for those without an emergency fund, what's your plan for an emergency?

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bling
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for those without an emergency fund, what's your plan for an emergency?

Post by bling » Sun Jan 07, 2018 5:16 pm

i'm one of those people without an emergency fund. the way i see it, as with a lot of others here who don't have one, if there's an emergency i can sell my stocks in my taxable, take money out from my roth, or in the worst of all cases a HELOC.

the problem though, is that due to tax efficiency, i've placed all of my bonds in my 401k space.

i've always brushed the downsides off because my profession is in high demand. however, in a true recession, everyone in my field would lose their jobs and suddenly i'd have to compete with everyone else, and in the worst case without a job for the entire duration of the recession (let's say 6 months as commonly used).

in that worst case scenario, i would have to sell my equities as they are going down, without any new money going in to be there for the recovery -- a lose/lose situation.

i can see a couple options:

1) have 6 months in cash, but then you give up any returns on that money, short of some high yield savings account.
2) add some tax free munis, but in a recession they will lose value.
3) add bonds into taxable, but they are tax inefficient.
4) convert most of my roth into bonds, but they don't have high expected returns.

all of these options seem sub-optimal. is there a better way to handle this?

livesoft
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by livesoft » Sun Jan 07, 2018 5:20 pm

If I sell equities at a loss in taxable and spend the money, then I will buy the similar, but not substantially identical, equities in my tax-advantaged accounts at the same low prices in order to get back to my desired asset allocation by exchanging bond fund shares.

See: https://www.bogleheads.org/wiki/Placing ... ed_account

If I sell equities at a gain in taxable and spend the money, then I will buy the same equities in my tax-advantaged accounts if needed to get back to my desired asset allocation by exchanging bond fund shares.
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corn18
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by corn18 » Sun Jan 07, 2018 5:23 pm

DOn't forget that death is an emergency for a surviving spouse. Don't make them sell stocks to survive while they are mourning.

bling
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by bling » Sun Jan 07, 2018 5:29 pm

livesoft wrote:
Sun Jan 07, 2018 5:20 pm
If I sell equities at a loss in taxable and spend the money, then I will buy the similar, but not substantially identical, equities in my tax-advantaged accounts at the same low prices in order to get back to my desired asset allocation by exchanging bond fund shares.

See: https://www.bogleheads.org/wiki/Placing ... ed_account

If I sell equities at a gain in taxable and spend the money, then I will buy the same equities in my tax-advantaged accounts if needed to get back to my desired asset allocation by exchanging bond fund shares.
thanks for the link! that makes a lot of sense. i'm a bit embarrassed i didn't see this option, which appears to be the simplest of all.

mpsz
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by mpsz » Sun Jan 07, 2018 5:44 pm

What happens if you lose your job and the bank reduces or closes your HELOC, because you no longer have an income?

As for the bonds, the advice re: selling/rebuying in another account from the linked "Placing cash needs" wiki page is good advice. Just pay special attention to the Wash Sale rules, since there is no "undo" and you can cause your loss to be non tax-deductible when certain retirement accounts are involved.

If you're comfortable in the bonds, then the HELOC may not be a concern. I just don't think this part of the plan can be depended on in many emergencies.

livesoft
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by livesoft » Sun Jan 07, 2018 5:46 pm

bling wrote:
Sun Jan 07, 2018 5:29 pm
thanks for the link! that makes a lot of sense. i'm a bit embarrassed i didn't see this option, which appears to be the simplest of all.
You are not the only one. See this from 2008: viewtopic.php?t=13712

And you won't be the last one either. :)
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GerryL
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by GerryL » Sun Jan 07, 2018 5:50 pm

I've never had an explicit emergency fund, but while I was working I kept cash in a money market account for likely (non-emergency) near- and medium-term expenses, such as car costs (insurance, maintenance, new tires), irregular homeowner costs (maintenance, replacing appliances), and "me" (funds for travel and big stuff, like a new computer or TV). Each month I would add to the account and divide the addition between sub-accounts. If the money market account got too fat, I would move a bit into my taxable investment account. Although I never considered this kludgy subdivided account to be an emergency fund, it did provide an adequate cushion if I experienced an emergency. (Like when part of my fence was taken out one night by a drunk driver, or when my 2-layer plastic skylight cracked one winter and started filling up with water -- and freezing.)

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ClevrChico
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by ClevrChico » Sun Jan 07, 2018 5:55 pm

A GoFundMe campaign posted to my Facebook page. j/k :-)

I keep a small cushion in my checking for typical household "emergencies". Anything serious most likely would be covered by insurance. (Health, umbrella, property, disability, life, social security survivors.)

Anything else would come out of taxable and finally retirement funds if needed. There's always moonlighting for extra money too.
Last edited by ClevrChico on Sun Jan 07, 2018 7:47 pm, edited 1 time in total.

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Alexa9
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by Alexa9 » Sun Jan 07, 2018 6:01 pm

Depends on the degree of emergency. My credit cards give me some cushion. Could take out a personal or home equity loan. I keep a lot of valuable items that I don't need that I could sell quickly if I needed to: electronics, exercise equipment, musical instruments, etc. Worst case scenario I suppose the house and cars too.

Nate79
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by Nate79 » Sun Jan 07, 2018 6:06 pm

bling wrote:
Sun Jan 07, 2018 5:16 pm
i'm one of those people without an emergency fund. the way i see it, as with a lot of others here who don't have one, if there's an emergency i can sell my stocks in my taxable, take money out from my roth, or in the worst of all cases a HELOC.

the problem though, is that due to tax efficiency, i've placed all of my bonds in my 401k space.

i've always brushed the downsides off because my profession is in high demand. however, in a true recession, everyone in my field would lose their jobs and suddenly i'd have to compete with everyone else, and in the worst case without a job for the entire duration of the recession (let's say 6 months as commonly used).

in that worst case scenario, i would have to sell my equities as they are going down, without any new money going in to be there for the recovery -- a lose/lose situation.

i can see a couple options:

1) have 6 months in cash, but then you give up any returns on that money, short of some high yield savings account.
2) add some tax free munis, but in a recession they will lose value.
3) add bonds into taxable, but they are tax inefficient.
4) convert most of my roth into bonds, but they don't have high expected returns.

all of these options seem sub-optimal. is there a better way to handle this?

Sounds like you have an emergency fund to me (aka funds to use in an emergency). There is no rule that emergency funds must be a separate account or cash.

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Blueskies123
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by Blueskies123 » Sun Jan 07, 2018 6:10 pm

I have a sizeable portfolio and am retired so I consider my emergency fund as something in place for something more catastrophic than what most people might consider an emergency fund for. Most people will use an emergency fund to buy a new car if their car gets totaled or maybe for a medical emergency.

Having lived through Hurricane's Andrew and Wilma, 2000 dot.com bust and 2008 banking melt down I keep my emergency fund partly at the local bank and mostly at an on-line bank, and a few thousand in the bank's lock-box. For example, if I lived in California and my house burned down or a major earthquake hit I would use this money to live on for a year so I do not have to sell my investments.

My case is not typical, just giving you my plan.
Last edited by Blueskies123 on Sun Jan 07, 2018 6:29 pm, edited 1 time in total.

BogleMelon
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by BogleMelon » Sun Jan 07, 2018 6:16 pm

5- I bonds to hedge against inflation
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

cherijoh
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by cherijoh » Sun Jan 07, 2018 6:23 pm

livesoft wrote:
Sun Jan 07, 2018 5:20 pm
If I sell equities at a loss in taxable and spend the money, then I will buy the similar, but not substantially identical, equities in my tax-advantaged accounts at the same low prices in order to get back to my desired asset allocation by exchanging bond fund shares.

See: https://www.bogleheads.org/wiki/Placing ... ed_account

If I sell equities at a gain in taxable and spend the money, then I will buy the same equities in my tax-advantaged accounts if needed to get back to my desired asset allocation by exchanging bond fund shares.
This works provided that you emergency is relatively small compared to the size of your investment accounts. I think someone who was just starting out would benefit more from a typical emergency fund.

aristotelian
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by aristotelian » Sun Jan 07, 2018 6:28 pm

BogleMelon wrote:
Sun Jan 07, 2018 6:16 pm
5- I bonds to hedge against inflation
+1. And munis have some risk but it's not like you're going to be completely wiped out... one hopes.

I also don't get the tax efficiency argument. The interest on your savings account is also taxable. Wouldn't you rather have more interest? Something like VCSH wouldn't be a bad option.

Finally, you can hold stocks and in an emergency you liquidate stocks while rebalancing from bonds to stock in your retirement accounts.

tbradnc
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by tbradnc » Mon Jan 08, 2018 9:55 pm

Have health insurance, house and cars are insured, have flood insurance and there's the umbrella policy backing those up.. While I guess it's not possible to predict what the emergency will be I hope that I'll have some type of insurance to cover it.

Being retired with a bit of time on my hands I maintain 9 rewards checking accounts earning between 2.25% and 4.59% - these accounts in total hold 3 years living expenses and can be tapped via ACH, wire, ATM and check so very liquid. This is where I'd start taking money from first.

An emergency costing more than 3 years living expense would be an emergency indeed.

Johm221122
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by Johm221122 » Mon Jan 08, 2018 10:10 pm

Many off us have emergency plan
viewtopic.php?f=2&t=102878

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jharkin
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by jharkin » Tue Jan 09, 2018 7:54 am

I *do* keep an emergency fund (not huge) so Im probably not the best one to asnwer this but let me ask you the following:

1 - Do you have a spouse, and are they working? Are they in the same industry and likely to get hit by job loss simultaneously?

2 - Could you expect severance pay in the even of a job loss?

3 - How generous is your states UI?


I aim to keep 6mo EF in short term savings, but I have a lot of other options before I would touch that. My wife works in a public school in a specialized role that's about as layoff proof as you can get, so odds are we would never both loose our jobs at once. She is the lower earner and we cant cover everything on her salary, but I have 20 years seniority in my job so I would get a generous severance. I have calculated that with severance + UI and switching to her employer health plan, we could go 3 years at least on her income without having to touch the EF, probably 4 years with some belt tightening on expenses. Then the EF cash we have plus the contributions part of our Roth IRAs would let us stretch out another 2-4 years. Even a worst case of us both unemployed, severance + UI would support us a good 18months before we had to dip into EF...

And this is before considering other options like tapping equity, running up credit cards, getting a side gig ( I have a retired friend who makes something like $500+ a week driving uber), and so on. Plus we have a lot of options if I wasn't working to trade my time to DIY things that we pay for and cut expenses some more.

Bottom line, If I dont have other full time work in 3-4 years, I'd say we have bigger problems....

rkhusky
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by rkhusky » Tue Jan 09, 2018 8:22 am

You are not limited to one approach. You could also have some muni funds in taxable of the short and intermediate variety, for some short term emergency needs. Yes, they may go down in a stock crash, but not as much as a stock fund, or they may go up instead.

sambb
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by sambb » Tue Jan 09, 2018 8:30 am

emergency fund was a terrible decision on my part, since i have a taxable acct. i gave up so much in gains by having one.

togb
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by togb » Sat Jan 13, 2018 11:44 pm

In the good old days, you could keep EF in a money market and get a decent return, but no more. I don't like to keep a lot in cash-- though I have done so recently so I'd be prepared for a market correction that was a good buying opportunity.

For small unexpected expenses (the kind that are 2-3K) I just pull from the brokerage account. I keep 4-5K in cash for that reason.

But I always wanted to know that if I lost my job or something, I would have some time to sort things out without needing to panic or do anything stupid.

I wanted to be "covered" for about a year, so I've earmarked a few investments as the EF. VCSH might go down 2-3%, but probably not more, so it's a as good as a MM. I have at least 6 month's expenses in that fund, probably close to 9 months. I also hold some other investments that I see as very stable and my portfolio kicks off at least $30K in dividends annually. I don't keep a separate and discrete EF in it's own account, but I do have specific holdings that I'd tap, as well as some back up options.

DrGoogle2017
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by DrGoogle2017 » Sat Jan 13, 2018 11:51 pm

My husband is my emergency fund and I’m his. The two paychecks family, but only need to survive on one.

CurlyDave
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by CurlyDave » Sun Jan 14, 2018 12:06 am

Having to pay some tax is not the worst thing that can happen to a person.

mega317
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by mega317 » Sun Jan 14, 2018 12:14 am

tbradnc wrote:
Mon Jan 08, 2018 9:55 pm
9 rewards checking accounts
9! How many monthly debit card transactions is that?

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snackdog
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by snackdog » Sun Jan 14, 2018 5:59 am

I have had friends who literally lived on credit cards with no meaningful income for years. Not an ideal situation, but certainly doable if you have enough of them and can get cash advances on some.

tbradnc
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by tbradnc » Sun Jan 14, 2018 6:56 am

mega317 wrote:
Sun Jan 14, 2018 12:14 am
tbradnc wrote:
Mon Jan 08, 2018 9:55 pm
9 rewards checking accounts
9! How many monthly debit card transactions is that?
104. :) Take less than an hour. I typically do it the first day of the month over a cup of coffee or 2...

UpperNwGuy
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Re: for those without an emergency fund, what's your plan for an emergency?

Post by UpperNwGuy » Mon Jan 15, 2018 9:34 am

I am retired and have a decent pension, so job loss isn't part of my universe of possible emergencies. My emergencies would likely fall into crises involving housing, auto, or medical, and I have insurance for each of these. Accordingly, I don't have an "emergency fund" as such, although I do maintain savings for auto repairs, periodic auto replacement, medical expenses not covered by insurance, vacations, Christmas, etc.

If I needed money to help my adult children because one of them had an emergency, I would rob from one of my savings accounts until I could sell off some investments.

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