Have you ever used your emergency fund?

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dboeger1
Posts: 1259
Joined: Fri Jan 13, 2017 7:32 pm

Re: Have you ever used your emergency fund?

Post by dboeger1 »

bling wrote: Tue Aug 02, 2022 1:22 pm
dboeger1 wrote: Tue Aug 02, 2022 12:41 pm
bling wrote: Tue Aug 02, 2022 12:29 pm
dboeger1 wrote: Tue Aug 02, 2022 11:36 am A mini-emergency we encounter fairly often is trying different Asian restaurants in our area, which are notorious for being cash-only or having high minimum purchase amounts for using credit cards. We don't always know the policy when going to these places, so carrying cash allows us not to worry about it.
at worst this is an inconvenience. there's always an ATM waiting nearby ready to charge you high fees. eating out is a luxury.
You may be right about these specific cash-only restaurants to some extent, although I would challenge your line of thinking, especially as it applies to many other things on my list. Just doing more interesting things in life will result in more opportunities for "emergencies". Sure, maybe the safest thing is to just never go out and life the bare minimum lifestyle cooped up indoors, like in that iRobot movie when the robots basically put all humans under house arrest for their own safety. But it should be obvious why this is not a justification for many people to hold less cash. I probably could've avoided expensive car break-down emergencies by never going on road trips, but why would I want to do that? Having enough easily-accessible cash (some combination of physical and in a savings account) allows us to confidently go out and do interesting things, everything from walking into a new Asian restaurant without asking if they take credit cards to going on a spontaneous weekend trip. If I had Jeff Bezos level of assets, sure, I would probably have an asset-backed low-interest line of credit to just charge everything to, and I probably wouldn't eat at low-end local cash-only Asian restaurants. But we don't, and I'd prefer not to worry about what the market is doing every time I go out to eat.
i don't see how you can call a bucket of money sourcing a spontaenous vacation be classifed as an emergency fund. that makes the term emergency lose all meaning.

you can choose not to eat at the restaurant if you forgot to bring cash. you don't have a choice ignoring the car repair if that's how you to get work and make money.
You and others are right that the definition of emergency is somewhat overloaded (I don't actually call ours an emergency fund so much as a cash buffer, but EF is a commonly used phrase), but you're also missing some of the nuance of what I'm saying. The cash buffer will include planned expenses like a vacation budget as we approach the date of spending, but that's not really the portion that one would label as an EF. We intentionally leave excess in the cash buffer, not for spontaneous discretionary spending, but for unexpected costs that arise, whether they be associated with discretionary spending or not. For example, if my car breaks down unexpectedly on a road trip, I want to have some extra cash to deal with that. Whether you want to call that an emergency or not is somewhat irrelevant semantics, it's ultimately an unexpected sudden expense.

If all you ever do is hang around places where you have access to ATMs, can charge your phone, are not far away from an open mechanic, credit cards are universally accepted, etc., then yes, you can reduce or even eliminate the emergency fund and just withdraw from the portfolio as needed. However, there are many situations that don't fit those criteria, and I think that's where a lot of the disconnect is coming from. You keep brushing things off as unreasonable assumptions, but I can assure you they are not. Here are some that come to mind from personal experience:
  • Being unbanked. A significant portion of the American population is unbanked. This can be due to poverty, service costs, bad credit, providers closing or freezing accounts, IRS wage garnishment, etc. There were several years of my life where my father could only keep cash and had to cash all his pay checks at Walmart because if he deposited funds into a bank account, they almost certainly would have been seized.
  • Traveling to/through places with limited services. You'd better believe I had plenty of cash on me driving through Death Valley.
  • In addition to limited services, there are also limited service hours. We broke down on a Friday evening next to a farm in rural Indiana once and had to get towed to a really small town where practically everything was closed on weekends. I don't even think they had a bank with an ATM accessible outside of business hours. We paid cash for a hotel room and had to wait till Monday morning to get the car serviced.
  • Depending on how one travels, it might not be fair to assume that one will have all their things with them when something goes wrong. For example, it's not uncommon for us to put my wife's phone and cards in our luggage when flying so she can travel light, since I usually have my things. However, there have been times when we've been separated by customs for hours at a time when entering a foreign country, our luggage has been put on the wrong flight, airport security held our bags for a long time for additional screening, flights have been cancelled or delayed and we've spent overnight in an airport, etc.
  • Just because you have your stuff figured out doesn't mean everyone else around you does. Whenever we're visiting family back home and we're out with my brother, for example, he's liable to end up stranded somewhere needing a ride or money to get out of a tough situation, because he's crazy and lives on the edge of insanity. He also is notoriously difficult to get a hold of because he always seems to ignore (or lose) his phone at the worst times, so it's not like we can rely on multiple phone calls to get anything resolved, since he'll probably change locations or need something else in between calls. Having cash on hand may very well be the only way to get him out of a mess.
  • Dealing with really bureaucratic institutions is often a nightmare. When my wife immigrated to the US, the stupid USCIS web site double-charged the immigrant fee to our bank account, and it took months of calling multiple completely clueless government agencies to resolve. I can imagine similar things happening with apartment rents paid in cash, for example, so it wouldn't be crazy for people in such situations to have at least a month's worth of extra rent on hand just in case.
I could go on and on, but the point is, the viability of being able to rely on things like HELOCs and brokerage assets to deal with a sudden expense is highly dependent on specific life circumstances. You may very well live a life where none of these things would ever happen, but I think it's unrealistic to assume that everybody does.
JayB
Posts: 100
Joined: Sat May 28, 2022 9:57 am

Re: Have you ever used your emergency fund?

Post by JayB »

bltn wrote: Mon Aug 01, 2022 8:13 pm
JayB wrote: Mon Aug 01, 2022 7:27 pm We don't have a separate emergency fund, but (a) use a multi-year schedule to plan for regular replacements of expensive things like computers, appliances, roof, heat pump, etc., (b) have laddered bonds maturing each year that can be applied to unexpected expenses instead of being reinvested, (c) have a detailed plan of what resources to use -- and in what order -- for large unexpected expenses; this basically involves selling bonds approaching maturity, liquidating I bonds as needed, tapping bonds in our Roth IRAs, etc., and (d) have a substantial margin loan capacity for short-term funding needs if we choose not to immediately liquidate some of our bond holdings. We don't own stocks or stock funds.
No stock investment?

Just one big emergency fund of fixed income. Wow.
We don't consider our fixed income portfolio of hold-to-maturity bonds to be an emergency fund at all, and as noted, do not need an emergency fund. Our always having assets to draw from easily for unexpected things is largely a product of planning well for expected expenses and having good liquidity from bond ladders that have rungs maturing each year.

Our detailed plan of what resources to tap for unexpected expenses -- and in what order -- is part of a good comprehensive investment policy statement (IPS) in my opinion. Our plan is also intended to guide my spouse if I were to become incapacitated or die; she is less into the portfolio nuances than me. It is also meant to guide our designated POA in the event that both spouse and myself were to become incapacitated; this is an important part of our Letter of Instruction to such POA if it is ever needed.
stoptothink
Posts: 11993
Joined: Fri Dec 31, 2010 9:53 am

Re: Have you ever used your emergency fund?

Post by stoptothink »

dboeger1 wrote: Tue Aug 02, 2022 3:00 pm
bling wrote: Tue Aug 02, 2022 1:22 pm
dboeger1 wrote: Tue Aug 02, 2022 12:41 pm
bling wrote: Tue Aug 02, 2022 12:29 pm
dboeger1 wrote: Tue Aug 02, 2022 11:36 am A mini-emergency we encounter fairly often is trying different Asian restaurants in our area, which are notorious for being cash-only or having high minimum purchase amounts for using credit cards. We don't always know the policy when going to these places, so carrying cash allows us not to worry about it.
at worst this is an inconvenience. there's always an ATM waiting nearby ready to charge you high fees. eating out is a luxury.
You may be right about these specific cash-only restaurants to some extent, although I would challenge your line of thinking, especially as it applies to many other things on my list. Just doing more interesting things in life will result in more opportunities for "emergencies". Sure, maybe the safest thing is to just never go out and life the bare minimum lifestyle cooped up indoors, like in that iRobot movie when the robots basically put all humans under house arrest for their own safety. But it should be obvious why this is not a justification for many people to hold less cash. I probably could've avoided expensive car break-down emergencies by never going on road trips, but why would I want to do that? Having enough easily-accessible cash (some combination of physical and in a savings account) allows us to confidently go out and do interesting things, everything from walking into a new Asian restaurant without asking if they take credit cards to going on a spontaneous weekend trip. If I had Jeff Bezos level of assets, sure, I would probably have an asset-backed low-interest line of credit to just charge everything to, and I probably wouldn't eat at low-end local cash-only Asian restaurants. But we don't, and I'd prefer not to worry about what the market is doing every time I go out to eat.
i don't see how you can call a bucket of money sourcing a spontaenous vacation be classifed as an emergency fund. that makes the term emergency lose all meaning.

you can choose not to eat at the restaurant if you forgot to bring cash. you don't have a choice ignoring the car repair if that's how you to get work and make money.
You and others are right that the definition of emergency is somewhat overloaded (I don't actually call ours an emergency fund so much as a cash buffer, but EF is a commonly used phrase), but you're also missing some of the nuance of what I'm saying. The cash buffer will include planned expenses like a vacation budget as we approach the date of spending, but that's not really the portion that one would label as an EF. We intentionally leave excess in the cash buffer, not for spontaneous discretionary spending, but for unexpected costs that arise, whether they be associated with discretionary spending or not. For example, if my car breaks down unexpectedly on a road trip, I want to have some extra cash to deal with that. Whether you want to call that an emergency or not is somewhat irrelevant semantics, it's ultimately an unexpected sudden expense.

If all you ever do is hang around places where you have access to ATMs, can charge your phone, are not far away from an open mechanic, credit cards are universally accepted, etc., then yes, you can reduce or even eliminate the emergency fund and just withdraw from the portfolio as needed. However, there are many situations that don't fit those criteria, and I think that's where a lot of the disconnect is coming from. You keep brushing things off as unreasonable assumptions, but I can assure you they are not. Here are some that come to mind from personal experience:
  • Being unbanked. A significant portion of the American population is unbanked. This can be due to poverty, service costs, bad credit, providers closing or freezing accounts, IRS wage garnishment, etc. There were several years of my life where my father could only keep cash and had to cash all his pay checks at Walmart because if he deposited funds into a bank account, they almost certainly would have been seized.
  • Traveling to/through places with limited services. You'd better believe I had plenty of cash on me driving through Death Valley.
  • In addition to limited services, there are also limited service hours. We broke down on a Friday evening next to a farm in rural Indiana once and had to get towed to a really small town where practically everything was closed on weekends. I don't even think they had a bank with an ATM accessible outside of business hours. We paid cash for a hotel room and had to wait till Monday morning to get the car serviced.
  • Depending on how one travels, it might not be fair to assume that one will have all their things with them when something goes wrong. For example, it's not uncommon for us to put my wife's phone and cards in our luggage when flying so she can travel light, since I usually have my things. However, there have been times when we've been separated by customs for hours at a time when entering a foreign country, our luggage has been put on the wrong flight, airport security held our bags for a long time for additional screening, flights have been cancelled or delayed and we've spent overnight in an airport, etc.
  • Just because you have your stuff figured out doesn't mean everyone else around you does. Whenever we're visiting family back home and we're out with my brother, for example, he's liable to end up stranded somewhere needing a ride or money to get out of a tough situation, because he's crazy and lives on the edge of insanity. He also is notoriously difficult to get a hold of because he always seems to ignore his find at the worst times, so it's not like we can rely on multiple phone calls to get anything resolved, since he'll probably change locations or need something else in between calls. Having cash on hand may very well be the only way to get him out of a mess.
  • Dealing with really bureaucratic institutions is often a nightmare. When my wife immigrated to the US, the stupid USCIS web site double-charged the immigrant fee to our bank account, and it took months of calling multiple completely clueless government agencies to resolve. I can imagine similar things happening with apartment rents paid in cash, for example, so it wouldn't be crazy for people in such situations to have at least a month's worth of extra rent on hand just in case.
I could go on and on, but the point is, the viability of being able to rely on things like HELOCs and brokerage assets to deal with a sudden expense is highly dependent on specific life circumstances. You may very well live a life where none of these things would ever happen, but I think it's unrealistic to assume that everybody does.
The topic of discussion is "have you ever used your emergency fund", not should you have a source of easily available cash in certain situations. If the latter was the topic, the response would be a resounding "yes". I mean, yeah, if I did not have a bank account or was traveling through a place with limited services (which I do quite often), I'd have some cash on me, but I'm not sure how that is relevant to this thread.
flyfishers83
Posts: 294
Joined: Fri Jun 07, 2019 6:08 pm

Re: Have you ever used your emergency fund?

Post by flyfishers83 »

We have. Shortly after my wife finished dental school we were going through several rounds of IVF. We were renting a house in a small town with VERY few suitable properties. Landlord decided he wanted to sell. After looking at options, seemed best course was to buy the house. We would have been fine, but some credit card shenanigans by a family member who was an authorized user on my wife's Amex caused a real problem. We tapped all of our HSA money, which I have always viewed as a tier of emergency funds.

We don't have a dedicated emergency fund now. We stockpiled cash during covid. Missed out on some gains, but made it much easier to sleep at night.
Charles Joseph
Posts: 252
Joined: Tue Apr 05, 2022 10:49 pm

Re: Have you ever used your emergency fund?

Post by Charles Joseph »

I never really had a healthy emergency fund. I went from being broke all the time, living paycheck to paycheck, paying my son's college bills, etc, to finally being able to really, really invest.

Now I have $891 in my checking account and about seven years of living expenses in my taxable brokerage accounts. I'd use that in the event of a true emergency.

Thankfully, we've been able to cash flow bumpy things as they've come up, at least to date.
dboeger1
Posts: 1259
Joined: Fri Jan 13, 2017 7:32 pm

Re: Have you ever used your emergency fund?

Post by dboeger1 »

stoptothink wrote: Tue Aug 02, 2022 3:08 pm The topic of discussion is "have you ever used your emergency fund", not should you have a source of easily available cash in certain situations. If the latter was the topic, the response would be a resounding "yes". I mean, yeah, if I did not have a bank account or was traveling through a place with limited services (which I do quite often), I'd have some cash on me, but I'm not sure how that is relevant to this thread.
Yes, and I answered yes multiple times to the question asked, and the response every time (and this is hardly the first time this topic has come up with similar results) is essentially that I and everybody else in the world should be able to do everything without cash, and we should never end up in these situations to begin with. I guess we'll just have to agree to disagree, then.
BabaWawa
Posts: 434
Joined: Sun Sep 06, 2020 2:47 pm

Re: Have you ever used your emergency fund?

Post by BabaWawa »

In retirement, we have no emergency fund. If we run into unplanned expenses that are not budgeted, then it comes out of Roth so there are no adverse tax consequences.
bling
Posts: 1219
Joined: Sat Jan 21, 2012 12:49 pm

Re: Have you ever used your emergency fund?

Post by bling »

dboeger1 wrote: Tue Aug 02, 2022 3:00 pm ...
if you're traveling to some random place in the middle of nowhere in a foreign country, of course you should have some local currency on you. but this is all known up front, and so by definition cannot be an emergency.

i'm not saying not to have any cash at all. i'm just saying that it's disingenious to use the term "emergency fund" for things that are clearly known in advance and/or non-essential. like...how can someone say something like "oh, i have an emergency fund to pay my mortgage and car payment"?

you've clarified that you call it a cash buffer, and i have no issue with that.
lstone19
Posts: 1613
Joined: Fri Nov 03, 2017 3:33 pm

Re: Have you ever used your emergency fund?

Post by lstone19 »

I'm starting to think we're talking about two different things: cash in the accounting sense which includes money in checking and savings accounts and those who are thinking cash means currency (dead presidents) carried in your pocket or wallet.

At least to me, emergency fund means cash (accounting sense) available to meet an unexpected four-figure (maybe five-figure late in life, three-figure early in life) unexpected expense which must be paid to avoid a significant impact on your life (e.g. furnace died). Things like a restaurant that only takes currency is an inconvenience, not an emergency. How much currency I carry on me is independent of how much cash (accounting sense) I have available if needed. I consider it extremely unlikely that the amount of accounting cash I might need for an emergency to actually be needed as currency.
dboeger1
Posts: 1259
Joined: Fri Jan 13, 2017 7:32 pm

Re: Have you ever used your emergency fund?

Post by dboeger1 »

bling wrote: Tue Aug 02, 2022 3:47 pm
dboeger1 wrote: Tue Aug 02, 2022 3:00 pm ...
if you're traveling to some random place in the middle of nowhere in a foreign country, of course you should have some local currency on you. but this is all known up front, and so by definition cannot be an emergency.

i'm not saying not to have any cash at all. i'm just saying that it's disingenious to use the term "emergency fund" for things that are clearly known in advance and/or non-essential. like...how can someone say something like "oh, i have an emergency fund to pay my mortgage and car payment"?

you've clarified that you call it a cash buffer, and i have no issue with that.
Am I crazy, or are many of these rebuttals doing the exact same things they're accusing me of? The EF part of the cash buffer is not there to cover planned expenses, it's to cover unplanned expenses. If I lose my passport in a foreign country and need to pay for transportation to the embassy and forms to get it resolved, that's what a dedicated cash EF would cover. In other words, the EF would be doing exactly what it was set aside to do, cover an emergency. You wouldn't spend it on a fun night on the town, at least not a planned one; I gave the example of spontaneously walking into a cash-only restaurant as a non-emergency unplanned expense which seems to be tripping some people up, but the definition of what qualifies as an emergency (or whether we need to be constrained by the word itself to begin with) is ultimately a subjective semantic difference. The "emergency" could just as likely be dropping your credit card in an open drainage gate, losing your phone in a lake, locking your keys and other belongings in the car, etc. You size the EF according to the level of unplanned expense you want to be able to cover based on the risk profile of whatever it is you're doing. This is all pretty much part of the textbook definition of an EF. Why is this so controversial?

If you just keep dismissing all my examples by saying they're not real, you would use a credit card, it's not an emergency, oh of course you'd have cash except you shouldn't have a cash EF, you would never make a mistake, etc., then of course you can make them sound wrong. It'd be like if I went around telling people with asthma they don't need an inhaler because they can always buy one when they need it, and they gave me examples of times it saved their lives having one on hand, and I just kept dismissing them with, "Well, you could have gone to the store, I know a guy who survived an asthma attack without his inhaler once, of course you would've had one if you knew you were going to breathe in polluted air, etc." The basic premise of the EF criticism seems to be that there can never be an emergency requiring (more on that word in a bit) immediate access to cash amidst limiting constraints that impact access to one's greater portfolio. I'm not denying that some people live a life that greatly minimizes the risk of such situations happening, but I know from experience that doesn't apply to everyone.

Also, I have some issue with extreme words like "requiring" and "emergency"; you can in fact have cash just to cover unplanned expenses just because they make you happy. I don't know why we need to argue over what qualifies as an emergency any more than we need to argue about whether someone technically has an SWR of 4% because they're including non-essential expenses in their retirement model. After all, we can all just live in boxes and beg for coins on the street. We don't "need" any of this stuff. However, if given the choice, I very much prefer having cash on hand when I get lost in a new place than just throwing my arms up in the air and saying, "Well, I guess I live on this street now." I really don't want to have to open up the Vanguard app on my phone, sell stocks, and wait multiple business days for the funds to credit to my bank account every time I want to buy groceries. I know credit cards and other payment methods can bridge that accessibility gap, but that just brings us back to being able to rely on all those facilities, which does not apply in all circumstances.

I'm not trying to be harsh, but I feel like I just shared personal examples with the Kayak deniers from those new Kayak ads I keep getting on YouTube. OP's question was asking if we ever spent our emergency funds, I gave multiple examples of when I did, and then the replies rolled in basically saying they're not real or don't count. I don't really know what to say to that, other than I'm glad those people haven't had such emergencies, and I hope they never do in the future. None of them were particular fun, but they were all made better by having cash funds available, which was the reason for having cash.

Jack Bogle had a saying that "we're all indexers" as a concise way of stating that all market participants are mathematically guaranteed to collectively average the total market's return minus costs. In a similar vein, I'd say we all have a cash buffer. Ignore the "emergency fund" label. I'm pretty sure most people with at least $1 to their name have some sort of cash, as opposed to literally putting every penny in stocks/bonds. Maybe your buffer is $500, maybe it's $500k, but conceptually, we all have the cash buffer. That cash buffer is a sort of settlement fund out of which we pay our bills and other usual expenses. We all size our cash buffers based on our tolerance and capacity for various risks. Some people are willing to depend on having reliable access to an ATM. Others frequently find themselves in situations where they need cash. Others only ever have expenses that they can plan for a week or more in advance, so they can sell stocks/bonds to cover expenses on demand. Others may have multiple FDIC-insured accounts to provide additional insurance for larger amounts, maybe because their yachts and helicopters occasionally need unplanned $200k repairs. Those are all valid choices based on personal circumstances. The problem I have whenever this topic comes up is that while there are absolutely valid points to be made against much of the overly simplistic EF advice that just tells everyone to have 5x annual expenses to cover an entire layoff, when leaving that money invested has likely been just as good historically, I don't think the logical conclusion should be, "EFs serve no purpose, nobody should ever have one, all they do is result in lost purchasing power without any advantage." You can take your chances, but I know from experience when I need to have some more cash on hand.
stoptothink
Posts: 11993
Joined: Fri Dec 31, 2010 9:53 am

Re: Have you ever used your emergency fund?

Post by stoptothink »

dboeger1 wrote: Tue Aug 02, 2022 5:19 pm
bling wrote: Tue Aug 02, 2022 3:47 pm
dboeger1 wrote: Tue Aug 02, 2022 3:00 pm ...
if you're traveling to some random place in the middle of nowhere in a foreign country, of course you should have some local currency on you. but this is all known up front, and so by definition cannot be an emergency.

i'm not saying not to have any cash at all. i'm just saying that it's disingenious to use the term "emergency fund" for things that are clearly known in advance and/or non-essential. like...how can someone say something like "oh, i have an emergency fund to pay my mortgage and car payment"?

you've clarified that you call it a cash buffer, and i have no issue with that.
Am I crazy, or are many of these rebuttals doing the exact same things they're accusing me of? The EF part of the cash buffer is not there to cover planned expenses, it's to cover unplanned expenses. If I lose my passport in a foreign country and need to pay for transportation to the embassy and forms to get it resolved, that's what a dedicated cash EF would cover. In other words, the EF would be doing exactly what it was set aside to do, cover an emergency. You wouldn't spend it on a fun night on the town, at least not a planned one; I gave the example of spontaneously walking into a cash-only restaurant as a non-emergency unplanned expense which seems to be tripping some people up, but the definition of what qualifies as an emergency (or whether we need to be constrained by the word itself to begin with) is ultimately a subjective semantic difference. The "emergency" could just as likely be dropping your credit card in an open drainage gate, losing your phone in a lake, locking your keys and other belongings in the car, etc. You size the EF according to the level of unplanned expense you want to be able to cover based on the risk profile of whatever it is you're doing. This is all pretty much part of the textbook definition of an EF. Why is this so controversial?

If you just keep dismissing all my examples by saying they're not real, you would use a credit card, it's not an emergency, oh of course you'd have cash except you shouldn't have a cash EF, you would never make a mistake, etc., then of course you can make them sound wrong. It'd be like if I went around telling people with asthma they don't need an inhaler because they can always buy one when they need it, and they gave me examples of times it saved their lives having one on hand, and I just kept dismissing them with, "Well, you could have gone to the store, I know a guy who survived an asthma attack without his inhaler once, of course you would've had one if you knew you were going to breathe in polluted air, etc." The basic premise of the EF criticism seems to be that there can never be an emergency requiring (more on that word in a bit) immediate access to cash amidst limiting constraints that impact access to one's greater portfolio. I'm not denying that some people live a life that greatly minimizes the risk of such situations happening, but I know from experience that doesn't apply to everyone.

Also, I have some issue with extreme words like "requiring" and "emergency"; you can in fact have cash just to cover unplanned expenses just because they make you happy. I don't know why we need to argue over what qualifies as an emergency any more than we need to argue about whether someone technically has an SWR of 4% because they're including non-essential expenses in their retirement model. After all, we can all just live in boxes and beg for coins on the street. We don't "need" any of this stuff. However, if given the choice, I very much prefer having cash on hand when I get lost in a new place than just throwing my arms up in the air and saying, "Well, I guess I live on this street now." I really don't want to have to open up the Vanguard app on my phone, sell stocks, and wait multiple business days for the funds to credit to my bank account every time I want to buy groceries. I know credit cards and other payment methods can bridge that accessibility gap, but that just brings us back to being able to rely on all those facilities, which does not apply in all circumstances.

I'm not trying to be harsh, but I feel like I just shared personal examples with the Kayak deniers from those new Kayak ads I keep getting on YouTube. OP's question was asking if we ever spent our emergency funds, I gave multiple examples of when I did, and then the replies rolled in basically saying they're not real or don't count. I don't really know what to say to that, other than I'm glad those people haven't had such emergencies, and I hope they never do in the future. None of them were particular fun, but they were all made better by having cash funds available, which was the reason for having cash.

Jack Bogle had a saying that "we're all indexers" as a concise way of stating that all market participants are mathematically guaranteed to collectively average the total market's return minus costs. In a similar vein, I'd say we all have a cash buffer. Ignore the "emergency fund" label. I'm pretty sure most people with at least $1 to their name have some sort of cash, as opposed to literally putting every penny in stocks/bonds. Maybe your buffer is $500, maybe it's $500k, but conceptually, we all have the cash buffer. That cash buffer is a sort of settlement fund out of which we pay our bills and other usual expenses. We all size our cash buffers based on our tolerance and capacity for various risks. Some people are willing to depend on having reliable access to an ATM. Others frequently find themselves in situations where they need cash. Others only ever have expenses that they can plan for a week or more in advance, so they can sell stocks/bonds to cover expenses on demand. Others may have multiple FDIC-insured accounts to provide additional insurance for larger amounts, maybe because their yachts and helicopters occasionally need unplanned $200k repairs. Those are all valid choices based on personal circumstances. The problem I have whenever this topic comes up is that while there are absolutely valid points to be made against much of the overly simplistic EF advice that just tells everyone to have 5x annual expenses to cover an entire layoff, when leaving that money invested has likely been just as good historically, I don't think the logical conclusion should be, "EFs serve no purpose, nobody should ever have one, all they do is result in lost purchasing power without any advantage." You can take your chances, but I know from experience when I need to have some more cash on hand.
There is a reason a few are confused by your posts; your definition of "emergency" and "emergency fund" seem to be all over the place, at very least they are much broader than ours. All of us would carry cash on our physical person in those situations, but we don't deem them emergencies. I can think of a zillion other situations where I'd carry some cash on me (and I do), but IMO, we don't have a dedicated emergency fund. Just accept we have different definitions and perspectives, no point in discussing it further.
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LilyFleur
Posts: 2658
Joined: Fri Mar 02, 2018 10:36 pm

Re: Have you ever used your emergency fund?

Post by LilyFleur »

I'm retired, and I do not have a separate emergency fund.

The best advice I ever received on this forum was to have a diversity of types of retirement accounts.

I have a brokerage account, a Roth 401k, and a 401k (and a checking account, and because its earnings are next to nothing, I don't keep a large balance there.)

Last year, for a $45,000 condo assessment, I pulled it out of cash in my brokerage account, which wasn't earning much anyway. (I also did a $100,000 Roth conversion that year, so it was helpful to cover the assessment with post-tax dollars.)

This year, for a family member's medical emergency, I took money out of my stable value fund in my 401k. It was my first 401k withdrawal, and it was shocking how much extra I had to withdraw to cover both federal and state taxes. But at least I didn't have to withdraw from bonds or stocks, which were both down at the time.

If you have all three types of accounts, you can withdraw in a way that enhances your tax strategy for that calendar year.
bltn
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Joined: Mon Feb 20, 2017 9:32 pm

Re: Have you ever used your emergency fund?

Post by bltn »

JayB wrote: Tue Aug 02, 2022 3:04 pm
bltn wrote: Mon Aug 01, 2022 8:13 pm
JayB wrote: Mon Aug 01, 2022 7:27 pm We don't have a separate emergency fund, but (a) use a multi-year schedule to plan for regular replacements of expensive things like computers, appliances, roof, heat pump, etc., (b) have laddered bonds maturing each year that can be applied to unexpected expenses instead of being reinvested, (c) have a detailed plan of what resources to use -- and in what order -- for large unexpected expenses; this basically involves selling bonds approaching maturity, liquidating I bonds as needed, tapping bonds in our Roth IRAs, etc., and (d) have a substantial margin loan capacity for short-term funding needs if we choose not to immediately liquidate some of our bond holdings. We don't own stocks or stock funds.
No stock investment?

Just one big emergency fund of fixed income. Wow.
We don't consider our fixed income portfolio of hold-to-maturity bonds to be an emergency fund at all, and as noted, do not need an emergency fund. Our always having assets to draw from easily for unexpected things is largely a product of planning well for expected expenses and having good liquidity from bond ladders that have rungs maturing each year.

Our detailed plan of what resources to tap for unexpected expenses -- and in what order -- is part of a good comprehensive investment policy statement (IPS) in my opinion. Our plan is also intended to guide my spouse if I were to become incapacitated or die; she is less into the portfolio nuances than me. It is also meant to guide our designated POA in the event that both spouse and myself were to become incapacitated; this is an important part of our Letter of Instruction to such POA if it is ever needed.
Your estate planning seems very well thought out.
Last edited by bltn on Thu Aug 04, 2022 7:24 pm, edited 1 time in total.
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Re: Have you ever used your emergency fund?

Post by cashboy »

4nursebee wrote: Mon Aug 01, 2022 2:42 pm Have you ever used your emergency fund?
yes.

I did so when multiple unplanned and unexpected situations occurred at nearly the very same moment in time (doesn't matter what they were - just that they were expensive when totaled).

If I did not have the emergency funds I could have went with credit, but then would be stuck with debt. Or, I could have sold assets, but the market was down and I would have taken a loss.

so, for me, in my personal situation, the emergency fund (or whatever one wants to call it) worked out well.


Having read the posts in this thread I can find no fault with the logic of those that have an emergency fund, or those that do not - it comes down to what works for each individual.
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Re: Have you ever used your emergency fund?

Post by N1CKV »

Yes. I had to use mine and then some.

My house flooded.
As in epic natural disaster, not in a flood zone (2 feet higher than the flood of record) and I had 3 feet of water in my house with no flood insurance.
I was simultaneously homeless, lost all possessions in the lower half of my house, lost my wife's car (insured, but replacement meant adding a car note that was not there before) and now having to learn home construction while navigating this all with a severed ACL in my right knee (unrelated, happed before flood but needed to be addressed).

I went from financially secure and saving towards a new home to in peril. Rebuilding my home and refurnishing it took about $40,000.
This was doing about 90% of the work myself and getting some great deals on all kitchen and bath items (family in the supply industry). This is a relatively small 1,300 sq. ft. home with lower to mid-grade finishes. It exceeded my emergency fund and went in to my "new house savings".

Would I consider not having an emergency fund? No. Not ever. The lost earnings for having a secure emergency fund a few clicks away does not bother me. I sleep very well at night knowing that I can weather any storm that comes my way.
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Re: Have you ever used your emergency fund?

Post by NextMil »

Yes. Was it an emergency every time? No. Was it super helpful to have a large cash cushion? Absolutely and was thankful that I had options.

I do think once you hit a certain level of wealth, it has less utility. Not zero, but much less. Therefore i will always have some extra cash hanging around beyond being a month ahead in checking. Recently, I had a client’s credit card get declined on an $11k transaction. It was an emergency for an event and I covered it for them until they repaid me three days later. By their reaction you would have thought I was a superhero and they were freaking out to pay me back as soon as possible. They will remember me bailing them out come contract renewal time.
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Re: Have you ever used your emergency fund?

Post by Ivygirl »

The word "emergency" means the feeling in my heart when something happens that makes me vulnerable or at risk. "Emergency fund" is ready, cash money I keep by me to address the event that caused that feeling.

This is why I keep cash (electronic) equal to 6 months' expenses and cash (paper presidents) in my car, in my house, and in my wallet.

I have been in multiple disasters in my lifetime so far and I am not a risk-taking individual. I was present at the Oklahoma City Murrah bombing. Twice I have been in high-rise buildings when all electricity failed including lights in the stairwell. I have lost power and heat due to winter weather ice events, once for 14 days straight. So I have a working flashlight in my desk drawer at the office, I have wool long underwear, wool socks and wool blankets, I always know where my purse and keys are if I need to evacuate. These are not all cash-related but "emergency" is a feeling and I do not want to have that feeling. I take steps not to have it.

COVID-19 was an eye-opener to me. It's possible for a large thriving business to simply close. Just lock its doors and have no personnel there. And not answer the phone. It's still in business but it simply chooses to only interact with its customers when and how it wants to. My bank could do this and how would I find the bank president to twist his arm and make him give me my money? Vanguard could do it. My phone service provider could do it. We are in a different world for customer service now, businesses want a moat between themselves and people, and that moat is addictive. Businesses like it.

I want cash. Also physical things like food, batteries, tools, warm clothes, and medicines. I do not like "emergency" feelings.
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Re: Have you ever used your emergency fund?

Post by Harry Livermore »

NextMil wrote: Wed Aug 03, 2022 10:12 pm
Yes. Was it an emergency every time? No. Was it super helpful to have a large cash cushion? Absolutely and was thankful that I had options.
This.
Ivygirl wrote: Thu Aug 04, 2022 6:37 am
The word "emergency" means the feeling in my heart when something happens that makes me vulnerable or at risk. "Emergency fund" is ready, cash money I keep by me to address the event that caused that feeling.

...
COVID-19 was an eye-opener to me.

...

I want cash. Also physical things like food, batteries, tools, warm clothes, and medicines. I do not like "emergency" feelings.
And this.
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Re: Have you ever used your emergency fund?

Post by HappyPappy »

dboeger1 wrote: Tue Aug 02, 2022 5:19 pm
bling wrote: Tue Aug 02, 2022 3:47 pm
dboeger1 wrote: Tue Aug 02, 2022 3:00 pm ...
if you're traveling to some random place in the middle of nowhere in a foreign country, of course you should have some local currency on you. but this is all known up front, and so by definition cannot be an emergency.

i'm not saying not to have any cash at all. i'm just saying that it's disingenious to use the term "emergency fund" for things that are clearly known in advance and/or non-essential. like...how can someone say something like "oh, i have an emergency fund to pay my mortgage and car payment"?

you've clarified that you call it a cash buffer, and i have no issue with that.
Am I crazy, or are many of these rebuttals doing the exact same things they're accusing me of? The EF part of the cash buffer is not there to cover planned expenses, it's to cover unplanned expenses. If I lose my passport in a foreign country and need to pay for transportation to the embassy and forms to get it resolved, that's what a dedicated cash EF would cover. In other words, the EF would be doing exactly what it was set aside to do, cover an emergency. You wouldn't spend it on a fun night on the town, at least not a planned one; I gave the example of spontaneously walking into a cash-only restaurant as a non-emergency unplanned expense which seems to be tripping some people up, but the definition of what qualifies as an emergency (or whether we need to be constrained by the word itself to begin with) is ultimately a subjective semantic difference. The "emergency" could just as likely be dropping your credit card in an open drainage gate, losing your phone in a lake, locking your keys and other belongings in the car, etc. You size the EF according to the level of unplanned expense you want to be able to cover based on the risk profile of whatever it is you're doing. This is all pretty much part of the textbook definition of an EF. Why is this so controversial?

If you just keep dismissing all my examples by saying they're not real, you would use a credit card, it's not an emergency, oh of course you'd have cash except you shouldn't have a cash EF, you would never make a mistake, etc., then of course you can make them sound wrong. It'd be like if I went around telling people with asthma they don't need an inhaler because they can always buy one when they need it, and they gave me examples of times it saved their lives having one on hand, and I just kept dismissing them with, "Well, you could have gone to the store, I know a guy who survived an asthma attack without his inhaler once, of course you would've had one if you knew you were going to breathe in polluted air, etc." The basic premise of the EF criticism seems to be that there can never be an emergency requiring (more on that word in a bit) immediate access to cash amidst limiting constraints that impact access to one's greater portfolio. I'm not denying that some people live a life that greatly minimizes the risk of such situations happening, but I know from experience that doesn't apply to everyone.

Also, I have some issue with extreme words like "requiring" and "emergency"; you can in fact have cash just to cover unplanned expenses just because they make you happy. I don't know why we need to argue over what qualifies as an emergency any more than we need to argue about whether someone technically has an SWR of 4% because they're including non-essential expenses in their retirement model. After all, we can all just live in boxes and beg for coins on the street. We don't "need" any of this stuff. However, if given the choice, I very much prefer having cash on hand when I get lost in a new place than just throwing my arms up in the air and saying, "Well, I guess I live on this street now." I really don't want to have to open up the Vanguard app on my phone, sell stocks, and wait multiple business days for the funds to credit to my bank account every time I want to buy groceries. I know credit cards and other payment methods can bridge that accessibility gap, but that just brings us back to being able to rely on all those facilities, which does not apply in all circumstances.

I'm not trying to be harsh, but I feel like I just shared personal examples with the Kayak deniers from those new Kayak ads I keep getting on YouTube. OP's question was asking if we ever spent our emergency funds, I gave multiple examples of when I did, and then the replies rolled in basically saying they're not real or don't count. I don't really know what to say to that, other than I'm glad those people haven't had such emergencies, and I hope they never do in the future. None of them were particular fun, but they were all made better by having cash funds available, which was the reason for having cash.

Jack Bogle had a saying that "we're all indexers" as a concise way of stating that all market participants are mathematically guaranteed to collectively average the total market's return minus costs. In a similar vein, I'd say we all have a cash buffer. Ignore the "emergency fund" label. I'm pretty sure most people with at least $1 to their name have some sort of cash, as opposed to literally putting every penny in stocks/bonds. Maybe your buffer is $500, maybe it's $500k, but conceptually, we all have the cash buffer. That cash buffer is a sort of settlement fund out of which we pay our bills and other usual expenses. We all size our cash buffers based on our tolerance and capacity for various risks. Some people are willing to depend on having reliable access to an ATM. Others frequently find themselves in situations where they need cash. Others only ever have expenses that they can plan for a week or more in advance, so they can sell stocks/bonds to cover expenses on demand. Others may have multiple FDIC-insured accounts to provide additional insurance for larger amounts, maybe because their yachts and helicopters occasionally need unplanned $200k repairs. Those are all valid choices based on personal circumstances. The problem I have whenever this topic comes up is that while there are absolutely valid points to be made against much of the overly simplistic EF advice that just tells everyone to have 5x annual expenses to cover an entire layoff, when leaving that money invested has likely been just as good historically, I don't think the logical conclusion should be, "EFs serve no purpose, nobody should ever have one, all they do is result in lost purchasing power without any advantage." You can take your chances, but I know from experience when I need to have some more cash on hand.
This is a long post. :)

And we occasionally use our “emergency” fund for unanticipated AND expenses too large to cash flow in a year.
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Re: Have you ever used your emergency fund?

Post by AnnetteLouisan »

Everyone has a different risk profile. You know yours best.
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Re: Have you ever used your emergency fund?

Post by Dave55 »

I bought a house with an emergency fund once. It was a big emergency fund and not too expensive of a house.

Dave
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Re: Have you ever used your emergency fund?

Post by PersonalFinanceJam »

Nope.
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Re: Have you ever used your emergency fund?

Post by abuss368 »

Dave55 wrote: Thu Aug 04, 2022 7:10 pm I bought a house with an emergency fund once. It was a big emergency fund and not too expensive of a house.

Dave
I thought you purchased the Lear Jet ✈️ With the emergency fund?😂🤣

Tony
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Re: Have you ever used your emergency fund?

Post by Dave55 »

abuss368 wrote: Thu Aug 04, 2022 7:59 pm
Dave55 wrote: Thu Aug 04, 2022 7:10 pm I bought a house with an emergency fund once. It was a big emergency fund and not too expensive of a house.

Dave
I thought you purchased the Lear Jet ✈️ With the emergency fund?😂🤣

Tony
I forgot about that!

Dave
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Re: Have you ever used your emergency fund?

Post by abuss368 »

Dave55 wrote: Thu Aug 04, 2022 8:00 pm
abuss368 wrote: Thu Aug 04, 2022 7:59 pm
Dave55 wrote: Thu Aug 04, 2022 7:10 pm I bought a house with an emergency fund once. It was a big emergency fund and not too expensive of a house.

Dave
I thought you purchased the Lear Jet ✈️ With the emergency fund?😂🤣

Tony
I forgot about that!

Dave
Are you cruising at an altitude higher than 40,000 feet and suffering from memory loss?🤣🤣🤣
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Re: Have you ever used your emergency fund?

Post by Dave55 »

abuss368 wrote: Thu Aug 04, 2022 8:01 pm
Dave55 wrote: Thu Aug 04, 2022 8:00 pm
abuss368 wrote: Thu Aug 04, 2022 7:59 pm
Dave55 wrote: Thu Aug 04, 2022 7:10 pm I bought a house with an emergency fund once. It was a big emergency fund and not too expensive of a house.

Dave
I thought you purchased the Lear Jet ✈️ With the emergency fund?😂🤣

Tony
I forgot about that!

Dave
Are you cruising at an altitude higher than 40,000 feet and suffering from memory loss?🤣🤣🤣
45,000
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Re: Have you ever used your emergency fund?

Post by InNameOnly »

When DW and I were newly married and both starting our businesses on a shoestring we learned the benefit of maintaining ample operating capital. We never used the term Emergency Fund but over the years we felt it was prudent increase the funds that we kept on hand to cover expenses like mortgage payments etc. should either of us have to fold up a business due to failing health or failing economy. Even though we were blessed, never having any unplanned expenses that could not be cash flowed during our working years, I would have to say we used "the fund" every day and every night for 30+ years. Living with the mind set of having options, should the worst happen, allowed us to do things we might not have otherwise dared and we never had a sleepless night due to money concerns. Now that we are retired we are finally utilizing those funds to live on, make Roth conversions each year etc. until I start my Social Security at 70.
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Re: Have you ever used your emergency fund?

Post by rene »

I don’t sleep at night if I need to actually track and monitor my checking account for getting low on funds.

The only time I used my dedicated EF was sell my paper I-bonds to replenish my checking account that day as it was getting to <$1000 and mortgage and cc bills due. Never again and it made me realize to get some overdrawn protection at my bank and also double if not triple my EF. Minimum of $50K in checking.

I never ever want to check my checking account before spending normal purchases. In cases of true emergency or large expenditures I sleep at night because I know I should be able to cover minimum $50K from checking and have other less liquid EF funds available as well.
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Re: Have you ever used your emergency fund?

Post by Ivygirl »

I think it's fine to call cash for things like spontaneous visits to restaurants which may not take credit cards "emergency funds." (Referring to earlier discussion in this thread.) How humiliating it would be to make a mistake, eat their food, enjoy their service, and then not be able to pay. Maybe be suspected of "dine and dash." Ugh, I would sink into the floor. :oops: Nor do I want to wash dishes until my meal is paid for.

"Emergency" is a feeling, and avoiding humiliation, faux pas, suspected of being the kind of person who doesn't pay, being caught short and having to be bailed out or supplemented by someone else - worthy reasons for ready emergency funds.
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Re: Have you ever used your emergency fund?

Post by Ivygirl »

An emergency fund, or large sum of ready cash, may have different uses in the near future than it has in the past. Cash makes flexible decisions possible in situations of rapid change. Think furnishing your home office and your kids' schoolroom in March 2020 due to COVID. Not many people expected having to do that a few weeks before.

Running the cash lean to maximize investments makes sense when the situation is stable but not so much when big change is likely. Which is now. The United States population is as a whole getting poorer (various reasons). Expectations of what a middle- or upper-income earner "ought" to be living like are going to change. I'm thinking about the coming transition to electric vehicles and how poorly prepared my small older house with no garage is to charge and house such a car... let alone affording one in the first place. I am middle class by every definition I can find, but will I even have a car in 5 years?

I think we are in a "long emergency" (borrowing a phrase from Mr. Kunstler) of energy, resource, supply chain, and geopolitical elements that is vulnerable to asymmetrical warfare and organized crime. Having no cash and no store of physical things is for living in an invulnerable time.
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Re: Have you ever used your emergency fund?

Post by michaeljc70 »

No. Never had one per se. If I really had an emergency I would tap my taxable account. If that was in the gutter and I didn't want to sell stock in a down market I would borrow against it, get a home equity loan, etc. I had enough income (high savings rate) that I could cash flow almost any expense. Losing my job and not being able to find another was my main concern regarding an emergency.
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Re: Have you ever used your emergency fund?

Post by KlangFool »

michaeljc70 wrote: Fri Aug 05, 2022 7:12 am
No. Never had one per se. If I really had an emergency I would tap my taxable account. If that was in the gutter and I didn't want to sell stock in a down market I would borrow against it, get a home equity loan, etc. I had enough income (high savings rate) that I could cash flow almost any expense. Losing my job and not being able to find another was my main concern regarding an emergency.
michaeljc70,

So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?

KlangFool

P.S.: My employer just announced a lay off.
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Re: Have you ever used your emergency fund?

Post by Zeno »

Great thread
Last edited by Zeno on Sun Aug 07, 2022 8:14 pm, edited 1 time in total.
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Re: Have you ever used your emergency fund?

Post by michaeljc70 »

KlangFool wrote: Fri Aug 05, 2022 7:48 am
michaeljc70 wrote: Fri Aug 05, 2022 7:12 am
No. Never had one per se. If I really had an emergency I would tap my taxable account. If that was in the gutter and I didn't want to sell stock in a down market I would borrow against it, get a home equity loan, etc. I had enough income (high savings rate) that I could cash flow almost any expense. Losing my job and not being able to find another was my main concern regarding an emergency.
michaeljc70,

So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?

KlangFool

P.S.: My employer just announced a lay off.
I am retired now. I haven't really worked for 6 years.

I did consulting and essentially worked for myself for most of my career so it was way less stable than being an employee. I planned accordingly. I often took off time between projects. Sometimes months, sometimes longer so I was always prepared for it taking time to find a new job. I once took 2 years off. Most of the time off was voluntary....some wasn't. With a high savings rate it wasn't an issue. I think an EF is more important for people with little accessible savings.
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Re: Have you ever used your emergency fund?

Post by lstone19 »

KlangFool wrote: Fri Aug 05, 2022 7:48 am So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?
Zeno wrote: Fri Aug 05, 2022 7:53 am At the end of the day, this thread is about individual risk tolerance, nothing more, nothing less.
Absolutely. KlangFool asks about be prepared for losses from selling stocks. But what about gains not realized by being too conservative? As Zeno said, it's about risk tolerance. I can tap six figures should it be needed but that six figures is not all in risk-free investments. I'm comfortable with some of the funds I can tap if needed being in short-term bonds which can see some losses. Less likely that I'd need to get to equities but it could happen.

There's no right answer for everybody. It's clear from this discussion some people think an emergency fund needs to be in currency (paper money) which has its own risks (theft, physical loss). Others are happy with the fund being in checking and savings accounts. And others have a layered approach - some in immediately available cash, more in low-risk investments that can be quickly liquidated. I said above I can tap six figures should it be needed. Can I turn that into six figures of currency today - no; by the end of next week - yes. And that meets the level of risk I'm willing to accept for emergency cash needs.
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Re: Have you ever used your emergency fund?

Post by michaeljc70 »

lstone19 wrote: Fri Aug 05, 2022 8:28 am
KlangFool wrote: Fri Aug 05, 2022 7:48 am So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?
Zeno wrote: Fri Aug 05, 2022 7:53 am At the end of the day, this thread is about individual risk tolerance, nothing more, nothing less.
Absolutely. KlangFool asks about be prepared for losses from selling stocks. But what about gains not realized by being too conservative? As Zeno said, it's about risk tolerance. I can tap six figures should it be needed but that six figures is not all in risk-free investments. I'm comfortable with some of the funds I can tap if needed being in short-term bonds which can see some losses. Less likely that I'd need to get to equities but it could happen.

There's no right answer for everybody. It's clear from this discussion some people think an emergency fund needs to be in currency (paper money) which has its own risks (theft, physical loss). Others are happy with the fund being in checking and savings accounts. And others have a layered approach - some in immediately available cash, more in low-risk investments that can be quickly liquidated. I said above I can tap six figures should it be needed. Can I turn that into six figures of currency today - no; by the end of next week - yes. And that meets the level of risk I'm willing to accept for emergency cash needs.
Don't forget about the risk of inflation. If you had it in a MM/savings/checking earning low to no interest and inflation is 9% (like now).....
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Re: Have you ever used your emergency fund?

Post by KlangFool »

lstone19 wrote: Fri Aug 05, 2022 8:28 am
KlangFool wrote: Fri Aug 05, 2022 7:48 am So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?
Zeno wrote: Fri Aug 05, 2022 7:53 am At the end of the day, this thread is about individual risk tolerance, nothing more, nothing less.
Absolutely. KlangFool asks about be prepared for losses from selling stocks. But what about gains not realized by being too conservative?
lstone19,

Historically, as long as someone's AA is in the range of 70/30 to 30/70, the gain is minimal.

https://investor.vanguard.com/investor- ... allocation

The average annual return of 100% stock = 12.3%

The average annual return of 70/30 = 10.5%

KlangFool
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Re: Have you ever used your emergency fund?

Post by KlangFool »

michaeljc70 wrote: Fri Aug 05, 2022 8:34 am
lstone19 wrote: Fri Aug 05, 2022 8:28 am
KlangFool wrote: Fri Aug 05, 2022 7:48 am So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?
Zeno wrote: Fri Aug 05, 2022 7:53 am At the end of the day, this thread is about individual risk tolerance, nothing more, nothing less.
Absolutely. KlangFool asks about be prepared for losses from selling stocks. But what about gains not realized by being too conservative? As Zeno said, it's about risk tolerance. I can tap six figures should it be needed but that six figures is not all in risk-free investments. I'm comfortable with some of the funds I can tap if needed being in short-term bonds which can see some losses. Less likely that I'd need to get to equities but it could happen.

There's no right answer for everybody. It's clear from this discussion some people think an emergency fund needs to be in currency (paper money) which has its own risks (theft, physical loss). Others are happy with the fund being in checking and savings accounts. And others have a layered approach - some in immediately available cash, more in low-risk investments that can be quickly liquidated. I said above I can tap six figures should it be needed. Can I turn that into six figures of currency today - no; by the end of next week - yes. And that meets the level of risk I'm willing to accept for emergency cash needs.
Don't forget about the risk of inflation. If you had it in a MM/savings/checking earning low to no interest and inflation is 9% (like now).....
michaeljc70,

Inflation is a long term problem. Someone has to survive the coming recession first before the inflation becomes a problem.

A person have to survive in order to succeed.

KlangFool
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Re: Have you ever used your emergency fund?

Post by KlangFool »

michaeljc70 wrote: Fri Aug 05, 2022 7:56 am
KlangFool wrote: Fri Aug 05, 2022 7:48 am
michaeljc70 wrote: Fri Aug 05, 2022 7:12 am
No. Never had one per se. If I really had an emergency I would tap my taxable account. If that was in the gutter and I didn't want to sell stock in a down market I would borrow against it, get a home equity loan, etc. I had enough income (high savings rate) that I could cash flow almost any expense. Losing my job and not being able to find another was my main concern regarding an emergency.
michaeljc70,

So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?

KlangFool

P.S.: My employer just announced a lay off.
I am retired now. I haven't really worked for 6 years.

I did consulting and essentially worked for myself for most of my career so it was way less stable than being an employee. I planned accordingly. I often took off time between projects. Sometimes months, sometimes longer so I was always prepared for it taking time to find a new job. I once took 2 years off. Most of the time off was voluntary....some wasn't. With a high savings rate it wasn't an issue. I think an EF is more important for people with little accessible savings.
michaeljc70,

So, where do you get your cash for spending while you are not working? Aka, no income.

KlangFool
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Target2019
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Re: Have you ever used your emergency fund?

Post by Target2019 »

I assigned one portion of our bond allocation to "emergency fund." Never used.
michaeljc70
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Re: Have you ever used your emergency fund?

Post by michaeljc70 »

KlangFool wrote: Fri Aug 05, 2022 8:43 am
michaeljc70 wrote: Fri Aug 05, 2022 7:56 am
KlangFool wrote: Fri Aug 05, 2022 7:48 am
michaeljc70 wrote: Fri Aug 05, 2022 7:12 am
No. Never had one per se. If I really had an emergency I would tap my taxable account. If that was in the gutter and I didn't want to sell stock in a down market I would borrow against it, get a home equity loan, etc. I had enough income (high savings rate) that I could cash flow almost any expense. Losing my job and not being able to find another was my main concern regarding an emergency.
michaeljc70,

So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?

KlangFool

P.S.: My employer just announced a lay off.
I am retired now. I haven't really worked for 6 years.

I did consulting and essentially worked for myself for most of my career so it was way less stable than being an employee. I planned accordingly. I often took off time between projects. Sometimes months, sometimes longer so I was always prepared for it taking time to find a new job. I once took 2 years off. Most of the time off was voluntary....some wasn't. With a high savings rate it wasn't an issue. I think an EF is more important for people with little accessible savings.
michaeljc70,

So, where do you get your cash for spending while you are not working? Aka, no income.

KlangFool
Savings. I believe from other threads you are a big saver. If you save 20, 30, 40, 50% of what you make I don't think you need an emergency fund per se. It is more about making sure you have a plan to be able to access the savings if needed (not sell equities at a loss or get hit with an early withdrawal penalty). You can do that by having fixed income or the ability to borrow if needed for the short term. I also live(d) fairly frugally so I don't need a ton of money for expenses.

The poster above is right about risk tolerance. The chances (to me) of the market being down significantly and me being out of work for an extended period of time were always low. I made it through 2000 and 2008. I worked in IT so 2000 was particularly hard hitting but I made it with no issues.
KlangFool
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Re: Have you ever used your emergency fund?

Post by KlangFool »

michaeljc70 wrote: Fri Aug 05, 2022 8:53 am
KlangFool wrote: Fri Aug 05, 2022 8:43 am
michaeljc70 wrote: Fri Aug 05, 2022 7:56 am
KlangFool wrote: Fri Aug 05, 2022 7:48 am
michaeljc70 wrote: Fri Aug 05, 2022 7:12 am
No. Never had one per se. If I really had an emergency I would tap my taxable account. If that was in the gutter and I didn't want to sell stock in a down market I would borrow against it, get a home equity loan, etc. I had enough income (high savings rate) that I could cash flow almost any expense. Losing my job and not being able to find another was my main concern regarding an emergency.
michaeljc70,

So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?

KlangFool

P.S.: My employer just announced a lay off.
I am retired now. I haven't really worked for 6 years.

I did consulting and essentially worked for myself for most of my career so it was way less stable than being an employee. I planned accordingly. I often took off time between projects. Sometimes months, sometimes longer so I was always prepared for it taking time to find a new job. I once took 2 years off. Most of the time off was voluntary....some wasn't. With a high savings rate it wasn't an issue. I think an EF is more important for people with little accessible savings.
michaeljc70,

So, where do you get your cash for spending while you are not working? Aka, no income.

KlangFool
Savings. I believe from other threads you are a big saver. If you save 20, 30, 40, 50% of what you make I don't think you need an emergency fund per se.
michaeljc70,

When you have no income (not working), where does your savings come from? This is the part that I am confused about.

KlangFool
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michaeljc70
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Re: Have you ever used your emergency fund?

Post by michaeljc70 »

KlangFool wrote: Fri Aug 05, 2022 8:56 am
michaeljc70 wrote: Fri Aug 05, 2022 8:53 am
KlangFool wrote: Fri Aug 05, 2022 8:43 am
michaeljc70 wrote: Fri Aug 05, 2022 7:56 am
KlangFool wrote: Fri Aug 05, 2022 7:48 am

michaeljc70,

So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?

KlangFool

P.S.: My employer just announced a lay off.
I am retired now. I haven't really worked for 6 years.

I did consulting and essentially worked for myself for most of my career so it was way less stable than being an employee. I planned accordingly. I often took off time between projects. Sometimes months, sometimes longer so I was always prepared for it taking time to find a new job. I once took 2 years off. Most of the time off was voluntary....some wasn't. With a high savings rate it wasn't an issue. I think an EF is more important for people with little accessible savings.
michaeljc70,

So, where do you get your cash for spending while you are not working? Aka, no income.

KlangFool
Savings. I believe from other threads you are a big saver. If you save 20, 30, 40, 50% of what you make I don't think you need an emergency fund per se.
michaeljc70,

When you have no income (not working), where does your savings come from? This is the part that I am confused about.

KlangFool
From when you were working.....presumably you are working most of the time....

Elsewhere on this board I believe you save 1 year of expenses for every year you work. That means if you were out of work every other year you would be okay (ignoring retirement).
KlangFool
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Re: Have you ever used your emergency fund?

Post by KlangFool »

michaeljc70 wrote: Fri Aug 05, 2022 8:59 am
KlangFool wrote: Fri Aug 05, 2022 8:56 am
michaeljc70 wrote: Fri Aug 05, 2022 8:53 am
KlangFool wrote: Fri Aug 05, 2022 8:43 am
michaeljc70 wrote: Fri Aug 05, 2022 7:56 am

I am retired now. I haven't really worked for 6 years.

I did consulting and essentially worked for myself for most of my career so it was way less stable than being an employee. I planned accordingly. I often took off time between projects. Sometimes months, sometimes longer so I was always prepared for it taking time to find a new job. I once took 2 years off. Most of the time off was voluntary....some wasn't. With a high savings rate it wasn't an issue. I think an EF is more important for people with little accessible savings.
michaeljc70,

So, where do you get your cash for spending while you are not working? Aka, no income.

KlangFool
Savings. I believe from other threads you are a big saver. If you save 20, 30, 40, 50% of what you make I don't think you need an emergency fund per se.
michaeljc70,

When you have no income (not working), where does your savings come from? This is the part that I am confused about.

KlangFool
From when you were working.....presumably you are working most of the time....

Elsewhere on this board I believe you save 1 year of expenses for every year you work. That means if you were out of work every other year you would be okay (ignoring savings for retirement).
Okay. What you called as "savings", I called it as "emergency fund".

KlangFool
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Re: Have you ever used your emergency fund?

Post by Broken Man 1999 »

Ivygirl wrote: Fri Aug 05, 2022 5:45 am I think it's fine to call cash for things like spontaneous visits to restaurants which may not take credit cards "emergency funds." (Referring to earlier discussion in this thread.) How humiliating it would be to make a mistake, eat their food, enjoy their service, and then not be able to pay. Maybe be suspected of "dine and dash." Ugh, I would sink into the floor. :oops: Nor do I want to wash dishes until my meal is paid for.

"Emergency" is a feeling, and avoiding humiliation, faux pas, suspected of being the kind of person who doesn't pay, being caught short and having to be bailed out or supplemented by someone else - worthy reasons for ready emergency funds.
DW and I finished up a meal and I realized I had forgot my wallet, and we didn't have enough cash to pay. DW had her JC Penny card, but that was no help. So I went to the manager, told him our story, and asked him to keep DW as collateral. He was agreeable. Easy solution.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
michaeljc70
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Re: Have you ever used your emergency fund?

Post by michaeljc70 »

lstone19 wrote: Fri Aug 05, 2022 8:28 am
KlangFool wrote: Fri Aug 05, 2022 7:48 am So, how do you prepared for unemployment in the coming recession? The stock and housing market may drop 50% at the same time. Are you prepared for the loss that you could incur from selling your stocks?
Zeno wrote: Fri Aug 05, 2022 7:53 am At the end of the day, this thread is about individual risk tolerance, nothing more, nothing less.
Absolutely. KlangFool asks about be prepared for losses from selling stocks. But what about gains not realized by being too conservative? As Zeno said, it's about risk tolerance. I can tap six figures should it be needed but that six figures is not all in risk-free investments. I'm comfortable with some of the funds I can tap if needed being in short-term bonds which can see some losses. Less likely that I'd need to get to equities but it could happen.

There's no right answer for everybody. It's clear from this discussion some people think an emergency fund needs to be in currency (paper money) which has its own risks (theft, physical loss). Others are happy with the fund being in checking and savings accounts. And others have a layered approach - some in immediately available cash, more in low-risk investments that can be quickly liquidated. I said above I can tap six figures should it be needed. Can I turn that into six figures of currency today - no; by the end of next week - yes. And that meets the level of risk I'm willing to accept for emergency cash needs.
It is about risk tolerance. There was a good thread on this (EF drag) some time ago. It is hard for people to take into account opportunity costs. Depending on how you define "emergency", you shouldn't have too many in your financial life. If I had to take out a loan at an unfavorable interest rate for 4 months 3 times in my life vs. kept $30k out of the stock market for 40 years, which would hurt me more?

Just to be clear, I've never had to take out an emergency loan.
Ivygirl
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Re: Have you ever used your emergency fund?

Post by Ivygirl »

Zeno wrote: Fri Aug 05, 2022 7:53 am At the end of the day, this thread is about individual risk tolerance, nothing more, nothing less.

Me? The only constant is change over all relevant time scales, from Deep Time to yesterday. Some change is “bad.” Pandemics, other disease, drought, mass extinction event (both natural and species induced), meteor strikes, protoplanets smacking into our Rock to create a moon, war, use of nuclear weapons, all of it. None is unexpected though. Just ask a geologist or anthropologist. Or a historian, even one who merely chronicled the last century.

An alien could land on our planet this morning and that also wouldn’t be unexpected. Why? Because there is evidence to suggest the building blocks for life on Earth were delivered by comets and meteorites eons ago. Heck, the precise origin of water on Earth remains unknown.

A lot of change is wonderfully “good” and more and more now technology and science based. Medicine is an example here of course.

So I don’t lose sleep over, nor keep an EF for, contingencies like a potential future EV charger and where it might go in my abode. I am 58 and have never lived in a house with a garage, and still don’t currently. If I have to go back to riding horses, that is completely normal — our ancestors did that for centuries.

I prefer to gaze upon the latest imagery from the James Webb Space Telescope and ponder this strange, acutely short, insignificant experience called life. And if the aliens invade later today, I won’t deem that to be an unexpected emergency either. And we certainly aren’t holding cash out of the market in an EF in case that event were to occur. Much of investing remains alien to me but that isn’t because I am worried about Little Green Men.
Zeus has entered the chat. :wink:

Remember, Zeno, thou art mortal.
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Re: Have you ever used your emergency fund?

Post by dboeger1 »

Ivygirl wrote: Fri Aug 05, 2022 5:45 am I think it's fine to call cash for things like spontaneous visits to restaurants which may not take credit cards "emergency funds." (Referring to earlier discussion in this thread.) How humiliating it would be to make a mistake, eat their food, enjoy their service, and then not be able to pay. Maybe be suspected of "dine and dash." Ugh, I would sink into the floor. :oops: Nor do I want to wash dishes until my meal is paid for.

"Emergency" is a feeling, and avoiding humiliation, faux pas, suspected of being the kind of person who doesn't pay, being caught short and having to be bailed out or supplemented by someone else - worthy reasons for ready emergency funds.
Along these lines, I think it's important to acknowledge why so many people are critical of the concept of an EF. Most of the times that people criticize EFs, it's because they're imaging some separate stash of money that just sits there and can't be used unless there's a zombie apocalypse or some other highly improbably negative event. In those cases, yes, an EF is mostly just a waste of potential, and if the "emergency" is severe enough (collapse of USA, super volcano eruption, melting glaciers triggering the next ice age), cash may not even be the optimal solution. But if you actually start using your EF for more minor emergencies where it makes perfect sense to pull out of a dedicated cash fund, such as the cash-only restaurant example, then those same people get angry about calling it an emergency or even just an unplanned expense and insist that it should've come out of the portfolio or new income. There must be some extremely narrow band of things that qualify as emergency funds for which they believe an EF would be appropriate. It's almost like believing pretty girls can't be smart unless they have a very specific hot librarian look. You can convince yourself that anything doesn't make sense if you're narrow-minded enough about it.

Another commenter mentioned something about wanting to be able to spend without having to check their accounts, and I think that's a decent way of describing how I feel about my "EF"/cash buffer. Fairly often, we'll get to the weekend having no plans, and my wife will ask on Saturday morning, "Hey, I found this new thing we could go to as a family, and it's $30 per person, but annual tickets are $50 and I think we'd like to go again at some point, so can we just spend $150 on tickets and go today?" I like being able to say yes to those things any given weekend and not have to think about what's in our checking account, what I'm going to sell, when we're getting paid, etc. And it's not like I have a perfectly fixed-size cash buffer either. I spend it down until it gets to where I feel a little less comfortable, then I either replenish it with new income (which is almost always), or in rare cases, I'll sell some assets to replenish it. So in the end, it's functionally equivalent to spending out of the portfolio the way a retiree would anyway, and the differences are really only semantic.

Now, if someone insists that doesn't qualify as an EF, then sure, whatever floats their boat. I just think it's not really fair to define something so narrowly for the express purpose of saying it's pointless. It's kind of like saying, "Cars are pointless, you need a truck to haul bigger stuff," and then somebody shows you a crossover that hauls enough for their own purposes, and that person responds by saying, "Well, that's not a car!" Maybe, but I still don't want to ignore the important point, which is that for some people, a crossover might be the right vehicle choice.
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Re: Have you ever used your emergency fund?

Post by AnnetteLouisan »

Maybe the EF is for people who don’t have pledged asset lines, credit cards with high limits, or home equity lines of credit.

Maybe the EF primarily serves a psychological function, letting you focus on the emergency without the added pressure of financial woes.

Example: I had an emergency last year (well, nothing terrible at all but they had to make sure) that insurance covered. The EF allowed me the peace of mind to know that I could cover it if insurance didn’t cover it all. So, while I was in the emergency and for the weeks after I did not have to worry at all about money. When I received the initial letter from insurance saying they would not cover it, and requesting more info, I wasn’t worried then either since the letter predated the billing etc. as mentioned, they ended up covering it with little ado but the EF meant I wasn’t frantic with worry during and after the event as the EOBs trickled in gradually.

That’s worth something.

I was in some emergencies in which money was pretty irrelevant (blackouts, terror threats and attacks, civil unrest, Hurricane Sandy) and other assets were valuable (calm under pressure, strategic thinking, health, family, luck). But it was nice to know it was there.

Maybe Im outgrowing the EF. It seems more and more absurd (for me anyway) the more we discuss it. Not everything can be fixed with money and if it can, we have it in various forms whether it’s credit, treasuries, a CD, an incoming paycheck, insurance or whatever, so no biggie. Very few things have to be paid in large amounts on the spot, nor should they be (like that nice Porsche). It made sense in the past when inflation was lower and savings account and CD rates were higher but it seems pretty lethal now. I mean, liquidity is convenient but it doesn’t have to be so much. Maybe it is even a bad thing because some might be more likely to spend it if it isn’t allocated and working.

Ps: two great books on the psychology of emergency funds are “Dough: a Memoir” by Mort Zachter and “Momma’s Bank Account” - a preteen novel about growing up in an immigrant family in a nyc tenement - WITH a sense of security. (“Everyone we knew was poor, but we were different … momma had a bank account.”) of course you can guess the ending.
Last edited by AnnetteLouisan on Sat Aug 06, 2022 7:19 am, edited 2 times in total.
KlangFool
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Re: Have you ever used your emergency fund?

Post by KlangFool »

AnnetteLouisan wrote: Fri Aug 05, 2022 12:54 pm
Maybe Im outgrowing the EF. It seems more and more absurd (for me anyway) the more we discuss it. Not everything can be fixed with money and if it can, we have it in various forms whether it’s credit, treasuries, a CD, an incoming paycheck, insurance or whatever, so no biggie. Very few things have to be paid in large amounts on the spot, nor should they be (like that nice Porsche). It made sense in the past when inflation was lower and savings rates were higher but it sees pretty lethal now. I mean, liquidity is convenient but it doesn’t have to be so much. Maybe it is even a bad thing because some might be more likely to spend it if it isn’t allocated and working.
AP,

Or, you have "enough". Hence, you won't mind having a large pool of cash earning close to nothing. My Vanguard MMF is earning around 2% now. But, I won't mind that it earn nothing.

Money is just a tool for us to live our lives. It should not be the end goal by itself.

"Not everything can be fixed with money"

Correct! So, why not have enough cash around to deal with stuff that can be fixed with money? Then, you can focus your time and energy on stuff that cannot be fixed with money.

The easiest problem in life tend to be the kind that can be fixed with money. Spend your time and energy on the harder problem. This is a more productive and effective usage of your time and your life.

KlangFool
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