A coffee roaster is in our future as well. Do yiu do espresso? Do you have a reliable burr grinder?KlangFool wrote: ↑Sat Sep 18, 2021 9:25 amEnjoyIt,EnjoyIt wrote: ↑Sat Sep 18, 2021 9:11 amKlangfool,KlangFool wrote: ↑Fri Sep 17, 2021 5:35 pminvestor.was.here,investor.was.here wrote: ↑Fri Sep 17, 2021 3:39 pm
For us, checking is about 2mo of living expenses and emergency funds about 6mo of expenses. Given that we spend $10-$15k/mo, that's quite a bit of money! Currently, it's split between checking and Ally, basically paying nothing.
If you are spending 10K to 15K per month, 8 months of expense earning should not be a problem for you. If you need to care about how much this money is earning, you have a REAL PROBLEM. Your saving rate is too low.
1) What is the size of your investment portfolio?
2) How much do you save and invest per year?
<< that's quite a bit of money!>>
It is not if you are saving 10K to 15K per month.
I keep 2 to 3 years of expense in checking account and money market fund. My portfolio excluding the emergency fund is at 27 years of my expense. I save 1 year of expense every year.
KlangFool
I understand that recently you were retired and considered yourself financially independent. Now, you have a job but still save 1 year of expenses. Ideally your portfolio will grow as well so that in short order you will be at 29x, 31.5x, 34x, and so forth. Have you considered also increasing your lifestyle expenses to keep in line with your wealth?
I ask because that is what we have done once we became FI. Majority of those new expenses are discretionary and can be cut at any time without adversely affecting our life.
Not exactly. I spend more but I am a value conscious person. So, the additional spending has to make sense for me. And, it take time and effort to enjoy some of those stuff.
A) We order take out more.
B) Looking to buy a $3,000 coffee roaster. But, it would take time and effort for me to learn to use the coffee roaster.
C) I am about to pay off my mortgage. So, I could spend 15K more per year even within current annual expense of 60K per year.
KlangFool
What are you all doing for emergency funds?
Re: What are you all doing for emergency funds?
A time to EVALUATE your jitters: |
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Re: What are you all doing for emergency funds?
I disagreed.etfan wrote: ↑Sat Sep 18, 2021 9:39 amThat's a fair point. I just think of the EF bonds as a better Savings account (which is also taxable).
A) Bonds are not CASH. Hence, it can lose its principal. It is NOT saving account.
B) Bonds are not STOCK. You pay ordinary income tax on the interest income.
C) Bonds are not STOCK. In fact, right now the dividend yield of the Stock index fund is as high as the bond plus it is qualified dividend.
D) In summary, it is NOT useful in the taxable account.
E) If I am prepared to lose money, I choose 100% stock in my taxable account. Bond is not useful at all.
KlangFool
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Re: What are you all doing for emergency funds?
Credit Union draft account (checking) plus IMMA: total in these two accounts is $90k on deposit now.
I also have a HELOC (up to $60K) at the same institution. This means that if I wanted to I could walk into the CU and obtain $150K in cash or electronic transfer in a matter of minutes.
To this institution I automatically deposit monthly Social Security (for me and my spouse) as well as RMD's transferred electronically from my 403b and IRA accounts. So it's "one-stop banking."
If I needed a lot of cash beyond this I could sell equity holdings in a brokerage account.
I also have a HELOC (up to $60K) at the same institution. This means that if I wanted to I could walk into the CU and obtain $150K in cash or electronic transfer in a matter of minutes.
To this institution I automatically deposit monthly Social Security (for me and my spouse) as well as RMD's transferred electronically from my 403b and IRA accounts. So it's "one-stop banking."
If I needed a lot of cash beyond this I could sell equity holdings in a brokerage account.
Last edited by Garco on Sat Sep 18, 2021 9:55 am, edited 2 times in total.
Re: What are you all doing for emergency funds?
EnjoyIt,
Sorry! I hate expresso. I do all other kinds of coffee brewing except expresso. It does not bring out the actual coffee flavor for medium and light roasted coffee very well. And, that is the kind of coffee that I like.
<<Do you have a reliable burr grinder?>>
I have a good enough burr grinder. With cold brew, drip brew, and aeropress, the grinding requirement is not as tough as expresso.
If you are an expresso person, you should consider a super-fully automatic.
https://www.wholelattelove.com/collecti ... and=Gaggia
It is less than $2,000. My brother have one at home.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: What are you all doing for emergency funds?
Oyexpresso
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Re: What are you all doing for emergency funds?
I never thought bonds were cash. I also don't think the tax problem is a big problem at the amounts we're talking about. I suppose I could pay less taxes by holding cash at close to 0% yield, but I'd rather make some more money and pay taxes.KlangFool wrote: ↑Sat Sep 18, 2021 9:44 am A) Bonds are not CASH. Hence, it can lose its principal. It is NOT saving account.
B) Bonds are not STOCK. You pay ordinary income tax on the interest income.
C) Bonds are not STOCK. In fact, right now the dividend yield of the Stock index fund is as high as the bond plus it is qualified dividend.
D) In summary, it is NOT useful in the taxable account.
E) If I am prepared to lose money, I choose 100% stock in my taxable account. Bond is not useful at all.
The idea behind holding VASIX (a 20/80 fund) is that you should overfund it slightly beyond your EF needs to account for possible dips in value. The self-balancing bucket with 20% stocks should also deliver more growth than pure bonds as well.
It's not a PERFECT plan, but it seems reasonable enough to me as a way to have a second tier EF while not wasting earning potential.
Re: What are you all doing for emergency funds?
etfan,
1) What is the amount that we are talking about?
2) Have you compared this with a CASH + 100% stock combination?
KlangFool
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- willthrill81
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Re: What are you all doing for emergency funds?
That's basically what poster vineviz advocated in this thread. I find it to be a very plausible strategy and basically did just that when we still had an EF.etfan wrote: ↑Sat Sep 18, 2021 10:37 amI never thought bonds were cash. I also don't think the tax problem is a big problem at the amounts we're talking about. I suppose I could pay less taxes by holding cash at close to 0% yield, but I'd rather make some more money and pay taxes.KlangFool wrote: ↑Sat Sep 18, 2021 9:44 am A) Bonds are not CASH. Hence, it can lose its principal. It is NOT saving account.
B) Bonds are not STOCK. You pay ordinary income tax on the interest income.
C) Bonds are not STOCK. In fact, right now the dividend yield of the Stock index fund is as high as the bond plus it is qualified dividend.
D) In summary, it is NOT useful in the taxable account.
E) If I am prepared to lose money, I choose 100% stock in my taxable account. Bond is not useful at all.
The idea behind holding VASIX (a 20/80 fund) is that you should overfund it slightly beyond your EF needs to account for possible dips in value. The self-balancing bucket with 20% stocks should also deliver more growth than pure bonds as well.
It's not a PERFECT plan, but it seems reasonable enough to me as a way to have a second tier EF while not wasting earning potential.
The Sensible Steward
Re: What are you all doing for emergency funds?
This is one of the most insightful posts on the thread so far, IMO. The size of others' EFs may not directly relate to your needs, and your needs dictate how your EF should be allocated.EnjoyIt wrote: ↑Sat Sep 18, 2021 9:32 amI have not noticed this addressed so I will ask. What is an emergency for you?investor.was.here wrote: ↑Fri Sep 17, 2021 3:39 pm For us, checking is about 2mo of living expenses and emergency funds about 6mo of expenses. Given that we spend $10-$15k/mo, that's quite a bit of money! Currently, it's split between checking and Ally, basically paying nothing.
With inflation running at 5%/yr and expected to stay there for 3yrs, it's quite expensive to stick to this strategy. I'm curious what you all are doing about this problem?
[Blockchain technology (cryptocurrency) comments removed by admin LadyGeek]
Considering you are on this forum I would assume you are saving 15-20% or more of your income. If not then your emergency fund is the least of your problems. With that in mind again what is an emergency. It shouldn’t be HVAC repair or roof repair, you should be able to pay for it with your income. Medical emergencies don’t count since again you should be able to cover the deductible pretty easily.
In my opinion an emergency for you is losing your job while a recession hits plus or minus a large expense on top. With that in mind, decide how will you cover this expense.
Some things to take into account:
How hard would it be to find employment in a field especially if your industry is in low demand. Some people can find themselves out of work for a year or more.
How much can you cut expenses if times are bad? Do you need to spend $10k-$15k a year or can you cut down to $6k-$8k.
As you can see there are some on this forum who feel they need years of expenses in cash or cash like equivalents. There are others who have plenty of investments in taxable and are willing to tap their investments in an emergency. Only you can decide what you need and what your comfortable with.
Personally, I keep enough cash for unforeseen non-employment-related emergencies, and then tier the rest in a way that I could sustain extended periods of unemployment. I'm in the process of migrating some cash to I-Bonds, but next year my EF will look something like:
-- 6 mos expenses cash in HYSA (split between two banks in order to take advantage of any large deposit bonus offers that come up from time to time)
-- 4 mos expenses I-Bonds
-- 1 mo expenses in HSA qualified expenses I haven't reimbursed myself for
-- 4 mos expenses in taxable account
-- 3 mos expenses in Roth contributions
Also, when totalling your expenses for your EF determine which expenses can be shed in an extended emergency. This can reduce the amount you need to save. For example, student loans with generous economic hardship deferrals can be a significant line item that need not be included in monthly payment requirements.
+1. Like nails on a chalkboard.
Re: What are you all doing for emergency funds?
Not really. I already beat the odds by having no EF since my early twenties. If the market tanks 50% today I still have more money due to avoiding the opportunity cost all those years.anon_investor wrote: ↑Sat Sep 18, 2021 8:16 amNot concerned about a 2008 scenario?bling wrote: ↑Sat Sep 18, 2021 7:44 am 1) paycheck hits bank account.
2) pay off all bills.
3) invest the rest.
4) rinse and repeat.
emergency funds are just mental accounting. i also heavily dislike the term because a lot of people throw out EFs willy-nilly. like, how can a monthly expected expense like your mortgage payment come out of your emergency fund? if we're going to use the definition of the word, emergencies must be unexpected and rare.
for me, my emergency plan goes something like:
1) cash reserves.
2) HELOC.
3) margin.
4) taxable.
5) credit card loan.
5) 529 contributions.
6) roth contributions.
7) 529/roth earnings.
8) does it even matter anymore? i'm broke and no EF would have saved me from this level of distress.
these days, i've even crossed over to the dark side and i just pay off property taxes from my margin account because rates are so low, and then just pay off the loan via my income rather then pre-saving up front. i enjoy the convenience and with the market being bullish came out ahead as well.
Re: What are you all doing for emergency funds?
I bonds would be exception as taxes are deferred and you only pay federal taxes.KlangFool wrote: ↑Sat Sep 18, 2021 9:44 amI disagreed.etfan wrote: ↑Sat Sep 18, 2021 9:39 amThat's a fair point. I just think of the EF bonds as a better Savings account (which is also taxable).
A) Bonds are not CASH. Hence, it can lose its principal. It is NOT saving account.
B) Bonds are not STOCK. You pay ordinary income tax on the interest income.
C) Bonds are not STOCK. In fact, right now the dividend yield of the Stock index fund is as high as the bond plus it is qualified dividend.
D) In summary, it is NOT useful in the taxable account.
E) If I am prepared to lose money, I choose 100% stock in my taxable account. Bond is not useful at all.
KlangFool
Re: What are you all doing for emergency funds?
To answer your second question, I didn't. I'm not sure what that exact combination would be, but I will go over the options here:
Let's assume your monthly expenses are $10,000. You want to have a 6-month EF so you need a total of $60,000. Here are the options:
1- You hold $60,000 in a Savings/Checking account.
2- You hold $10,000 in a Savings/Checking account for immediate access to one month's worth, PLUS you hold $60,000 in VASIX (a 20/80) fund as your second tier. Notice we're overfunding your EF by $10,000 to account for possible dips.
3- Cash + 100% stock (your proposal). I'm not sure what the combination will be. If it's the same as (2), then $10,000 cash plus $60,000 in 100% stock. In that case, when you need the money for emergencies, I presume you withdraw from the stock fund and you make up for it by exchanging bonds for stocks in your tax-deferred account?
Re: What are you all doing for emergency funds?
Yes. That's where I got the idea from. I was never happy with holding so much money in a Savings account. The interest is so low it's almost a scam. At some banks, you need at least $100,000 just to cover the cost of your Netflix subscription.willthrill81 wrote: ↑Sat Sep 18, 2021 10:42 am That's basically what poster vineviz advocated in this thread.
So no EF now? What alternative do you follow?I find it to be a very plausible strategy and basically did just that when we still had an EF.
- arcticpineapplecorp.
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Re: What are you all doing for emergency funds?
It's only "quite a bit of money" if you have no emergency that lasts 8 months.investor.was.here wrote: ↑Fri Sep 17, 2021 3:39 pm For us, checking is about 2mo of living expenses and emergency funds about 6mo of expenses. Given that we spend $10-$15k/mo, that's quite a bit of money!
It's not quite enough money if you have an emergency that lasts more than 8 months.
How quickly people forget 2008-2009. Millions were out of work and unlike today where there are 11 million unfilled jobs (an employee's market) back in 2008-2009 companies were not hiring. It took some people a year or longer to find work. I know this because all the so called experts who previously said 3-6 months of an emergency fund was sufficient were now singing a new tune of needing a year's worth of expenses in savings in the event it took you that long to get rehired. That would have been nice to have heard before rather than after (or during) the Great Recession.
So think about the people in 2008/2009 who had 3 or even 6 months of expenses in savings yet couldn't find work for 12 months.
You can say that was then, this time is different if you want. At the end of the day, Cash is always King. Those without it only understand that at the most inopportune times. Cash is insurance for the unexpected. Insurance will always cost you (this time, in lower returns, loss of purchasing power to inflation, etc). But you wouldn't NOT want to have insurance would you?
Last edited by arcticpineapplecorp. on Sat Sep 18, 2021 11:47 am, edited 4 times in total.
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Re: What are you all doing for emergency funds?
etfan,etfan wrote: ↑Sat Sep 18, 2021 11:34 amTo answer your second question, I didn't. I'm not sure what that exact combination would be, but I will go over the options here:
Let's assume your monthly expenses are $10,000. You want to have a 6-month EF so you need a total of $60,000. Here are the options:
1- You hold $60,000 in a Savings/Checking account.
2- You hold $10,000 in a Savings/Checking account for immediate access to one month's worth, PLUS you hold $60,000 in VASIX (a 20/80) fund as your second tier. Notice we're overfunding your EF by $10,000 to account for possible dips.
3- Cash + 100% stock (your proposal). I'm not sure what the combination will be. If it's the same as (2), then $10,000 cash plus $60,000 in 100% stock. In that case, when you need the money for emergencies, I presume you withdraw from the stock fund and you make up for it by exchanging bonds for stocks in your tax-deferred account?
It is very simple.
You put 60K into a 20/80 fund. Instead of that, you could put 20% into 100% stock and 80% into CASH. 12K into the 100% stock and 48K into the CASH.
Then, you come into a simple conclusion. Instead of 48K + 10K = 58K in CASH, you could have 60K in CASH and 10K into the 100% stock. You are done.
KlangFool
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- anon_investor
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Re: What are you all doing for emergency funds?
Are you 100% equities?bling wrote: ↑Sat Sep 18, 2021 11:20 amNot really. I already beat the odds by having no EF since my early twenties. If the market tanks 50% today I still have more money due to avoiding the opportunity cost all those years.anon_investor wrote: ↑Sat Sep 18, 2021 8:16 amNot concerned about a 2008 scenario?bling wrote: ↑Sat Sep 18, 2021 7:44 am 1) paycheck hits bank account.
2) pay off all bills.
3) invest the rest.
4) rinse and repeat.
emergency funds are just mental accounting. i also heavily dislike the term because a lot of people throw out EFs willy-nilly. like, how can a monthly expected expense like your mortgage payment come out of your emergency fund? if we're going to use the definition of the word, emergencies must be unexpected and rare.
for me, my emergency plan goes something like:
1) cash reserves.
2) HELOC.
3) margin.
4) taxable.
5) credit card loan.
5) 529 contributions.
6) roth contributions.
7) 529/roth earnings.
8) does it even matter anymore? i'm broke and no EF would have saved me from this level of distress.
these days, i've even crossed over to the dark side and i just pay off property taxes from my margin account because rates are so low, and then just pay off the loan via my income rather then pre-saving up front. i enjoy the convenience and with the market being bullish came out ahead as well.
- willthrill81
- Posts: 32250
- Joined: Thu Jan 26, 2017 2:17 pm
- Location: USA
- Contact:
Re: What are you all doing for emergency funds?
We are well insured on all fronts. If our house burns down, we're out $1k. If our car is totaled, we're out $500. In the event of a severe medical emergency, our HSA would cover our out-of-pocket maximum for 3 years plus maxed contributions made along the way. I work under a long-term contract and could not lose my job without a minimum of 12 months' notice, and our state's regular unemployment benefits would cover all of our essential spending needs for six months. I also have a 457 account that I would gain penalty-free access to immediately upon separation from my employer. Lastly, I'm planning on retiring in about five years anyway. Given all of that, I see no real need for a large dedicated cash reserve.etfan wrote: ↑Sat Sep 18, 2021 11:43 amSo no EF now? What alternative do you follow?willthrill81 wrote: ↑Sat Sep 18, 2021 10:42 amI find it to be a very plausible strategy and basically did just that when we still had an EF.
The Sensible Steward
- AerialWombat
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- Location: Cashtown, Cashylvania
Re: What are you all doing for emergency funds?
deleted
Last edited by AerialWombat on Sat Feb 05, 2022 2:55 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Re: What are you all doing for emergency funds?
I personally think the ideas around of an "emergency account" as often espoused by many BH'ers, not just the OP, is often way overboard.
I am retired now but this is basically how its been even before retirement. I keep about 2 month's of spending in my checking, not as emergency, but for simplifying the timing and handling of expenses which is often lumpy. Beyond that, we have our investment accounts (taxable, tax differed, and non-taxable) and a small savings account from which we can withdraw funds as needed.
First, what requires "now today" funding. A $3K car repair - Card it. You must replace you car - You typically have 5 days to pay or Financing kick it. Your house blew down - Card the temporary housing costs until you start to seeing your insurance payment covering this. Then there are bills to pay. From the time I spent it until I have to pay it is 30 days or more. Plenty of time to plan payments, moving, selling if necessary, from investments to checking. Sure, there are lots of people out there living hand-to-mouth, but it's unlikely they are here posting on BH's.
2nd, just having access to money someplace in my opinion is an adequate. It does not have to be a dedicate fund. Any fixed income source works. Any NAV change one would experience in any shorter duration bond fund will likely be insignificant if one needs to withdraw. In addition to our much larger "Total Bond" holdings, we hold ISTB (5 yr holdings) which we also monthly withdraw from. In reality, either the Total Bond or ISTB could be tapped easy enough to cover an unusually large need before the payment due date on any bill i would receive. Worst timeline case, one day to sell a holding and 2 days to ACH it to our bank.
So lets say our car had blown-up on Friday afternoon Sept 3rd and I had to replace it ($50K) Friday night (long weekend) because we were on a road trip, I'd have 2 choices, either try to arrange 10 day balance due, or just finance it and then decide next week/month when home how to pay it off. Since this is an very unlikely event procedural-wise, I'm sure not ahead of time going to spend effort on it, or worry about it. IF it happens, I'll roll with it.
For those who dwell in the camp of "must have a sizable dedicated EF", just accept the earnings drag of those funds as a sunk cost.
My 2-bits!
Edit to add: During our accumulation years, we always had a taxable account to draw from if necessary. Now retired (long pass 59.5), that has expanded to include our retirement accounts.
I am retired now but this is basically how its been even before retirement. I keep about 2 month's of spending in my checking, not as emergency, but for simplifying the timing and handling of expenses which is often lumpy. Beyond that, we have our investment accounts (taxable, tax differed, and non-taxable) and a small savings account from which we can withdraw funds as needed.
First, what requires "now today" funding. A $3K car repair - Card it. You must replace you car - You typically have 5 days to pay or Financing kick it. Your house blew down - Card the temporary housing costs until you start to seeing your insurance payment covering this. Then there are bills to pay. From the time I spent it until I have to pay it is 30 days or more. Plenty of time to plan payments, moving, selling if necessary, from investments to checking. Sure, there are lots of people out there living hand-to-mouth, but it's unlikely they are here posting on BH's.
2nd, just having access to money someplace in my opinion is an adequate. It does not have to be a dedicate fund. Any fixed income source works. Any NAV change one would experience in any shorter duration bond fund will likely be insignificant if one needs to withdraw. In addition to our much larger "Total Bond" holdings, we hold ISTB (5 yr holdings) which we also monthly withdraw from. In reality, either the Total Bond or ISTB could be tapped easy enough to cover an unusually large need before the payment due date on any bill i would receive. Worst timeline case, one day to sell a holding and 2 days to ACH it to our bank.
So lets say our car had blown-up on Friday afternoon Sept 3rd and I had to replace it ($50K) Friday night (long weekend) because we were on a road trip, I'd have 2 choices, either try to arrange 10 day balance due, or just finance it and then decide next week/month when home how to pay it off. Since this is an very unlikely event procedural-wise, I'm sure not ahead of time going to spend effort on it, or worry about it. IF it happens, I'll roll with it.
For those who dwell in the camp of "must have a sizable dedicated EF", just accept the earnings drag of those funds as a sunk cost.
My 2-bits!
Edit to add: During our accumulation years, we always had a taxable account to draw from if necessary. Now retired (long pass 59.5), that has expanded to include our retirement accounts.
Re: What are you all doing for emergency funds?
This.scrabbler1 wrote: ↑Sat Sep 18, 2021 9:12 am Many people here, including me, use some layered or tiered approach to emergency funds. I don't like tying up any significant part of my portfolio in an account which has zilch or nearly zilch rate of return. My first tier is a small buffer or cushion, around $700, in my local bank's checking account which exceed any minimum balance requirement to avoid monthly fees. This money is quickly and easily accessible, a key part of my first-tier EF.
My second-tier EF is about $40k held in an intermediate-term muni bond fund. This account has checkwriting privileges which adds some accessibility to the money, an important feature. It earns about 2% interest a year, so it isn't earning zilch (nearly $1k a year). There is some risk to principal, but that's okay. In the nearly 30 years I have been in this fund, I have accessed it just under once per year, on average, and have broken even on gains and losses with those sales. Being able to write a check on a moment's notice instead of taking a few days to transfer money to my local bank's checking account is a very useful feature when I needed a large amount of money immediately.
I keep enough cash in my checking account that my son co-owns with me, to pay bills and cremate me in the event of my death. In my brokerage account, I have equities that could be sold for tax loss or gain harvesting. I had unexpected large expenses with assessments this year, so I am getting ready to sell something to help cover it. It's easy to look at the tax lots on the website at my brokerage account. Any asset can be sold for an emergency, really, it's just a matter of investment and tax strategy.
Re: What are you all doing for emergency funds?
does it matter?
whether you're 100% stocks or 100% bonds, there is still opportunity cost vs holding in cash. you're still expected to come out ahead investing everything.
- anon_investor
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Re: What are you all doing for emergency funds?
I don't think an EF necessarily has to be cash. Personally I am in the process of moving my EF to I Bonds, 65% of the way there. If you hold some bonds your strategy is not as risky compared to if you held 0%.
-
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Re: What are you all doing for emergency funds?
My emergency fund is a pair of Discover cards and a slowly growing stash of iBonds. There's also a small amount in a checking account that I use to pay bills.
- Taylor Larimore
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- Location: Miami FL
Re: What are you all doing for emergency funds?
Bogleheads:
I have never owned a separate, low-yielding, "emergency fund" that may never be needed.
In the event of an emergency when I might need cash, I know that I can obtain money from my bank account, ATM, credit card, portfolio, bank loan, or my relatives (a last resort).
I have been investing for 71 years and have never needed a separate emergency fund.
Strive for Simplicity -- Not Complexity.
Best wishes.
Taylor
I have never owned a separate, low-yielding, "emergency fund" that may never be needed.
In the event of an emergency when I might need cash, I know that I can obtain money from my bank account, ATM, credit card, portfolio, bank loan, or my relatives (a last resort).
I have been investing for 71 years and have never needed a separate emergency fund.
Strive for Simplicity -- Not Complexity.
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
"Simplicity is the master key to financial success." -- Jack Bogle
Re: What are you all doing for emergency funds?
Taylor,
Likewise, I also do not have a separate emergency fund. My emergency fund is part of my savings accounts. For quick cash, a brick-and-mortar local bank savings account. For cash needed in a few days, an online savings account.
For me (and probably you), it's very easy to know when your savings drop below the amount needed for an emergency fund and will act accordingly.
For others, if having a reserve in a separate account keeps you from touching the money except when needed, then by all means have a separate account.
Likewise, I also do not have a separate emergency fund. My emergency fund is part of my savings accounts. For quick cash, a brick-and-mortar local bank savings account. For cash needed in a few days, an online savings account.
For me (and probably you), it's very easy to know when your savings drop below the amount needed for an emergency fund and will act accordingly.
For others, if having a reserve in a separate account keeps you from touching the money except when needed, then by all means have a separate account.
- anon_investor
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- Joined: Mon Jun 03, 2019 1:43 pm
Re: What are you all doing for emergency funds?
Isn't that just an emergency fund by another name?LadyGeek wrote: ↑Sat Sep 18, 2021 2:21 pm Taylor,
Likewise, I also do not have a separate emergency fund. My emergency fund is part of my savings accounts. For quick cash, a brick-and-mortar local bank savings account. For cash needed in a few days, an online savings account.
For me (and probably you), it's very easy to know when your savings drop below the amount needed for an emergency fund and will act accordingly.
For others, if having a reserve in a separate account keeps you from touching the money except when needed, then by all means have a separate account.
Re: What are you all doing for emergency funds?
Yes, it's a variation of the multi-tiered version as suggested in the wiki: Emergency fund
My post was saying that it might be hard for some people to keep track of this. So, do what's easy. If a separate account helps, then by all means do so.For instance, a multi-tiered emergency fund could consist of:
1. Three months of expenses in cash (bank account or money market fund)
2. The next three months of expenses in CDs with the option to cash them in for three months of interest
3. The next three months of expenses in a short-term Treasury bond fund. Selling these would risk incurring some loss of principal due to interest rate changes, but since the odds of needing to rely on your emergency fund for more than six months are slim, some would consider this an acceptable compromise.
Re: What are you all doing for emergency funds?
There are differences of opinions ranging from:
I've since adopted a view of:
- No one needs cash (including EF), it's just a drag on investments
- No one needs a "separate" EF, I keep "just enough" cash to manage upcoming expenses
- My EF is integrated into my other investments, keeping enough liquid assets to meet my expected & unexpected needs
- One should have an "emergency plan" knowing how to get access to money as needed (regardless of where it's kept or in what form)
- One should have a separate EF, but it's OK to use different funds for the EF other than all cash
- One must have CASH and/or hard assets such as GOLD for THEIR emergency fund, nothing else will do...
I've since adopted a view of:
- Have adequate liquid funds (cash) to meet your needs (which may be as little as $0)
- Hold as much liquid funds as you feel you need to sleep well at night, and in a format you feel comfortable holding (which may be a little or a lot, we are each different)
- Remember investing is more marathon than sprint, it's more important to go at a pace you can sustain than be too aggressive and get blindsided by the unexpected and never finish
- Others may be faster, and may push themselves more... But you aren't running their race, you are running your own.
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Re: What are you all doing for emergency funds?
Ah, okay. I view my fixed income allocation and my emergency fund as the same thing. Though like an emergency fund I won't rebalance below a certain dollar amount.LadyGeek wrote: ↑Sat Sep 18, 2021 2:42 pm Yes, it's a variation of the multi-tiered version as suggested in the wiki: Emergency fund
My post was saying that it might be hard for some people to keep track of this. So, do what's easy. If a separate account helps, then by all means do so.For instance, a multi-tiered emergency fund could consist of:
1. Three months of expenses in cash (bank account or money market fund)
2. The next three months of expenses in CDs with the option to cash them in for three months of interest
3. The next three months of expenses in a short-term Treasury bond fund. Selling these would risk incurring some loss of principal due to interest rate changes, but since the odds of needing to rely on your emergency fund for more than six months are slim, some would consider this an acceptable compromise.
Re: What are you all doing for emergency funds?
1- You seem to favor cash over bonds. Isn't it the case that bonds have more growth potential and are still low risk?KlangFool wrote: ↑Sat Sep 18, 2021 11:45 am You put 60K into a 20/80 fund. Instead of that, you could put 20% into 100% stock and 80% into CASH. 12K into the 100% stock and 48K into the CASH.
Then, you come into a simple conclusion. Instead of 48K + 10K = 58K in CASH, you could have 60K in CASH and 10K into the 100% stock. You are done.
2- I admit there is nothing special about holding VASIX. It's just a combination of stocks and bonds, which I already own. So using VASIX as an EF is a form of mental accounting, but it's convenient.
Re: What are you all doing for emergency funds?
I see. I have most of those "protections" as well (insurance, HSA, access to loans, etc), but the biggest "emergency" that is not covered through all that (in my case) would be loss of employment. It's nice to have a way to pay the bills for a few months "between jobs".willthrill81 wrote: ↑Sat Sep 18, 2021 12:20 pmWe are well insured on all fronts. If our house burns down, we're out $1k. If our car is totaled, we're out $500. In the event of a severe medical emergency, our HSA would cover our out-of-pocket maximum for 3 years plus maxed contributions made along the way. I work under a long-term contract and could not lose my job without a minimum of 12 months' notice, and our state's regular unemployment benefits would cover all of our essential spending needs for six months. I also have a 457 account that I would gain penalty-free access to immediately upon separation from my employer. Lastly, I'm planning on retiring in about five years anyway. Given all of that, I see no real need for a large dedicated cash reserve.etfan wrote: ↑Sat Sep 18, 2021 11:43 amSo no EF now? What alternative do you follow?willthrill81 wrote: ↑Sat Sep 18, 2021 10:42 amI find it to be a very plausible strategy and basically did just that when we still had an EF.
Re: What are you all doing for emergency funds?
etfan,etfan wrote: ↑Sat Sep 18, 2021 3:57 pm1- You seem to favor cash over bonds. Isn't it the case that bonds have more growth potential and are still low risk?KlangFool wrote: ↑Sat Sep 18, 2021 11:45 am You put 60K into a 20/80 fund. Instead of that, you could put 20% into 100% stock and 80% into CASH. 12K into the 100% stock and 48K into the CASH.
Then, you come into a simple conclusion. Instead of 48K + 10K = 58K in CASH, you could have 60K in CASH and 10K into the 100% stock. You are done.
2- I admit there is nothing special about holding VASIX. It's just a combination of stocks and bonds, which I already own. So using VASIX as an EF is a form of mental accounting, but it's convenient.
1) I favor holding CASH versus BOND in the taxable account. I have BOND in my tax-advantaged accounts.
2) But, it is inconvenient as compare simple CASH and STOCK. You never really know how much you really have when you need it. At the same time, you pay more taxes. Then, you do not earn as much as the CASH and STOCK combination.
KlangFool
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Re: What are you all doing for emergency funds?
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Last edited by benway on Wed Aug 03, 2022 8:07 am, edited 1 time in total.
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Re: What are you all doing for emergency funds?
I have five years of living expenses in taxable brokerage accounts and finally realized I don't need an EF anymore. I'm fully invested, although conservatively so, and as a result can tap stocks or bonds when/if needed.investor.was.here wrote: ↑Fri Sep 17, 2021 3:39 pm For us, checking is about 2mo of living expenses and emergency funds about 6mo of expenses. Given that we spend $10-$15k/mo, that's quite a bit of money! Currently, it's split between checking and Ally, basically paying nothing.
With inflation running at 5%/yr and expected to stay there for 3yrs, it's quite expensive to stick to this strategy. I'm curious what you all are doing about this problem?
I had a love-hate relationship with cash for a long time and I think I've finally resolved it. I keep enough to pay the bills and the rest is invested, although I'm fairly conservative - about 35/65 right now - appropriate for me to reach my goals.
Re: What are you all doing for emergency funds?
We haven't had our EF since retirement 4 years ago. As part of our non tax-adjusted 50/50 portfolio, I try to keep ~3 years of budgeted expenses in my Taxable account, invested in the VG Intermediate-Term Tax-Exempt fund. Together with the non re-invested distributions from VG Total Stock Market Index they construct the liquid fund that I used for planned and unplanned expenses.
I may use money in this liquid fund for re-balancing purpose, but will maintain at least 1 year worth of budgeted expenses.
I may use money in this liquid fund for re-balancing purpose, but will maintain at least 1 year worth of budgeted expenses.
John C. Bogle: "Never confuse genius with luck and a bull market".
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Re: What are you all doing for emergency funds?
I don’t believe in one. Once you reach a sufficient net worth it’s a pointless exercise. I’ll hear rebuttals to this.
Re: What are you all doing for emergency funds?
why not hold bonds in a 401k and stocks in a taxable brokerage. If you need bond money, sell $x in your taxable brokerage, convert $x of 401k bonds to stocks. End of the day you converted bonds to cash.
I think a 20/80/0 in that setup is preferable than a 20/0/80 position, particularly in a moderate to high inflation environment. Cash just gets destroyed. Personally though, for my EF, I follow more of a 20/65/15 AA
Last edited by riverant on Sat Sep 18, 2021 7:06 pm, edited 1 time in total.
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Re: What are you all doing for emergency funds?
What is a reasonable "sufficient net worth" number?Somethingwitty92912 wrote: ↑Sat Sep 18, 2021 5:40 pm I don’t believe in one. Once you reach a sufficient net worth it’s a pointless exercise. I’ll hear rebuttals to this.
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Re: What are you all doing for emergency funds?
For us, it was about 7x our annual spending, which was also close to when we paid off our mortgage, driving down our essential spending needs considerably.anon_investor wrote: ↑Sat Sep 18, 2021 5:57 pmWhat is a reasonable "sufficient net worth" number?Somethingwitty92912 wrote: ↑Sat Sep 18, 2021 5:40 pm I don’t believe in one. Once you reach a sufficient net worth it’s a pointless exercise. I’ll hear rebuttals to this.
The Sensible Steward
Re: What are you all doing for emergency funds?
Well, in 2018 when I had a good amount of cash in my brokerage account in a money market fund, it generated dividends which are taxed at the regular income tax rate. Now, I have index funds and equities which generate lower dividends than the money market did and are taxed at the LTCG rate and of course if I should sell I would have to pay LTCG, except for one individual stock, which has had a small loss. The small amount of cash that I have there is not invested and thus federally insured. While tax law did not change, interest rates did change. We are Bogleheads. We are nimble.KlangFool wrote: ↑Sat Sep 18, 2021 4:09 pmetfan,etfan wrote: ↑Sat Sep 18, 2021 3:57 pm1- You seem to favor cash over bonds. Isn't it the case that bonds have more growth potential and are still low risk?KlangFool wrote: ↑Sat Sep 18, 2021 11:45 am You put 60K into a 20/80 fund. Instead of that, you could put 20% into 100% stock and 80% into CASH. 12K into the 100% stock and 48K into the CASH.
Then, you come into a simple conclusion. Instead of 48K + 10K = 58K in CASH, you could have 60K in CASH and 10K into the 100% stock. You are done.
2- I admit there is nothing special about holding VASIX. It's just a combination of stocks and bonds, which I already own. So using VASIX as an EF is a form of mental accounting, but it's convenient.
1) I favor holding CASH versus BOND in the taxable account. I have BOND in my tax-advantaged accounts.
2) But, it is inconvenient as compare simple CASH and STOCK. You never really know how much you really have when you need it. At the same time, you pay more taxes. Then, you do not earn as much as the CASH and STOCK combination.
KlangFool
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Re: What are you all doing for emergency funds?
That’s super subjective. Let’s go with an example.anon_investor wrote: ↑Sat Sep 18, 2021 5:57 pmWhat is a reasonable "sufficient net worth" number?Somethingwitty92912 wrote: ↑Sat Sep 18, 2021 5:40 pm I don’t believe in one. Once you reach a sufficient net worth it’s a pointless exercise. I’ll hear rebuttals to this.
Let’s say a married couple both max out 401ks and Roth’s.
They have substantial assets. A paid off older car. A mostly paid off house.
They bring in a nice payroll every month with secured jobs.
Does the opportunity cost of leaving that money sit in cash and get ate up by inflation make a lot of sense to you?
Someone else said 7x that’s not a bad place to start.
After a certain point you realize, I could take from payroll for a down payment towards anything I need. I could withdraw from Roth principal no harm, I probably have physical assets I could sell if it were a truly dire situation, and most of all if it were an absolute emergency you could take from retirement.
To be honest this has been the best argument I’ve heard for holding bonds.
Re: What are you all doing for emergency funds?
I'm approaching 67 years old and still working. Plan is to retire between 68 and 70, and to claim SS at 70. I've never owned bonds, and my financial portfolio is 98% equities/2% cash. Cash is a rounding error, but I'm happy to have it. In retirement, I plan to maintain a modest cash reserve against sequence of returns risk. It seems most folks feeling no need for a cash reserve have a less aggressive portfolio than mine.
Re: What are you all doing for emergency funds?
Wait, nisiprius, please educate me about closing the treasury direct account if it isn't too personal. I trust your judgement and you've thrown me a curveball.nisiprius wrote: ↑Fri Sep 17, 2021 5:13 pm Cash in bank accounts and gripe about it.
Beyond that, being retired we are bond-fund heavy, some in Roth accounts, and regard those as usable for emergencies (although I haven't gotten around to doing whatever you need to do these days to get checkwriting access). It doesn't matter much to me if bonds are down, say, 10%, when you need them in an emergency--it's an emergency.
I used to consider series I savings bonds as potentially part of our emergency fund, but I closed our Treasury Direct accounts and I don't know how quickly we can actually redeem paper bonds these days.
b
Re: What are you all doing for emergency funds?
Money is fungible, especially once your portfolio is large enough.
For example, my EF could be a stable value fund in my 401k. If I need $X, then I could:
(1) Sell $X of VTI in my taxable account
(2) Sell $X of the stable value fund in my 401k
(3) Buy $X of VTI-equivalent in my 401k
For example, my EF could be a stable value fund in my 401k. If I need $X, then I could:
(1) Sell $X of VTI in my taxable account
(2) Sell $X of the stable value fund in my 401k
(3) Buy $X of VTI-equivalent in my 401k
Last edited by Horton on Sat Sep 18, 2021 7:51 pm, edited 2 times in total.
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Re: What are you all doing for emergency funds?
I'm slowly migrating my emergency fund to I Bonds. But it's a slow process.
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Re: What are you all doing for emergency funds?
Since sometime in my 40's our emergency fund has been 1 month's living expenses in the checking account and the rest CSVLI that can be borrowed against at anytime to cover most unforeseen events. Now that retired the dividends on the insurance (really refunds of overcharges on the insurance in the early years) are used to pay the premiums and purchase paid-up additions. The CSVLI currently would cover 2+ years living expense at present age in the 70's.
Re: What are you all doing for emergency funds?
The term “emergency fund”, although somewhat mainstream in personal finance parlance, can be cause confusion. Are we (Bogleheads) referring to a stand alone, segregated account for certain emergencies only? For example, loss of employment, large unexpected medical bill, expensive car repairs, etc. Or is “emergency fund” just the cash equivalents we hold?
The segregated emergency fund is great for those who have less liquid assets and may have struggled with debt in the past. However, I’m of the opinion that once you have a sufficient net worth and have exhibited good spending habits, a segregated account for emergencies only is not needed.
Personally I hold what I call a “cash reserves” account. It’s a combination of FDIC insured savings account, I Bonds, and short term treasury fund. I keep enough in there to cover any large expenses, insurance deductibles, and enough that my DW and I can “sleep well at night”.
The segregated emergency fund is great for those who have less liquid assets and may have struggled with debt in the past. However, I’m of the opinion that once you have a sufficient net worth and have exhibited good spending habits, a segregated account for emergencies only is not needed.
Personally I hold what I call a “cash reserves” account. It’s a combination of FDIC insured savings account, I Bonds, and short term treasury fund. I keep enough in there to cover any large expenses, insurance deductibles, and enough that my DW and I can “sleep well at night”.
Re: What are you all doing for emergency funds?
+2 for Taylor and LadyGeek posts above.
I just transitioned to retirement over the summer after a 40+ year career, so my "emergency fund" is my entire portfolio. My concern is not so much where funds are placed, but how to use them when needed, especially if I were incapacitated or deceased. How would my spouse handle our financial affairs. Think of some of the iterations from the posts above about moving money to where is needs to go: iBonds transfer to checking; sell mutual funds or ETFs, cash in savings bonds, etc. But how many forum members have multiple brokerages and bank accounts and the added complexity of managing it?
Kudos to Taylor - keep things simple so if you have an emergency, especially if that involves you or the person managing the finances, how could someone else fill in and who would that someone else be?
I just transitioned to retirement over the summer after a 40+ year career, so my "emergency fund" is my entire portfolio. My concern is not so much where funds are placed, but how to use them when needed, especially if I were incapacitated or deceased. How would my spouse handle our financial affairs. Think of some of the iterations from the posts above about moving money to where is needs to go: iBonds transfer to checking; sell mutual funds or ETFs, cash in savings bonds, etc. But how many forum members have multiple brokerages and bank accounts and the added complexity of managing it?
Kudos to Taylor - keep things simple so if you have an emergency, especially if that involves you or the person managing the finances, how could someone else fill in and who would that someone else be?
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Re: What are you all doing for emergency funds?
Maybe someone already mentioned this and I missed it, but one can place their cash needs anywhere. One reasonable option would be to hold cash in pre-tax accounts (401k, Traditional IRA, etc.), using this strategy described in the wiki. If one needs the cash, they just sell stocks in taxable and rebalance in pre-tax accounts. The benefit of this approach is one often can get higher yield in pre-tax accounts and tax is deferred until one actually withdraws from those accounts (which as shown above doesn't need to happen for a while).
Personally agree with a few of the other posters here, holding an emergency fund isn't something I find useful personally. There are all manners of risk out there of course, but the best thing I can do for them in save enough and pick an asset allocation I can live with and organize it with tax efficiency in mind. If the emergency doesn't come up, my portfolio will continue to grow with minimal drag. When an emergency comes up, I'll stick it on a card and then am content to sell and pay taxes knowing that my saving, portfolio growth, and overall tax efficiency have helped prepare me for this event. Would recommend reading this blogpost.
Personally agree with a few of the other posters here, holding an emergency fund isn't something I find useful personally. There are all manners of risk out there of course, but the best thing I can do for them in save enough and pick an asset allocation I can live with and organize it with tax efficiency in mind. If the emergency doesn't come up, my portfolio will continue to grow with minimal drag. When an emergency comes up, I'll stick it on a card and then am content to sell and pay taxes knowing that my saving, portfolio growth, and overall tax efficiency have helped prepare me for this event. Would recommend reading this blogpost.
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Re: What are you all doing for emergency funds?
Do you also hold any other fixed income? Personlly I have a mixed of FDIC insured savings accounts/no penalty CDs and I Bonds which serve as both my fixed income allocation and emergency fund. I hold no other fixed income; although, I do have about 1 month worth of expenses that sits in checking/savings accounts to smooth out cash flow, between pay checks.TxFrog wrote: ↑Sat Sep 18, 2021 8:20 pm The term “emergency fund”, although somewhat mainstream in personal finance parlance, can be cause confusion. Are we (Bogleheads) referring to a stand alone, segregated account for certain emergencies only? For example, loss of employment, large unexpected medical bill, expensive car repairs, etc. Or is “emergency fund” just the cash equivalents we hold?
The segregated emergency fund is great for those who have less liquid assets and may have struggled with debt in the past. However, I’m of the opinion that once you have a sufficient net worth and have exhibited good spending habits, a segregated account for emergencies only is not needed.
Personally I hold what I call a “cash reserves” account. It’s a combination of FDIC insured savings account, I Bonds, and short term treasury fund. I keep enough in there to cover any large expenses, insurance deductibles, and enough that my DW and I can “sleep well at night”.