Why you need a rainy day fund

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willthrill81
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Re: Why you need a rainy day fund

Post by willthrill81 »

LittleMaggieMae wrote: Tue Jun 28, 2022 11:52 am
MrMadoff wrote: Tue Jun 28, 2022 11:33 am This is why renters don't need as big of a rainy day fund.
And I might add - may have more 'disposable' income because they do not need to PLAN to eventually replace appliances, etc... which they save up for a little at a time out of their monthly income...
Considering that the landlord is likely including the expected replacement cost of things like appliances in the rent, I don't believe that renting saves most renters money in any way. Since the landlord isn't likely running a charity, the opposite is much more likely to be true.
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Re: Why you need a rainy day fund

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willthrill81 wrote: Thu Jul 07, 2022 9:47 am With a paucity of data on the specific issue, I won't say much with confidence, but it does seem that at least a big proportion of renters are so because they cannot afford to own.
My reply was missed amidst the spat, but we have good data to support that claim:
drk wrote: Thu Jun 30, 2022 6:03 pm The New York Fed's SCE Housing Survey includes exactly that question: "Assuming you had the financial resources to do so, would you like to own instead of rent your primary residence?" Of renters, 69.2% said they prefer owning (51.4% strongly).
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Re: Why you need a rainy day fund

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LittleMaggieMae wrote: Thu Jul 07, 2022 9:53 am I believe generally that the monthly Rent paid is often close to the amount of a mortgage (PITI) for a similar property in the same area.
I don't think that this is a well supported assertion.
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Re: Why you need a rainy day fund

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drk wrote: Thu Jul 07, 2022 9:57 am
willthrill81 wrote: Thu Jul 07, 2022 9:47 am With a paucity of data on the specific issue, I won't say much with confidence, but it does seem that at least a big proportion of renters are so because they cannot afford to own.
My reply was missed amidst the spat, but we have good data to support that claim:
drk wrote: Thu Jun 30, 2022 6:03 pm The New York Fed's SCE Housing Survey includes exactly that question: "Assuming you had the financial resources to do so, would you like to own instead of rent your primary residence?" Of renters, 69.2% said they prefer owning (51.4% strongly).
Thanks. That makes sense. The idea of renting being a preferable lifestyle choice to owning seems pretty common on this forum but less common among renters at large. We've done both and strongly prefer owning.
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Re: Why you need a rainy day fund

Post by LittleMaggieMae »

willthrill81 wrote: Thu Jul 07, 2022 9:57 am
LittleMaggieMae wrote: Tue Jun 28, 2022 11:52 am
MrMadoff wrote: Tue Jun 28, 2022 11:33 am This is why renters don't need as big of a rainy day fund.
And I might add - may have more 'disposable' income because they do not need to PLAN to eventually replace appliances, etc... which they save up for a little at a time out of their monthly income...
Considering that the landlord is likely including the expected replacement cost of things like appliances in the rent, I don't believe that renting saves most renters money in any way. Since the landlord isn't likely running a charity, the opposite is much more likely to be true.
OK. maybe it's because I'm thinking a renter is renting LESS space than they would purchase.
So renting a 2b/2b townhouse with no garage - when what they would buy would be a 3b/2b SFH with a two car garage. I would not expect the rent on the former to be as much as the latter.

I will be honest - I don't know anyone who rented the type of unit or house they would choose to purchase - well, not for a long term (say 5 or more years) usually after renting they would purchase something MORE expensive than what they were renting. AND would have a higher housing expense than what they were paying in rent.

Even my coworkers who are renting really nice condos in the city - when they think about buying a property - it's rarely the same size as the unit they are renting - they would BUY a bigger unit maybe in the same building maybe not (and they might want different amenities - a better view or less noise or something else). Buying that nice unit would mean they would spend more per month... than renting the unit they already live in. They have the income to buy that bigger nicer unit but they opt not to. I'm guessing their current rental unit is "good enough" and they like having more disposable income. I'm pretty sure their landlord isn't a charity and losing money.

I'm pretty sure the people who rent my 2b/2b townhouse - don't go on to buy a 2b/2b townhouse in the same subdivision or even buy a 2b/2b townhouse in another subdivision or a SFH of that size.

Maybe I'm just totally off base and have no idea of what I'm trying to convey....
Last edited by LittleMaggieMae on Thu Jul 07, 2022 10:36 am, edited 2 times in total.
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Re: Why you need a rainy day fund

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LittleMaggieMae wrote: Thu Jul 07, 2022 10:31 am
willthrill81 wrote: Thu Jul 07, 2022 9:57 am
LittleMaggieMae wrote: Tue Jun 28, 2022 11:52 am
MrMadoff wrote: Tue Jun 28, 2022 11:33 am This is why renters don't need as big of a rainy day fund.
And I might add - may have more 'disposable' income because they do not need to PLAN to eventually replace appliances, etc... which they save up for a little at a time out of their monthly income...
Considering that the landlord is likely including the expected replacement cost of things like appliances in the rent, I don't believe that renting saves most renters money in any way. Since the landlord isn't likely running a charity, the opposite is much more likely to be true.
OK. maybe it's because I'm thinking a renter is renting LESS space than they would purchase.
So renting a 2b/2b townhouse with no garage - when what they would buy would be a 3b/2b SFH with a two car garage.

I will be honest - I don't know anyone who rented the type of unit or house they would choose to purchase - well, not for a long term (say 5 or more years) usually after renting they would purchase something MORE expensive than they were renting.

Even my coworkers who are renting really nice condos in the city - when they think about buying a property - it's rarely the same size as the unit they are renting - they would BUY a bigger unit maybe in the same building maybe not (and they might want different amenities - a better view or less noise or something else). Buying that nice unit would mean they would spend more per month... than renting the unit they already live in. They have the income to buy that bigger nicer unit but they opt not to. I'm guessing their current rental unit is "good enough" and they like having more disposable income....

I'm pretty sure the people who rent my 2b/2b townhouse - don't go on to buy a 2b/2b townhouse in the same subdivision or even buy a 2b/2b townhouse in another subdivision or a SFH of that size.
Yes, the relative of size of rented vs. owned housing units is a big difference but is often conflated in rent vs. own discussions.
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Re: Why you need a rainy day fund

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LittleMaggieMae wrote: Thu Jul 07, 2022 10:31 am

I will be honest - I don't know anyone who rented the type of unit or house they would choose to purchase - well, not for a long term (say 5 or more years) usually after renting they would purchase something MORE expensive than what they were renting. AND would have a higher housing expense than what they were paying in rent.
It doesn't make sense to me either, but I know many people who do exactly this. Both my brothers have been renters for the last decade and have lived in multiple luxury homes in that time period. I highly doubt they would consider buying larger or more luxurious homes than they have been renting, even if they could afford it.
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Re: Why you need a rainy day fund

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willthrill81 wrote: Thu Jul 07, 2022 9:57 am Considering that the landlord is likely including the expected replacement cost of things like appliances in the rent, I don't believe that renting saves most renters money in any way. Since the landlord isn't likely running a charity, the opposite is much more likely to be true.
This is only a semantic question about saying landlords include costs in the rent, but isn't it true that rents are market prices that move up and down with supply and demand independently of the costs? Landlords can't make renters pay above-market rent even if needed to cover the expected costs, renters care about how good the deal is compared to other options. I agree with your real point, as a renter you are much more likely to be paying above the landlord's cost than below, nobody wants to lose money. Maybe there are times landlords operate at a loss but it can't be common.
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Re: Why you need a rainy day fund

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AnnetteLouisan wrote: Fri Jul 01, 2022 9:20 pm Ramit Sethi’s podcast this week targeted homeownership in a withering critique. He pointed out that mortgage interest can double the purchase price of a home with no equity being built for 15 years given amortization, plus closing costs, taxes, and repairs. Worth a listen whether or not you agree.
I listened to that episode also and thought it was great. The young couple got advised by realtor friends they trusted that buying is better than renting, they ran the numbers before purchase and thought they'd break even every month but ended up negative every month due to higher than expected costs, and on track to run completely out of money in 2 years. Then being wrapped up in the identity of being a homeowner vs. a renter with all their family and friends made it hard to see selling and becoming renters again as even an option, even though it was ruining their finances and making them miserable. That podcast is interesting for digging into the reasons people are doing what they doing with their money, it's rarely about numbers at the root of the problem and almost always something psychological.
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Re: Why you need a rainy day fund

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saver7007 wrote: Thu Jul 07, 2022 12:58 pm
willthrill81 wrote: Thu Jul 07, 2022 9:57 am Considering that the landlord is likely including the expected replacement cost of things like appliances in the rent, I don't believe that renting saves most renters money in any way. Since the landlord isn't likely running a charity, the opposite is much more likely to be true.
This is only a semantic question about saying landlords include costs in the rent, but isn't it true that rents are market prices that move up and down with supply and demand independently of the costs? Landlords can't make renters pay above-market rent even if needed to cover the expected costs, renters care about how good the deal is compared to other options. I agree with your real point, as a renter you are much more likely to be paying above the landlord's cost than below, nobody wants to lose money. Maybe there are times landlords operate at a loss but it can't be common.
Costs are a factor in virtually any competitive market, and these impact market rents.

No doubt some landlords do operate at a loss, but I agree that such an instance shouldn't logically be common. Those who are aware they are operating at a loss (and certainly some are not aware of this) might be doing so in the hopes that property appreciation will make the venture profitable in the end and/or they want to maintain control of the property because they might want to move in themselves.
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Re: Why you need a rainy day fund

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saver7007 wrote: Thu Jul 07, 2022 1:25 pm
AnnetteLouisan wrote: Fri Jul 01, 2022 9:20 pm Ramit Sethi’s podcast this week targeted homeownership in a withering critique. He pointed out that mortgage interest can double the purchase price of a home with no equity being built for 15 years given amortization, plus closing costs, taxes, and repairs. Worth a listen whether or not you agree.
I listened to that episode also and thought it was great. The young couple got advised by realtor friends they trusted that buying is better than renting, they ran the numbers before purchase and thought they'd break even every month but ended up negative every month due to higher than expected costs, and on track to run completely out of money in 2 years. Then being wrapped up in the identity of being a homeowner vs. a renter with all their family and friends made it hard to see selling and becoming renters again as even an option, even though it was ruining their finances and making them miserable. That podcast is interesting for digging into the reasons people are doing what they doing with their money, it's rarely about numbers at the root of the problem and almost always something psychological.
Every situation is unique, but it seems that renting is generally financially superior in HCOL markets and some MCOL markets. In others, owning appears to come out ahead, assuming that the family isn't moving every few years.

Also, the costs can be so variable as to make many of the rent vs. own analyses almost meaningless. For instance, we've always done virtually 100% of our home maintenance and repairs ourselves, which lowers our carrying costs, and we sold our last home FSBO for a very strong price, retaining the proceeds rather than giving 6% to an agent.
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Re: Why you need a rainy day fund

Post by Naismith »

Based on responses, I think a more accurate term would be "emergency fund."

In many spots in North America, including down into Mexico, drought has been such an issue that a rainy day is a wondrous occasion, cause for celebration!
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Re: Why you need a rainy day fund

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saver7007 wrote: Thu Jul 07, 2022 1:25 pm
AnnetteLouisan wrote: Fri Jul 01, 2022 9:20 pm Ramit Sethi’s podcast this week targeted homeownership in a withering critique. He pointed out that mortgage interest can double the purchase price of a home with no equity being built for 15 years given amortization, plus closing costs, taxes, and repairs. Worth a listen whether or not you agree.
I listened to that episode also and thought it was great. The young couple got advised by realtor friends they trusted that buying is better than renting, they ran the numbers before purchase and thought they'd break even every month but ended up negative every month due to higher than expected costs, and on track to run completely out of money in 2 years. Then being wrapped up in the identity of being a homeowner vs. a renter with all their family and friends made it hard to see selling and becoming renters again as even an option, even though it was ruining their finances and making them miserable. That podcast is interesting for digging into the reasons people are doing what they doing with their money, it's rarely about numbers at the root of the problem and almost always something psychological.
Part 2 was Tuesday! It actually improved from there! He identified that the people influencing them (their parents and brokers) were basing their opinions on circumstances 40 years ago or had an interest, and that life has different seasons during which one prioritizes different things. He’s not saying buying is a bad idea, just that they can’t really afford what they bought (pricey) with their salaries (average), given the activities they don’t want to give up (pretty lavish travel).

I wish he’d do it for singles (or even siblings) as well.

Another show melding issues of investing, spending and psychology is “Only Human” - a UK program where a psychologist and a personal organizer/budgeting expert come to the home of someone who overspends and helps them put back their life into something far better, gets them to save, and stops their overspending.
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Re: Why you need a rainy day fund

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saver7007 wrote: Thu Jul 07, 2022 12:58 pm This is only a semantic question about saying landlords include costs in the rent, but isn't it true that rents are market prices that move up and down with supply and demand independently of the costs? Landlords can't make renters pay above-market rent even if needed to cover the expected costs, renters care about how good the deal is compared to other options. I agree with your real point, as a renter you are much more likely to be paying above the landlord's cost than below, nobody wants to lose money. Maybe there are times landlords operate at a loss but it can't be common.
Similarly, landlord's costs are not necessarily dictated by the market. It's possible for many landlords to make a healthy profit while charging below-market rent. Not everyone takes the BRRR approach and leverages to the hilt.
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Re: Why you need a rainy day fund

Post by dertere »

Of course, at the end of the day renters still need a rainy day fund. For instance, I'm a renter and I recently had some extensive and unexpected emergency dental work done. Even though my employer provided plan covered the lion's share, I was still on the hook for an amount in the low 4 figures. It might not be "replacing the roof and repairing the foundation simultaneously" levels of unexpected expenses, but I was very glad that I have a robust emergency fund so I could just charge it and not have to think about where the money was going to come from.
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Re: Why you need a rainy day fund

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For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
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Re: Why you need a rainy day fund

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stoptothink wrote: Thu Jul 07, 2022 11:06 am
LittleMaggieMae wrote: Thu Jul 07, 2022 10:31 am

I will be honest - I don't know anyone who rented the type of unit or house they would choose to purchase - well, not for a long term (say 5 or more years) usually after renting they would purchase something MORE expensive than what they were renting. AND would have a higher housing expense than what they were paying in rent.
It doesn't make sense to me either, but I know many people who do exactly this. Both my brothers have been renters for the last decade and have lived in multiple luxury homes in that time period. I highly doubt they would consider buying larger or more luxurious homes than they have been renting, even if they could afford it.
We ran the numbers on renting vs buying the same sized unit in the same neighborhood. We were lucky they both happened to be available at the same time, as there were three layouts and there are usually only a couple of units on the market at a time. Renting was right for us, but if for some reason our situation had changed and we wanted to stay long term, we would have revisited buying as units became available.
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Re: Why you need a rainy day fund

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willthrill81 wrote: Thu Jul 07, 2022 5:35 pm For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
Same with us with our EF. We used to carry 6 months worth of expenses in our savings but decided to roll it all over to our taxable account. Now our taxable will be our emergency fund. Even with the recent market decline we have 10+ years of expenses to use up. We have rolling 3 months of expenses in our checking, everything else that's not spent is invested in our taxable per our AA. Last year we had to replace our washer and dryer and put up a new fence when our old one collapsed during a storm as well as brand new tires for our vehicles. Luckily we had enough in our checking so we didn't have to sell shares. Otherwise, we replenished it over the next few months through cash flow and that's that.
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Re: Why you need a rainy day fund

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willthrill81 wrote: Thu Jul 07, 2022 5:35 pm For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
I think anyone should have 3 months in EF, no matter how safe they think their job is.
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Re: Why you need a rainy day fund

Post by sailaway »

Marseille07 wrote: Thu Jul 07, 2022 6:06 pm
willthrill81 wrote: Thu Jul 07, 2022 5:35 pm For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
I think anyone should have 3 months in EF, no matter how safe they think their job is.
What instruments separate out an EF from the rest of the portfolio, in your opinion?
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Re: Why you need a rainy day fund

Post by Marseille07 »

sailaway wrote: Thu Jul 07, 2022 6:12 pm What instruments separate out an EF from the rest of the portfolio, in your opinion?
EF could be part of your portfolio actually. I wasn't implying EF must be set aside outside.

That said, 3 months of EF (say, in your checking account) might be small enough to influence your AA even if you include it.
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Re: Why you need a rainy day fund

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Marseille07 wrote: Thu Jul 07, 2022 6:06 pm
willthrill81 wrote: Thu Jul 07, 2022 5:35 pm For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
I think anyone should have 3 months in EF, no matter how safe they think their job is.
My job is contractual with the state, and I cannot be let go on anyone's whim. At a bare minimum, I would have a year's notice, during which time we could suspend our savings and build up a 6 month reserve completely aside from our portfolio that's around 11x right now. Plus, we have enough physical precious metals (not treated as part of our portfolio but as 'last ditch disaster insurance') to cover at least 5 months of expenses.
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Re: Why you need a rainy day fund

Post by stoptothink »

jsapiandante wrote: Thu Jul 07, 2022 6:05 pm
willthrill81 wrote: Thu Jul 07, 2022 5:35 pm For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
Same with us with our EF. We used to carry 6 months worth of expenses in our savings but decided to roll it all over to our taxable account. Now our taxable will be our emergency fund. Even with the recent market decline we have 10+ years of expenses to use up. We have rolling 3 months of expenses in our checking, everything else that's not spent is invested in our taxable per our AA. Last year we had to replace our washer and dryer and put up a new fence when our old one collapsed during a storm as well as brand new tires for our vehicles. Luckily we had enough in our checking so we didn't have to sell shares. Otherwise, we replenished it over the next few months through cash flow and that's that.
Right now we have ~$25k in a savings account (10+ months of expenses), but that's because we'll have to pay off the balance of a credit card (that had 15 months 0% interest) in December that we've used for almost all our expenses over the last year. We rarely have more than $5k in a true "emergency fund", but a 6-figure taxable account, high 5-figure HSA and a decade of receipts we could get reimbursed for at any time, mid 5-figures in I-bonds, at least one credit card at all times with 0% interest for 6+ months, not to mention one of us losing our job just means we save less (both make gross 4x+ our household expenses)...I think we'll be fine when a rainy day comes. Having been on this board for a long time, I believe many here are in a similar position.
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Re: Why you need a rainy day fund

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stoptothink wrote: Fri Jul 08, 2022 6:49 am
jsapiandante wrote: Thu Jul 07, 2022 6:05 pm
willthrill81 wrote: Thu Jul 07, 2022 5:35 pm For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
Same with us with our EF. We used to carry 6 months worth of expenses in our savings but decided to roll it all over to our taxable account. Now our taxable will be our emergency fund. Even with the recent market decline we have 10+ years of expenses to use up. We have rolling 3 months of expenses in our checking, everything else that's not spent is invested in our taxable per our AA. Last year we had to replace our washer and dryer and put up a new fence when our old one collapsed during a storm as well as brand new tires for our vehicles. Luckily we had enough in our checking so we didn't have to sell shares. Otherwise, we replenished it over the next few months through cash flow and that's that.
Right now we have ~$25k in a savings account (10+ months of expenses), but that's because we'll have to pay off the balance of a credit card (that had 15 months 0% interest) in December that we've used for almost all our expenses over the last year. We rarely have more than $5k in a true "emergency fund", but a 6-figure taxable account, high 5-figure HSA and a decade of receipts we could get reimbursed for at any time, mid 5-figures in I-bonds, at least one credit card at all times with 0% interest for 6+ months, not to mention one of us losing our job just means we save less (both make gross 4x+ our household expenses)...I think we'll be fine when a rainy day comes. Having been on this board for a long time, I believe many here are in a similar position.
EFs tend to be more needful for those early in accumulation. Those in the latter stages of accumulation have sizable portfolios that could be tapped into in the event of something like a job loss, which is typically the single largest risk for which an EF is needed.
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Re: Why you need a rainy day fund

Post by ndomorph »

I just listened to an interview with Morgan Housel (author of The Psychology of Money) on Sam Harris's Making Sense podcast. Housel and his wife maintain a large cash position as an extended EF. When asked what he expects to need so much cash for, he says it's for the stuff you don't anticipate. He earns a modest return with index investing and holds a stash of cash to stave off upset and disruption from surprises.

(He also says it's easier to accumulate 1% more in your portfolio by saving 1% more rather than trying to earn 1% more on your investments. Interesting!)
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Re: Why you need a rainy day fund

Post by willthrill81 »

ndomorph wrote: Fri Jul 08, 2022 10:16 am (He also says it's easier to accumulate 1% more in your portfolio by saving 1% more rather than trying to earn 1% more on your investments. Interesting!)
That math doesn't hold up. Setting aside the dollar amounts, the 1% higher return on one's investments is compounded, whereas the 1% higher savings isn't. For instance, earning 6% instead of 5% returns over time will have a much bigger impact on your portfolio than saving $1,010 dollars every month instead of $1,000.

Housel should know better than this. My respect for him has dropped.
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Re: Why you need a rainy day fund

Post by Living Free »

willthrill81 wrote: Fri Jul 08, 2022 6:21 pm
ndomorph wrote: Fri Jul 08, 2022 10:16 am (He also says it's easier to accumulate 1% more in your portfolio by saving 1% more rather than trying to earn 1% more on your investments. Interesting!)
That math doesn't hold up. Setting aside the dollar amounts, the 1% higher return on one's investments is compounded, whereas the 1% higher savings isn't. For instance, earning 6% instead of 5% returns over time will have a much bigger impact on your portfolio than saving $1,010 dollars every month instead of $1,000.

Housel should know better than this. My respect for him has dropped.
I didn’t listen to the podcast/source, but the point might have been more so that outperforming or increasing the return of one’s portfolio is a tall order and cannot reliably be achieved, whereas one should have more clear control over one’s saving rate?
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Re: Why you need a rainy day fund

Post by H-Town »

Marseille07 wrote: Thu Jul 07, 2022 6:06 pm
willthrill81 wrote: Thu Jul 07, 2022 5:35 pm For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
I think anyone should have 3 months in EF, no matter how safe they think their job is.
It's not true for many bogleheads that we need at least 3 months in EF. We have a sizable taxable account, which we continue to add to it every 2 weeks. If we need to sell from taxable account, we can sell the recent lots that have not much gain or loss. We accumulated TLH that can be used for decades to use to offset any capital gain.

Each of us has a secured job due to the nature of our work. We live on 13% - 14% of our income. So it would take tragic accidents for both of us to lose both of our income. Even then, STD & LTD policy as well as SS disabilities would take care of income replacement.

We keep cash just because my wife wants to keep certain amount of cash. No other reasons.
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stoptothink
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Re: Why you need a rainy day fund

Post by stoptothink »

H-Town wrote: Fri Jul 08, 2022 7:05 pm
Marseille07 wrote: Thu Jul 07, 2022 6:06 pm
willthrill81 wrote: Thu Jul 07, 2022 5:35 pm For most folks, the single biggest need for an emergency fund comes from unexpected job loss. A 3-6 month EF could easily be tens of thousands of dollars, paling the cost of replacing a refrigerator or a transmission.

Owing largely to my job security, we folded our EF into our regular portfolio several years ago, though we still use our 'irregular and non-monthly expense' fund.
I think anyone should have 3 months in EF, no matter how safe they think their job is.
It's not true for many bogleheads that we need at least 3 months in EF. We have a sizable taxable account, which we continue to add to it every 2 weeks. If we need to sell from taxable account, we can sell the recent lots that have not much gain or loss. We accumulated TLH that can be used for decades to use to offset any capital gain.

Each of us has a secured job due to the nature of our work. We live on 13% - 14% of our income. So it would take tragic accidents for both of us to lose both of our income. Even then, STD & LTD policy as well as SS disabilities would take care of income replacement.

We keep cash just because my wife wants to keep certain amount of cash. No other reasons.
One of those never-ending debates on this board. My perspective has certainly changed as we've developed a stronger financial foundation. Today, I can't even imagine a scenario where we'd actually need an EF. It would have to include both of us losing our (secure) jobs and for some reason not being able to find employment for a long time, a massive dip in the market, and an emergency costing us well into 6-figures (ie. being sued, medical emergency) - all at the same time. This is why we live off ~10% of our gross income, have large brokerage and HSA accounts, have home/auto/disability/life insurance, etc. But, if you are in a different situation (which the large majority of the general population is); yes, an EF probably should be your first financial priority.
Marseille07
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Re: Why you need a rainy day fund

Post by Marseille07 »

stoptothink wrote: Sat Jul 09, 2022 7:03 am One of those never-ending debates on this board. My perspective has certainly changed as we've developed a stronger financial foundation. Today, I can't even imagine a scenario where we'd actually need an EF. It would have to include both of us losing our (secure) jobs and for some reason not being able to find employment for a long time, a massive dip in the market, and an emergency costing us well into 6-figures (ie. being sued, medical emergency) - all at the same time. This is why we live off ~10% of our gross income, have large brokerage and HSA accounts, have home/auto/disability/life insurance, etc. But, if you are in a different situation (which the large majority of the general population is); yes, an EF probably should be your first financial priority.
I don't think there is a debate, we just need some level of preparation for emergencies that's all. Maybe some folks prefer physical cash, a checking account, bonds, or home/auto/disability/life insurance. Those are all valid ways to prepare.
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JoMoney
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Re: Why you need a rainy day fund

Post by JoMoney »

The start of this thread looks more like reasons to enjoy not being a homeowner, but I do like having options for how to pay for things.
Having a car (or other vehicles, boats, etc..) seems to bring up sudden expenses too though.
Most of the time, a credit card can easily float one through a sudden need and give them some options where to get the cash from. I had a recent car related expense that I decided to put on a credit card (earned bonus points.) I will pay off the credit card at the end of the grace period, and I have the "cash" available in some Series I Savings bonds, but the interest rate I'm earning on those makes that a less desirable option, so I'm taking a "loan" from my 401k that I've had in a "Stable Value Fund". The SVF's interest rate isn't that much, and the interest on the "401k loan" will be paid back to myself. The interest I'm paying (to myself) will wind up being double-taxed but at least it lets me cram a few extra dollars into the plan :wink:
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Re: Why you need a rainy day fund

Post by Vanguard User »

MrMadoff wrote: Tue Jun 28, 2022 11:33 am This is why renters don't need as big of a rainy day fund.
Renter here. Always kept $3k EF.
nobleisthyname
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Re: Why you need a rainy day fund

Post by nobleisthyname »

I'll add RE: The rent vs own debate that renters may come out ahead due to living in a less well-maintained home. I know I put a lot more effort into home now that I am the owner than my landlords ever did for the places I rented.

So, I may be paying more, but I also get a nicer place to live in. Whether that trade-off is worth it is up to the individual. Also, this is just my anecdotal experience of having rented for six years and owning for now 1.5 years so YMMV.

Finally, regarding people generally not downsizing when they buy, I also ended up moving from a HCOL area to a MCOL area when I bought my home, so my mortgage is ~$700 less than what I was paying in rent which might also help explain why I'm more willing to put more effort in maintaining my home.
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Re: Why you need a rainy day fund

Post by brian91480 »

One of my brothers got arrested a few years ago. (he's not evil -- just occasionally a moron). His bail was $10,000. The police don't accept checks, credit cards, cashier checks, or money orders. As the saying goes.... "Straight cash, homie."

The challenge wasn't having $10,000 in my account. Instead, the challenge was getting the cash from the bank! Most banks don't keep that kind of cash around for spontaneous withdrawals of that amount. I had to visit a few branches to get the full $10,000 that I needed.

There's a reason the "Emergency Fund" starts with the word --- Emergency.

--- Brian
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Re: Why you need a rainy day fund

Post by international001 »

stoptothink wrote: Thu Jul 07, 2022 11:06 am
LittleMaggieMae wrote: Thu Jul 07, 2022 10:31 am

I will be honest - I don't know anyone who rented the type of unit or house they would choose to purchase - well, not for a long term (say 5 or more years) usually after renting they would purchase something MORE expensive than what they were renting. AND would have a higher housing expense than what they were paying in rent.
It doesn't make sense to me either, but I know many people who do exactly this. Both my brothers have been renters for the last decade and have lived in multiple luxury homes in that time period. I highly doubt they would consider buying larger or more luxurious homes than they have been renting, even if they could afford it.
If it makes sense to rent a lower unit, it usually makes sense to rent a higher unit, since they tend to have a lower capitalization rate (rent/price).
But most people don't conceive other form of investing than real state, so it makes sense in this case to invest/buy if you need a bigger unit.
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Re: Why you need a rainy day fund

Post by international001 »

willthrill81 wrote: Fri Jul 08, 2022 9:14 am
EFs tend to be more needful for those early in accumulation. Those in the latter stages of accumulation have sizable portfolios that could be tapped into in the event of something like a job loss, which is typically the single largest risk for which an EF is needed.
Right on. No matter your mental accounting, at the end you just have to consider the risks of the portfolio going down and the risk of the amount of the emergency.
When the total amount of your is high compared to the amount of the potential emergency. The benefits of including your EF in your general stocks/bond portfolio is more important than the risks. If you are intolerant to the risks, perhaps just increase your bond portion.
Incidentally, cash may be negative growth and no exempt of risk (what will be the inflation next year?)
ddbtoth
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Re: Why you need a rainy day fund

Post by ddbtoth »

AerialWombat wrote: Wed Jun 29, 2022 4:30 pm
FreddieFIRE wrote: Wed Jun 29, 2022 1:58 pm
tibbitts wrote: Wed Jun 29, 2022 1:39 pm My limited experience is that for various reasons landlords pay about half the costs for repairs/renovations/etc. as a typical consumer like me ends up paying. And that's a large part of why they're successful at being landlords and I wouldn't be.
Bingo!!! We have a winner. 8-) They also probably spend about one tenth the time I would "managing" the repairs/renovations/etc. Life it too short to own a home. :P
I spend way more money on maintenance each year for each of my individual rental properties than I do on the house I live in. I'm probably a rare landlord in this, but I fix every single thing that a tenant reports. Everything, every time, without fail. It's worth it to keep my properties in good repair, and keeps tenants happy, which reduces turnover.

I spend zero time managing those repairs. I pay property managers to manage that process for me.

Rather, I should say that my tenants pay for the property managers. And all that maintenance. They're also pre-paying, a little bit each month, for the eventual roof and furnace replacement, too. They are receiving the benefit of not having to deal with all those things themselves, but I assure you, they are most definitely paying for it.

If you're a renter, you're also paying for all these things, via installments, as mentioned up above. There might be rare exceptions, such when renting from a family member or some such, but outside of some special arrangement like that, you absolutely are paying for these things.
One way or another, everyone pays for everything?
I think it is interesting to note that someone mentioned, that as landlords, they don’t pay the same as homeowners doing repairs/replacements- maybe a group discount of volume of business. Which makes sense, renters must pay at a minimum repairs, replacement costs, property taxes, yard maintenance, upkeep on the pool, insurance on the building, and then a profit for the owner. If your not in it to make a buck, why mess with it?
Really sounds dependent upon a lot of variables, depending on individual circumstances, as to owning vs renting is money smarter.
Wannaretireearly
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Re: Why you need a rainy day fund

Post by Wannaretireearly »

brian91480 wrote: Mon Jul 11, 2022 2:24 pm One of my brothers got arrested a few years ago. (he's not evil -- just occasionally a moron). His bail was $10,000. The police don't accept checks, credit cards, cashier checks, or money orders. As the saying goes.... "Straight cash, homie."

The challenge wasn't having $10,000 in my account. Instead, the challenge was getting the cash from the bank! Most banks don't keep that kind of cash around for spontaneous withdrawals of that amount. I had to visit a few branches to get the full $10,000 that I needed.

There's a reason the "Emergency Fund" starts with the word --- Emergency.

--- Brian
Classic, thanks for sharing. I was gonna say the older I get, I’ve generally past most ‘emergencies’, but this one above is likely one of a few rare examples where having 5 figures in cash comes in useful!
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Re: Why you need a rainy day fund

Post by Parkinglotracer »

I used to sell large civil and military use radars for a large defense contractor. Let’s say one would cost 20M. It might cost a few hundred grand a year to multiples of that amount on frequent occasion in parts and service to keep it running at top shape. That would not include the cost of the personnel to operate it and do daily maintenance. Then on occasion like your computer at home, you need to replace the commercial work station computer, the commercial computers that make the radar actually work, the commercial servers and displays and the connectivity to the agencies that would want to see the air picture (military and civilian authorities). Of course you need a generator and back up to keep it powered. A road to get to the top of the mountain where the radar sees the best. A building to house the people that work at the radar site. If you want it to work during a war you might have it protected from the elements with a Radome and have current cyber security software on all the internal computers and external connecting devices.

Translating that to our lives, the things We have own us. So not only is it important to have a rainy day fund but it is important to live beneath what we think are our means because stuff is always more expensive that we think and it is not the initial cost of the house, boat, rv, car, plane, or spouse that will consume our budget, it’s the maintenance or upkeep over the course of decades that will bankrupt us. I think it Is the rare person / spouse (lol) that fully comprehends the total life cycle cost of what we own.

As they say if your out goes exceed your income, your up keep will be your down fall. All first world problems I am lucky to have.
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Re: Why you need a rainy day fund

Post by Parkinglotracer »

Wannaretireearly wrote: Wed Jul 13, 2022 1:46 am
brian91480 wrote: Mon Jul 11, 2022 2:24 pm One of my brothers got arrested a few years ago. (he's not evil -- just occasionally a moron). His bail was $10,000. The police don't accept checks, credit cards, cashier checks, or money orders. As the saying goes.... "Straight cash, homie."

The challenge wasn't having $10,000 in my account. Instead, the challenge was getting the cash from the bank! Most banks don't keep that kind of cash around for spontaneous withdrawals of that amount. I had to visit a few branches to get the full $10,000 that I needed.

There's a reason the "Emergency Fund" starts with the word --- Emergency.

--- Brian
Classic, thanks for sharing. I was gonna say the older I get, I’ve generally past most ‘emergencies’, but this one above is likely one of a few rare examples where having 5 figures in cash comes in useful!

This allows for the offending individual to have adequate time for isolated reflection (jail) while the cash is collected. Of course he is lucky to have a BH brother. :)
Last edited by Parkinglotracer on Wed Jul 13, 2022 3:41 am, edited 1 time in total.
Parkinglotracer
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Re: Why you need a rainy day fund

Post by Parkinglotracer »

Naismith wrote: Thu Jul 07, 2022 1:37 pm Based on responses, I think a more accurate term would be "emergency fund."

In many spots in North America, including down into Mexico, drought has been such an issue that a rainy day is a wondrous occasion, cause for celebration!
Yes Maybe a drought fund to cover when rain stops falling.
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