Yuge proponent of the Emergency/Fuck You Fund. Especially when you're pour, it affords you the privilege of of evening out the swings as life happens so you're not scrambling life-or-death style in an emergency..
I've kept 2 mos as I work through paying off debt. DR recommends only $1k whilst paying off debt, but fuck that business. It did a lot to ease the mind at the beginning of Covid.
As of today, it's going to come in really fucking handy as the dealership 'recommends' $9k in repairs to the whip. It's looking like the EF/FUF may be a down payment on a new one. Thank real God part of the pay-off-debt early cycle is the depreciating asset, otherwise I'd be upside down and really fucked. Now, it's just super fucking annoying.
So these are all great questions that I've seen in this thread so I'll try to hit on the major highlights (probably going to be a tad long but will hit the points quickly) ...
Before getting to a "what's a good amount to have as part of an emergency fund" question, the first that I think you have to realistically ask yourself are what are your financial goals? Is it to buy a home? A 2nd home? Kids college? Retirement? Retire earlier than 65+? The answer to many of these types of questions will help inform what you're objectives should be. Additionally, how much time you have to reach these goals also matters.
My general rule of thumb would lead toward having the "rainy day fund" to cover a full year of salary. In reality, you can probably get away with 12 months of expenses. When thinking about the expenses it's important to factor in everything ... mortgage, car payments, monthly recurring expenses, any anticipated 1-time expenses to come, etc.
@Doog_de_Jour makes a really good point about having the ability to adjust your spend downward in trying times. I think that's generally good advice to always have in your mind what spend is must have's vs like to have's in spend.
That said, if you ever find yourself in a situation that requires dipping into the savings, your stress levels are already going to be high. Cutting expenses and living effectively bare bones can just add to the stress you're already feeling. Then add to it the stress that you're going to experience trying to go through the job search (which becomes more difficult and niche as you advance in your career), the interviews, and ultimately some rejection, and stress is going to be at a super high level. This is why planning comes into play and making sure that you have enough to cover a rainy day as comfortably as possible.
This is an exact situation that I went through in my career when I left a company due to downsizing after a divestiture with a decent sized severance package. I was expecting that the amount of time to find a new position would be relatively quick, took a month plus from the search to take a vacation and enjoy the summer, and then found that as I entered into the Holiday season, I was finding it really hard to find the right niche. The stress is very real and in the grand scheme of things I had a relatively low stress situation given my personal circumstance. But there's stress. There's doubt. There's pressure. So to the extent that you can eliminate any of that, my recommendation is to do so.
Other elements that really matter in terms of what you're goals and objectives are include what your 401k looks like (how much is one contributing), are there any stock or ownership rights tied into your current job? Vesting horizons? How liquid are those interests? Where the mortgage is at on the horizon? Is the real estate if sold today at a profit or under water? Are you planning on retiring where you currently live or in a different location with a lower cost of living? All of these things you'll want to consider.
One of the other things that you'll want to consider within the rainy day fund is how much are you willing to draw down on it? In other words, what % of that are you willing to consider to be dry powder to use as opportunities arise whether it's through the market dropping substantially (like it did 12 months ago), a great real estate opportunity, etc. One of the benefits of being conservative in the RDF is that it increases liquidity and ability to act when you can. That said, if you draw down it probably makes sense to prioritize the ability to rebuild back to desired levels. Think of this fund really as your own insurance policy to cover you in a disaster environment.
Finally, what I think everybody should think about are retirement goals. Everybody should be thinking about what kind of number and/or annual expenses that they want to spend as they move into retirement. And let's be really honest, retiring is really the reward for all of the hard work that you've put in in life. It's the time to enjoy the fruits of your labor. So to the extent that you can retire early and enjoy life, that's a goal that at least to me is worth pursuing. Not only that, but having a goal of what you want gives you the ending point of what you need to be comfortable with that retirement. Taking where you are today and comparing it to where you want to be effectively lays out the blueprint for what you need to get there.
Just as a simple example, let's say that you determine that you need roughly $100K a year in income to cover expenses, travel, etc. A really simple path forward is to assume that all of your liquid assets going forward is invested in tax free muni bonds. Over a long term horizon, it's not uncommon for high quality tax free muni bonds will pay out between 3-5% per year. So even at 3%, if your liquid asset base at retirement is $3M, you'll really have no problem not only covering your spending goals, but maintaining that $3M principal going forward. That overall lump sum really should be viewed as your rainy day fund at that point because your ability to add to that going forward isn't super clear without adding risk. If it goes to $0 then ???
The last thing that I'd add is that as you approach retirement, I think it also really makes sense to think about what alternative things you could do to create income other than what you do. What happens if you get shown the door and for a lot of "wink wink" illegal reasons tied to age bias, etc. that you can't realistically find a new role. What can you do either as your own consultant or business owner, another skill set that you have that you can monetize, etc. to make sure that you stay on track for retirement. Really important to keep that in mind.
A lot of the above is pretty high level stuff but hopefully it makes some sense about all the different considerations that you need to think about when it comes to retirement planning. It's something that I'd recommend everybody taking a look at every 12-24 months about where they are and how they're proceeding in relation to their goals and objectives.
How many months do you have set aside if you lost all incoming monies?
Any way to protect emergency funds from inflation? online savings accounts are shit. If you never use it and it just sat there for 15 years you lost a lot of potentials gains by investing.
Ramit Sethi is adamant to build up a year of emergency cash.
I've pretty much lived my entire life without an emergency fund. Once I bought a house I considered my Heloc to be my emergency fund.
But if I was forced to have one (with a gun to my head) I would take 18 months of salary and put it all into blue chip stocks or ETFs. Less is more here. The fewer you hold the better you can screen and the fewer companies that you have to continue researching.
I've done this several times with money I was holding for short term use.
Set trailing stop losses (10 %) on each security and review the holdings once per month.
Never, ever reinvest proceeds from a sale triggered by a stop loss order the same month.
Also, if the market ever loses 10% (or more) in a day - review your holdings that night.
If the fund ever is less than 75% of the starting investment ( or its high point )- then sell everything. Hold the cash which will be more than 12 months of salary even if you are the worst market timer in the history of the US stock market.
You can tell that I loathe unproductive capital. And, I am willing to risk a little of it to ensure that none of it is idle.
Bottom line is that the US stock market almost always bounces back fast. And, it has really done little but trend up for its entire life with a couple of blips along the way. Even the 20% Black Monday (1987) one day drop was recovered in just a couple of years.
Idle cash is like an empty airline seat. Once the door is shut that potential revenue (for an unfilled seat) is gone forever.
I’ve got 6 months set aside of which half is precious metals and a quarter is physical cash in a safe. Seems like inflation is inevitable, and zero interest savings/checking feels like negative 3%.
I’ve got 6 months set aside of which half is precious metals and a quarter is physical cash in a safe. Seems like inflation is inevitable, and zero interest savings/checking feels like negative 3%.
Anyone else have inflation resistant ideas?
You are seeing stocks and cash because those are the only serious options.
My wife got a mid six figure payout from her mom's estate about half a year ago. I did some extensive research and found nothing at all offered by any financial institution/brokerage/etc that I contacted.
We have plans for that money but very little immediately.
If any one has other ideas I would love to hear them.
How many months do you have set aside if you lost all incoming monies?
Any way to protect emergency funds from inflation? online savings accounts are shit. If you never use it and it just sat there for 15 years you lost a lot of potentials gains by investing.
Ramit Sethi is adamant to build up a year of emergency cash.
I've pretty much lived my entire life without an emergency fund. Once I bought a house I considered my Heloc to be my emergency fund.
But if I was forced to have one (with a gun to my head) I would take 18 months of salary and put it all into blue chip stocks or ETFs. Less is more here. The fewer you hold the better you can screen and the fewer companies that you have to continue researching.
I've done this several times with money I was holding for short term use.
Set trailing stop losses (10 %) on each security and review the holdings once per month.
Never, ever reinvest proceeds from a sale triggered by a stop loss order the same month.
Also, if the market ever loses 10% (or more) in a day - review your holdings that night.
If the fund ever is less than 75% of the starting investment ( or its high point )- then sell everything. Hold the cash which will be more than 12 months of salary even if you are the worst market timer in the history of the US stock market.
You can tell that I loathe unproductive capital. And, I am willing to risk a little of it to ensure that none of it is idle.
Bottom line is that the US stock market almost always bounces back fast. And, it has really done little but trend up for its entire life with a couple of blips along the way. Even the 20% Black Monday (1987) one day drop was recovered in just a couple of years.
Idle cash is like an empty airline seat. Once the door is shut that potential revenue (for an unfilled seat) is gone forever.
I’ve got 6 months set aside of which half is precious metals and a quarter is physical cash in a safe. Seems like inflation is inevitable, and zero interest savings/checking feels like negative 3%.
How many months do you have set aside if you lost all incoming monies?
Any way to protect emergency funds from inflation? online savings accounts are shit. If you never use it and it just sat there for 15 years you lost a lot of potentials gains by investing.
Ramit Sethi is adamant to build up a year of emergency cash.
I've pretty much lived my entire life without an emergency fund. Once I bought a house I considered my Heloc to be my emergency fund.
But if I was forced to have one (with a gun to my head) I would take 18 months of salary and put it all into blue chip stocks or ETFs. Less is more here. The fewer you hold the better you can screen and the fewer companies that you have to continue researching.
I've done this several times with money I was holding for short term use.
Set trailing stop losses (10 %) on each security and review the holdings once per month.
Never, ever reinvest proceeds from a sale triggered by a stop loss order the same month.
Also, if the market ever loses 10% (or more) in a day - review your holdings that night.
If the fund ever is less than 75% of the starting investment ( or its high point )- then sell everything. Hold the cash which will be more than 12 months of salary even if you are the worst market timer in the history of the US stock market.
You can tell that I loathe unproductive capital. And, I am willing to risk a little of it to ensure that none of it is idle.
Bottom line is that the US stock market almost always bounces back fast. And, it has really done little but trend up for its entire life with a couple of blips along the way. Even the 20% Black Monday (1987) one day drop was recovered in just a couple of years.
Idle cash is like an empty airline seat. Once the door is shut that potential revenue (for an unfilled seat) is gone forever.
The idea of an emergency fund is good, but the idea you need to have a year’s worth of cash around I view as an out-of-date concept. 50 years ago when interest rates were high and credit/cash was hard to come by that was one thing, but in this day and age when cash is easy and most assets are somewhat liquid
How many months do you have set aside if you lost all incoming monies?
Any way to protect emergency funds from inflation? online savings accounts are shit. If you never use it and it just sat there for 15 years you lost a lot of potentials gains by investing.
Ramit Sethi is adamant to build up a year of emergency cash.
I've pretty much lived my entire life without an emergency fund. Once I bought a house I considered my Heloc to be my emergency fund.
But if I was forced to have one (with a gun to my head) I would take 18 months of salary and put it all into blue chip stocks or ETFs. Less is more here. The fewer you hold the better you can screen and the fewer companies that you have to continue researching.
I've done this several times with money I was holding for short term use.
Set trailing stop losses (10 %) on each security and review the holdings once per month.
Never, ever reinvest proceeds from a sale triggered by a stop loss order the same month.
Also, if the market ever loses 10% (or more) in a day - review your holdings that night.
If the fund ever is less than 75% of the starting investment ( or its high point )- then sell everything. Hold the cash which will be more than 12 months of salary even if you are the worst market timer in the history of the US stock market.
You can tell that I loathe unproductive capital. And, I am willing to risk a little of it to ensure that none of it is idle.
Bottom line is that the US stock market almost always bounces back fast. And, it has really done little but trend up for its entire life with a couple of blips along the way. Even the 20% Black Monday (1987) one day drop was recovered in just a couple of years.
Idle cash is like an empty airline seat. Once the door is shut that potential revenue (for an unfilled seat) is gone forever.
Agree with much of this...a lot of the hold cash assumptions were set for a different time when the Fed wasn’t pumping money and banks weren’t looking for any reason to lend. If you have decent assets...significant 401k, retirement savings, house equity, etc...why keep cash on the side when you have a million and one ways to access cash to live if you need it for a year or more? Especially if you aren’t over aggressive on your investments (ie have 100% of your life savings in GME).
Back when you had a broker who had a paper trail to sell stocks and it took time to transfer money and people cared about credit for a home mortgage much less a frowned upon cash out refinance sure...keep a good chunk of change in case you need it. Now if you have assets everyone is tripping over themselves to lend/give you more money...it’s kinda nuts but it’s the current reality and it can’t change on a dime. I’m not saying live month to month but holding a year’s worth of living expenses in cash getting 0% seems way too conservative.
Now watch everything crash tomorrow just to show this is a bad take...
The idea of an emergency fund is good, but the idea you need to have a year’s worth of cash around I view as an out-of-date concept. 50 years ago when interest rates were high and credit/cash was hard to come by that was one thing, but in this day and age when cash is easy and most assets are somewhat liquid
How many months do you have set aside if you lost all incoming monies?
Any way to protect emergency funds from inflation? online savings accounts are shit. If you never use it and it just sat there for 15 years you lost a lot of potentials gains by investing.
Ramit Sethi is adamant to build up a year of emergency cash.
I've pretty much lived my entire life without an emergency fund. Once I bought a house I considered my Heloc to be my emergency fund.
But if I was forced to have one (with a gun to my head) I would take 18 months of salary and put it all into blue chip stocks or ETFs. Less is more here. The fewer you hold the better you can screen and the fewer companies that you have to continue researching.
I've done this several times with money I was holding for short term use.
Set trailing stop losses (10 %) on each security and review the holdings once per month.
Never, ever reinvest proceeds from a sale triggered by a stop loss order the same month.
Also, if the market ever loses 10% (or more) in a day - review your holdings that night.
If the fund ever is less than 75% of the starting investment ( or its high point )- then sell everything. Hold the cash which will be more than 12 months of salary even if you are the worst market timer in the history of the US stock market.
You can tell that I loathe unproductive capital. And, I am willing to risk a little of it to ensure that none of it is idle.
Bottom line is that the US stock market almost always bounces back fast. And, it has really done little but trend up for its entire life with a couple of blips along the way. Even the 20% Black Monday (1987) one day drop was recovered in just a couple of years.
Idle cash is like an empty airline seat. Once the door is shut that potential revenue (for an unfilled seat) is gone forever.
Agree with much of this...a lot of the hold cash assumptions were set for a different time when the Fed wasn’t pumping money and banks weren’t looking for any reason to lend. If you have decent assets...significant 401k, retirement savings, house equity, etc...why keep cash on the side when you have a million and one ways to access cash to live if you need it for a year or more? Especially if you aren’t over aggressive on your investments (ie have 100% of your life savings in GME).
Back when you had a broker who had a paper trail to sell stocks and it took time to transfer money and people cared about credit for a home mortgage much less a frowned upon cash out refinance sure...keep a good chunk of change in case you need it. Now if you have assets everyone is tripping over themselves to lend/give you more money...it’s kinda nuts but it’s the current reality and it can’t change on a dime. I’m not saying live month to month but holding a year’s worth of living expenses in cash getting 0% seems way too conservative.
Now watch everything crash tomorrow just to show this is a bad take...
Yeah, that really is the right take. There's so much psychology wrapped up in finance. Our house Econ PhD mentioned to me when I was asking him for advice about my kid's graduate education that PhD programs now are really focusing on the cross-discipline stuff. He specifically mentioned psych because, in his words, "We have these models and theories that are rational and should predict human behavior and yet so often do not, so the disciplines are working together to try and solve some of those grey areas.
I definitely wouldn't disagree with anybody that views cash to the side as a waste of money. That said there's obviously the tax implications, etc. that goes into it so in some respects we're talking as much about active vs passive strategies as anything.
My general advice is get to a level that you feel comfortable with holding on the side and from that point forward, the amount that you can really devote to investments really goes up.
As long as your career and outside interests are such that investments aren't at top of mind to be an active investor, then best advice is to invest smartly and review at regular intervals. Speculation isn't really something that I'm big on. Slow and steady will win the race.
"Now watch everything crash tomorrow just to show this is a bad take..."
After I made my post I thought "Oh, fuck. Now some one who can't afford it is going to lose their hard earned emergency fund because I am comfortable with a bit of risk"
I can get into some of the risky shit that I've done (and survived) later but obviously one's investments need to be guided by a person's risk acceptance/aversion level.
BTW, you only really need to go back 40 years to see what created this 12 months of cash mantra. I am not quite as old as I poast.
I chuckled when I thought of calling the broker to place a trade. I guess we are not in Kansas anymore.
" The problem with relying on a HELOC for liquidity is the credit lines can be withdrawn - no warning, just gone.
It happened A LOT in the '08 downturn. Just gone. "
A Jackass said
"1908?
Asking for a friend."
Okay. Can't edit. Yes, a Heloc isn't an option for everyone. Rates increase, lines get withdrawn and $ amounts of lines are limited. Some people have a greater risk tolerance and/or other options to back up the Heloc.
Comments
I've kept 2 mos as I work through paying off debt. DR recommends only $1k whilst paying off debt, but fuck that business. It did a lot to ease the mind at the beginning of Covid.
As of today, it's going to come in really fucking handy as the dealership 'recommends' $9k in repairs to the whip. It's looking like the EF/FUF may be a down payment on a new one. Thank real God part of the pay-off-debt early cycle is the depreciating asset, otherwise I'd be upside down and really fucked. Now, it's just super fucking annoying.
Did I mention, I'm still pour. FMFYFE
Before getting to a "what's a good amount to have as part of an emergency fund" question, the first that I think you have to realistically ask yourself are what are your financial goals? Is it to buy a home? A 2nd home? Kids college? Retirement? Retire earlier than 65+? The answer to many of these types of questions will help inform what you're objectives should be. Additionally, how much time you have to reach these goals also matters.
My general rule of thumb would lead toward having the "rainy day fund" to cover a full year of salary. In reality, you can probably get away with 12 months of expenses. When thinking about the expenses it's important to factor in everything ... mortgage, car payments, monthly recurring expenses, any anticipated 1-time expenses to come, etc.
@Doog_de_Jour makes a really good point about having the ability to adjust your spend downward in trying times. I think that's generally good advice to always have in your mind what spend is must have's vs like to have's in spend.
That said, if you ever find yourself in a situation that requires dipping into the savings, your stress levels are already going to be high. Cutting expenses and living effectively bare bones can just add to the stress you're already feeling. Then add to it the stress that you're going to experience trying to go through the job search (which becomes more difficult and niche as you advance in your career), the interviews, and ultimately some rejection, and stress is going to be at a super high level. This is why planning comes into play and making sure that you have enough to cover a rainy day as comfortably as possible.
This is an exact situation that I went through in my career when I left a company due to downsizing after a divestiture with a decent sized severance package. I was expecting that the amount of time to find a new position would be relatively quick, took a month plus from the search to take a vacation and enjoy the summer, and then found that as I entered into the Holiday season, I was finding it really hard to find the right niche. The stress is very real and in the grand scheme of things I had a relatively low stress situation given my personal circumstance. But there's stress. There's doubt. There's pressure. So to the extent that you can eliminate any of that, my recommendation is to do so.
Other elements that really matter in terms of what you're goals and objectives are include what your 401k looks like (how much is one contributing), are there any stock or ownership rights tied into your current job? Vesting horizons? How liquid are those interests? Where the mortgage is at on the horizon? Is the real estate if sold today at a profit or under water? Are you planning on retiring where you currently live or in a different location with a lower cost of living? All of these things you'll want to consider.
One of the other things that you'll want to consider within the rainy day fund is how much are you willing to draw down on it? In other words, what % of that are you willing to consider to be dry powder to use as opportunities arise whether it's through the market dropping substantially (like it did 12 months ago), a great real estate opportunity, etc. One of the benefits of being conservative in the RDF is that it increases liquidity and ability to act when you can. That said, if you draw down it probably makes sense to prioritize the ability to rebuild back to desired levels. Think of this fund really as your own insurance policy to cover you in a disaster environment.
Finally, what I think everybody should think about are retirement goals. Everybody should be thinking about what kind of number and/or annual expenses that they want to spend as they move into retirement. And let's be really honest, retiring is really the reward for all of the hard work that you've put in in life. It's the time to enjoy the fruits of your labor. So to the extent that you can retire early and enjoy life, that's a goal that at least to me is worth pursuing. Not only that, but having a goal of what you want gives you the ending point of what you need to be comfortable with that retirement. Taking where you are today and comparing it to where you want to be effectively lays out the blueprint for what you need to get there.
Just as a simple example, let's say that you determine that you need roughly $100K a year in income to cover expenses, travel, etc. A really simple path forward is to assume that all of your liquid assets going forward is invested in tax free muni bonds. Over a long term horizon, it's not uncommon for high quality tax free muni bonds will pay out between 3-5% per year. So even at 3%, if your liquid asset base at retirement is $3M, you'll really have no problem not only covering your spending goals, but maintaining that $3M principal going forward. That overall lump sum really should be viewed as your rainy day fund at that point because your ability to add to that going forward isn't super clear without adding risk. If it goes to $0 then ???
The last thing that I'd add is that as you approach retirement, I think it also really makes sense to think about what alternative things you could do to create income other than what you do. What happens if you get shown the door and for a lot of "wink wink" illegal reasons tied to age bias, etc. that you can't realistically find a new role. What can you do either as your own consultant or business owner, another skill set that you have that you can monetize, etc. to make sure that you stay on track for retirement. Really important to keep that in mind.
A lot of the above is pretty high level stuff but hopefully it makes some sense about all the different considerations that you need to think about when it comes to retirement planning. It's something that I'd recommend everybody taking a look at every 12-24 months about where they are and how they're proceeding in relation to their goals and objectives.
But if I was forced to have one (with a gun to my head) I would take 18 months of salary and put it all into blue chip stocks or ETFs. Less is more here. The fewer you hold the better you can screen and the fewer companies that you have to continue researching.
I've done this several times with money I was holding for short term use.
Set trailing stop losses (10 %) on each security and review the holdings once per month.
Never, ever reinvest proceeds from a sale triggered by a stop loss order the same month.
Also, if the market ever loses 10% (or more) in a day - review your holdings that night.
If the fund ever is less than 75% of the starting investment ( or its high point )- then sell everything. Hold the cash which will be more than 12 months of salary even if you are the worst market timer in the history of the US stock market.
You can tell that I loathe unproductive capital. And, I am willing to risk a little of it to ensure that none of it is idle.
Bottom line is that the US stock market almost always bounces back fast. And, it has really done little but trend up for its entire life with a couple of blips along the way. Even the 20% Black Monday (1987) one day drop was recovered in just a couple of years.
Idle cash is like an empty airline seat. Once the door is shut that potential revenue (for an unfilled seat) is gone forever.
I’ve got 6 months set aside of which half is precious metals and a quarter is physical cash in a safe. Seems like inflation is inevitable, and zero interest savings/checking feels like negative 3%.
Anyone else have inflation resistant ideas?
You are seeing stocks and cash because those are the only serious options.
My wife got a mid six figure payout from her mom's estate about half a year ago. I did some extensive research and found nothing at all offered by any financial institution/brokerage/etc that I contacted.
We have plans for that money but very little immediately.
If any one has other ideas I would love to hear them.
Back when you had a broker who had a paper trail to sell stocks and it took time to transfer money and people cared about credit for a home mortgage much less a frowned upon cash out refinance sure...keep a good chunk of change in case you need it. Now if you have assets everyone is tripping over themselves to lend/give you more money...it’s kinda nuts but it’s the current reality and it can’t change on a dime. I’m not saying live month to month but holding a year’s worth of living expenses in cash getting 0% seems way too conservative.
Now watch everything crash tomorrow just to show this is a bad take...
My general advice is get to a level that you feel comfortable with holding on the side and from that point forward, the amount that you can really devote to investments really goes up.
As long as your career and outside interests are such that investments aren't at top of mind to be an active investor, then best advice is to invest smartly and review at regular intervals. Speculation isn't really something that I'm big on. Slow and steady will win the race.
I can get into some of the risky shit that I've done (and survived) later but obviously one's investments need to be guided by a person's risk acceptance/aversion level.
BTW, you only really need to go back 40 years to see what created this 12 months of cash mantra. I am not quite as old as I poast.
I chuckled when I thought of calling the broker to place a trade. I guess we are not in Kansas anymore.
You can win big. Of course, you can lose it all but, for any guy using this strategy, was there really Anything to lose?
It happened A LOT in the '08 downturn. Just gone.
@BearsWiin
@MikeSeaver
Asking for a friend.
Malarkey.Football.Bored.Belongs