cards, checks, debit cards, bank accounts, etc were, if only carried a minimum amount of physical cash before the disaster, but had ample cash balances in a couple banks, and a couple credit cards? Either from your experience, or what you've heard.

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Post by kramer » Thu May 26, 2011 7:41 am

I live overseas. I do not have a local bank account. I make sure I have ATM cards for multiple USA accounts. At times one may not work or they may be cancelled or stolen, same goes for credit cards. I always make sure I have a fair amount of cash on hand at my apartment because of the unreliable banking system in this country (enough to live comfortably for at least 10 days, say, as a minimum). Also, I have had internet access to brokerage and bank accounts cut off without warning because I am overseas. In another country where I was living, the Star System was down for a week rendering many foreign ATM cards useless. So I take this into account when I spread money out and for keeping cash on hand.

BUT my main reason for keeping a fair amount spread across a few checking accounts is for a medical emergency. Only cash (and possibly credit cards) are accepted for medical care in this Second World country. Really, that is how I define my emergency fund: My ability to raise cash in a medical emergency. That includes cash on hand, access to ATM, debit cards, and credit cards. I want to be able to raise a few thousand dollars in such a situation. It is not hard, even with all this, my total emergency funds are not really that big. Maybe $7000 in cash in checking and savings accounts. I generally keep my bank-linked Vanguard money market fund close to empty, just enough for the following months automatic money transfer.

I think folks need to examine their individual liquidity needs. For most folks, it is not really that much if you are already rich.

Kramer

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Post by avalpert » Thu May 26, 2011 7:51 am

Jacotus wrote:
avalpert wrote:
livesoft wrote:Somebody reading this must've at some point in their life needed instantly a large amount of cash that they can report on.
I already gave one above, I needed a cash bribe and the China/Nepal border.

When in Nepal the bus we were taking back to Kathmandu was stopped do to a local strike. Because I had enough cash on me I was able to hitch a ride to an airport and fly back to Kathmandu, thereby not missing my flight back to the states and having to buy new tickets thus saving far more than the drag of having an emergency fund for the last decade.
What a ridiculous example for an "emergency fund".
Why? Not an emergency? Not an instance where cash is needed in less time than it would take to raise it from brokerage accounts?

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Post by JW-Retired » Thu May 26, 2011 8:19 am

livesoft wrote: I have sold equities in taxable (I have no cash in taxable) a few times in the past 12 months in order to make ends meet. If the transaction messes up my asset allocation, then I rebalance by an exchange a suitable amount of bonds in tax-advantaged to replace the equities. The transactions are more trivial to do than typing in this post to this thread.

Need a new car? Sell $80K of equity funds in taxable.
Need to pay off the mortgage? Sell $200K of equity funds in taxable.
Need to pay college expenses for the month? Sell $5K of equity funds in taxable.
Need to pay off that no-fee 0%-interest credit card cash advance? Sell $50K of equity funds in taxable.
We have a CU savings account earning ~1% with the proverbial 6-months expenses. In my view no emergency cash is just not diversified. The livesoft approach works fine until there is some emergency that cuts off access to his brokerage account or makes selling equities unattractive. What might that be? I don't see why we should need to make up some wild black swan example. Having a bank account too is by definition more diversified in the event of a black swan showing up. Isn't investment diversity always better?

We have sold equities in taxable to buy a car, for example, but I would not want to right now because of taxes. Would have thought perhaps livesoft had the same trouble.
JW

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Post by bpp » Thu May 26, 2011 8:22 am

lazyday wrote:Might be different than US, but could you tell us anything about how useful credit cards, atm cards, checks, debit cards, bank accounts, etc were, if only carried a minimum amount of physical cash before the disaster, but had ample cash balances in a couple banks, and a couple credit cards? Either from your experience, or what you've heard.
None of the cards were useful when/where there was no power. Places that did have power had no communications network for a while (landlines, cell phones, internet), so credit cards could not be used. One of the major banks' ATM network also went down, so its customers could not get cash even if they had power where they lived. All this in one of the most technologically advanced countries in the world.

One difference to the US is that personal checks don't exist in Japan, so that option was not there.

Fortunately, I had topped up my wallet just before the quake hit, so was able to buy essential supplies when I could find them.
Last edited by bpp on Thu May 26, 2011 8:29 am, edited 1 time in total.

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Post by markcoop » Thu May 26, 2011 8:25 am

I would guess that most people here who don't have a separate emergency fund do have many ways to raise cash quickly if needed if Vanguard was closed. I for one have the following:

1) Banking accounts - Let's say $2K extra in there but varies.
2) Around $100K in HELOC
3) Credit cards (3 major crdit cards with large limits)
4) $20K cash balance account with life insurance (takes a couple of days to access the money)
5) I-bonds - $30K
6) Family/friends

I just feel if I needed cash, I can always get it. Of course, if I was in a situation (ie., traveling overseas) where I wasn't sure if the above would be available, I'd probably keep some extra cash on hand.
Mark

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Post by Jacotus » Thu May 26, 2011 8:34 am

avalpert wrote:
Jacotus wrote:
avalpert wrote:
livesoft wrote:Somebody reading this must've at some point in their life needed instantly a large amount of cash that they can report on.
I already gave one above, I needed a cash bribe and the China/Nepal border.

When in Nepal the bus we were taking back to Kathmandu was stopped do to a local strike. Because I had enough cash on me I was able to hitch a ride to an airport and fly back to Kathmandu, thereby not missing my flight back to the states and having to buy new tickets thus saving far more than the drag of having an emergency fund for the last decade.
What a ridiculous example for an "emergency fund".
Why? Not an emergency? Not an instance where cash is needed in less time than it would take to raise it from brokerage accounts?
Because the situation you describe has nothing to do with what people usually refer to for the purpose of an emergency fund.

In your example, money in a checking account in a U.S. bank would not have helped either. Are you seriously suggesting that a checking account is not adequate for a typical emergency fund? Like I said, your example is ridiculous.

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Post by avalpert » Thu May 26, 2011 8:50 am

Jacotus wrote:
avalpert wrote:
Jacotus wrote:
avalpert wrote:
livesoft wrote:Somebody reading this must've at some point in their life needed instantly a large amount of cash that they can report on.
I already gave one above, I needed a cash bribe and the China/Nepal border.

When in Nepal the bus we were taking back to Kathmandu was stopped do to a local strike. Because I had enough cash on me I was able to hitch a ride to an airport and fly back to Kathmandu, thereby not missing my flight back to the states and having to buy new tickets thus saving far more than the drag of having an emergency fund for the last decade.
What a ridiculous example for an "emergency fund".
Why? Not an emergency? Not an instance where cash is needed in less time than it would take to raise it from brokerage accounts?
Because the situation you describe has nothing to do with what people usually refer to for the purpose of an emergency fund.
So most people let their lack of creativity keep them in a very simple risk management framework that may be suitable nearly all the time but when it is not it is devastating.

Maybe most people need to rethink the purpose of an emergency fund. As I said above, for me that purpose is filling in any liquidity needs that might arise in as practicable a way as possible. The more conventional way you may be thinking of it is rather boring and if that is all then yes, most people don't even need it.
In your example, money in a checking account in a U.S. bank would not have helped either. Are you seriously suggesting that a checking account is not adequate for a typical emergency fund?
Having some cash on hand for many environments is absolutely a necessary part of emergency funds - the reasonable amount will depend on the environment of course.

So maybe a 'typical' emergency fund can adequately be handled by a checking account, but good risk management helps keep you resilient in atypical situations - even when you can't foresee the specific situation you need to be resilient against.
Like I said, your example is ridiculous.
And you response is ridiculous, unimaginative and premised on poor risk management practices.

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Post by livesoft » Thu May 26, 2011 9:12 am

JW Nearly Retired wrote:We have sold equities in taxable to buy a car, for example, but I would not want to right now because of taxes. Would have thought perhaps livesoft had the same trouble.
JW
Two phrases: "tax-loss harvesting" and "capital loss carryover".
I will not be paying taxes on any capital gains for quite a long time.

But yes, taxes would be a concern in many cases.
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NoVa Lurker
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Post by NoVa Lurker » Thu May 26, 2011 9:25 am

Avalpert - I don't mean to pile on, but you should take a deep breath and read some definitions of what an emergency fund is. Maybe start here:

http://www.bogleheads.org/wiki/Emergency_fund

It is not about having cash in your pocket to bribe border patrol; it's a question of how you allocate your finances.

To me, I want to feel protected against reasonably possible bad events - job loss, huge stock market crash, a natural disaster that might actually affect me, etc.

I live in Virginia, so I am not buying earthquake insurance or keeping an extra $5K in a safe at home in case of an earthquake!

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Post by kiligi » Thu May 26, 2011 9:38 am

This topic comes up with amazing regularity here at Bogleheads. I am actually grateful for that, as each time it makes me think about this subject and re-evaluate our decisions.

However, it also seems like there need to be two separate conversations. The first being what is a good emergency fund amt/placement/process for the beginning investor/saver type, and the second being how to transition your emergency funds as your portfolio increases and the need for a separate funds diminishes.

Livesoft and Taylor are such amazing resources on this board (and I am thankful for the privilege it is to be able to receive their knowledge and experience). I only wish emergency fund info was discuss on the two levels I suggested rather than as some sort of either/or.

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Post by Grt2bOutdoors » Thu May 26, 2011 9:43 am

Wow! What an interesting string of comments.
IMO, cash is still the number 1 "greaser of palms" to make things happen. Sometimes you need that if you want to jump on an opportunity or need to get out of a jam quick (like in a mugging - i'm sure they would not accept Mastercard, Visa or 50 shares of VTSMX settling in two days to let me go quick).

I keep a multi-tiered emergency fund:

1)cash - like some one else said, just in case i need to move quickly, no ATM access, no checks or credit cards accepted type of deal or like this past winter, my snowblower wasn't cooperating and a bunch of enterprising kids came by with shovels, I needed cash in small bills (my neighbor only had large bills and paid dearly for the same job - I got the Boglehead price) for them to dig out my 4 foot high drifts out of the driveway so I could get out if I needed to.

2) Money Market Fund/CD's/I-bonds - structured in the form a multi-year ladder - we nearly came close to losing both our jobs a short time ago - I had just bought a house. I leave a 2 year expense kitty in this bucket; it took a number of folks I knew about that long to become re-employed.

3) Savings for large home repairs and new car - if planned in advance and ballpark cost estimate known is also included in the e-fund. I'm like some others on the board, I like the certainty of knowing the funds are there when needed. Don't want to play roulette with it.

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