Whether one holds "too much" cash is often a question of hindsight.
I hold "too much" cash because I've seen a lot of volatility. I was holding even more "too much" cash in March 2020.
Still regret not buying additional NE Seattle Real Estate in 2009 though. That is on the very short list of things Mrs. Husky says she was wrong about.
Whether one holds "too much" cash is often a question of hindsight.
I hold "too much" cash because I've seen a lot of volatility. I was holding even more "too much" cash in March 2020.
Still regret not buying additional NE Seattle Real Estate in 2009 though. That is on the very short list of things Mrs. Husky says she was wrong about.
I share some of those regrets myself. Agree how much is too much is a hindsight determination.
As proof that God protects idiots I was a the top of my savings last March. Rode out 2020 with some fed checks and UI after the shut down in July of the bidness
Haven't done shit in 2021 except collect UI but I still have at least a year in savings. So I have that going for me which is nice
Given the volatility and uncertainty of the times, maybe it's not overly conservative to have a year.
PS: My fund, which my colleagues and I used to call the "Fuck You" or "Fuck Off" fund, and which is now called the "Oh Shit!" fund, is kept in account that I never look at or think about, and about which my Chief Spending Officer knows nothing. She literally doesn't know it exists. It must be nice to have blonde hair, blue eyes and big tits and go through life wondering why things always just seem to work out for you. Just lucky I guess.
#mycreep. I've come full circle on you. No homo. NTTAWWT
Whether one holds "too much" cash is often a question of hindsight.
I hold "too much" cash because I've seen a lot of volatility. I was holding even more "too much" cash in March 2020.
Still regret not buying additional NE Seattle Real Estate in 2009 though. That is on the very short list of things Mrs. Husky says she was wrong about.
Whether one holds "too much" cash is often a question of hindsight.
I hold "too much" cash because I've seen a lot of volatility. I was holding even more "too much" cash in March 2020.
Still regret not buying additional NE Seattle Real Estate in 2009 though. That is on the very short list of things Mrs. Husky says she was wrong about.
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.
Excellent points you made @Tequilla in your full post.
I can’t think of a way to make this point without it coming off as a judgement, so I’m crossing my fingers that you’ll trust me that I’m highlighting this to make a point so as to (hopefully) flesh out our discussion.
Several of you have used the term “Fuck You Fund”. I had never heard that (shows how far I have to go I suppose) vs. Emergency Fund. I’m really thinking for any up-and-comers or the basement dwellers looking to get their financial lives back in order poasters we really should differentiate between the two.
I will never begrudge someone who has the means/resources to take their time recovering from a layoff or life change to take time off and to collect their thoughts etc...but if you’re able to do that, the funds you’re drawing upon aren’t true emergency funds. Maybe “Get My Shot Together” or “Beach Walk Perspective” fund.
Emergency funds in my opinion are keeping the basic needs taken care like rent, utilities, etc.
Again, not judging. I’ve experienced being able to take a breath after a layoff *and* being, “oh shit, I gotta find something, ANYTHING, right away”.
It’s annoying semantics, I know, but shouldn’t those two things be treated differently in financial planning?
From reading through this thread it occurred to me that my Roth IRA contributions could be accessed in time of extreme emergency. In that case, I have a few years worth of an emergency fund.
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.
It helps to have nearly a million in equity
Our current heloc limit brings us to less than 40% of appraised value, so I'm not worried. WF adjusted our heloc limit in 2009, but that heloc limit put us at 80% of appraised value pre-crisis
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.
Behavioral Econ FTW. If I had a time machine to go back to college I would be all over it.
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.
It helps to have nearly a million in equity
Our current heloc limit brings us to less than 40% of appraised value, so I'm not worried. WF adjusted our heloc limit in 2009, but that heloc limit put us at 80% of appraised value pre-crisis
When the Banks are fucked, be prepared for that heloc to vaporize. No warning, just gone. Your 850 credit score, balance sheet at “loan to value” won’t mean jack as it isn’t personal,
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.
It helps to have nearly a million in equity
Our current heloc limit brings us to less than 40% of appraised value, so I'm not worried. WF adjusted our heloc limit in 2009, but that heloc limit put us at 80% of appraised value pre-crisis
When the Banks are fucked, be prepared for that heloc to vaporize. No warning, just gone. Your 850 credit score, balance sheet at “loan to value” won’t mean jack as it isn’t personal,
Agree with this sentiment, but MBS crash 12 years ago proved the Fed won’t let the banks ever get fucked. Or even more than stub their toe. They will be bailed out and forced to loan out to try and stimulate the economy...as long as the Fed is running the show I don’t expect that to change.
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.
It helps to have nearly a million in equity
Our current heloc limit brings us to less than 40% of appraised value, so I'm not worried. WF adjusted our heloc limit in 2009, but that heloc limit put us at 80% of appraised value pre-crisis
When the Banks are fucked, be prepared for that heloc to vaporize. No warning, just gone. Your 850 credit score, balance sheet at “loan to value” won’t mean jack as it isn’t personal,
Agree with this sentiment, but MBS crash 12 years ago proved the Fed won’t let the banks ever get fucked. Or even more than stub their toe. They will be bailed out and forced to loan out to try and stimulate the economy...as long as the Fed is running the show I don’t expect that to change.
Not only that, but banks take away credit lines more slowly than I can draw on them. WF took four months in 2008-9 to decide to run scared and take away our remaining credit (after they told me they wouldn't, and I paid it down by $60K). Last year we drew $15K pocket money from our heloc immediately when the lockdowns started (paid it back a few months later when it was clear things had stabilized)
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.
Excellent points you made @Tequilla in your full post.
I can’t think of a way to make this point without it coming off as a judgement, so I’m crossing my fingers that you’ll trust me that I’m highlighting this to make a point so as to (hopefully) flesh out our discussion.
Several of you have used the term “Fuck You Fund”. I had never heard that (shows how far I have to go I suppose) vs. Emergency Fund. I’m really thinking for any up-and-comers or the basement dwellers looking to get their financial lives back in order poasters we really should differentiate between the two.
I will never begrudge someone who has the means/resources to take their time recovering from a layoff or life change to take time off and to collect their thoughts etc...but if you’re able to do that, the funds you’re drawing upon aren’t true emergency funds. Maybe “Get My Shot Together” or “Beach Walk Perspective” fund.
Emergency funds in my opinion are keeping the basic needs taken care like rent, utilities, etc.
Again, not judging. I’ve experienced being able to take a breath after a layoff *and* being, “oh shit, I gotta find something, ANYTHING, right away”.
It’s annoying semantics, I know, but shouldn’t those two things be treated differently in financial planning?
Best way I can describe it as follows ...
One of the reasons that I'm a big advocate of having a very decent sized reserve that covers a certain amount of salary is to take away some of the stress that comes with adversity in life. In my experience, stress is best avoided in life and the residual effects of it aren't positive at all.
In my particular situation, part of the reason I was afforded the opportunity to take such time away was a combination of my settlement/severance package on the way out the door combined with a little bit of a mix of naivety and arrogance about how quickly I'd be able to get through the hiring process. I definitely miscalculated a bit on that one.
I'd agree with you that depending on where you are in life it changes what you'd consider to be the right amounts or strategies. If you're in a position where it's much more of a struggle to match income with spend, the best advice that I can give is to make sure that you live within your means, don't fall victim to the debt train to live outside of your means, and focus on ways to enhance your financial future (streamline expenses, how can you grow in your career to increase your income, etc.). If you're relatively young in your career, you're in a position where you're growing your nest a bit and having discipline matters. That said, you're probably not in a spot where you can't make sure that you're splurging on yourself from time to time (it's ok to go get that steakhouse steak from time to time in Vegas for instance versus finding the all you can eat buffet once a day).
I can't overstate how important it is to be financially literate ... life is much easier if you are
From reading through this thread it occurred to me that my Roth IRA contributions could be accessed in time of extreme emergency. In that case, I have a few years worth of an emergency fund.
Technically you can access your 401k as well ... but in any event you don't want to access anything where there's a substantial penalty for cashing some or all of it out early.
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.
Behavioral Econ FTW. If I had a time machine to go back to college I would be all over it.
Behavioral Finance/Econ is so vitally important
I was lucky enough in my education and experience that behavioral finance was an area that I had a ton of exposure to. Not only is it vitally important to be able to understand how people react and the associated opportunities that arise from it, but it gives you a really great perspective on how you can avoid some of the common pitfalls that others walk in
From reading through this thread it occurred to me that my Roth IRA contributions could be accessed in time of extreme emergency. In that case, I have a few years worth of an emergency fund.
Technically you can access your 401k as well ... but in any event you don't want to access anything where there's a substantial penalty for cashing some or all of it out early.
That’s why I specified the Roth contributions. You can withdraw all contributions without paying penalties or taxes (of course you’re paying fees to cash out your investments). Again it’s something you could do, not should do. But we are discussing emergency situations, so...
Comments
I hold "too much" cash because I've seen a lot of volatility. I was holding even more "too much" cash in March 2020.
Still regret not buying additional NE Seattle Real Estate in 2009 though. That is on the very short list of things Mrs. Husky says she was wrong about.
I can’t think of a way to make this point without it coming off as a judgement, so I’m crossing my fingers that you’ll trust me that I’m highlighting this to make a point so as to (hopefully) flesh out our discussion.
Several of you have used the term “Fuck You Fund”. I had never heard that (shows how far I have to go I suppose) vs. Emergency Fund. I’m really thinking for any up-and-comers or the basement dwellers looking to get their financial lives back in order poasters we really should differentiate between the two.
I will never begrudge someone who has the means/resources to take their time recovering from a layoff or life change to take time off and to collect their thoughts etc...but if you’re able to do that, the funds you’re drawing upon aren’t true emergency funds. Maybe “Get My Shot Together” or “Beach Walk Perspective” fund.
Emergency funds in my opinion are keeping the basic needs taken care like rent, utilities, etc.
Again, not judging. I’ve experienced being able to take a breath after a layoff *and* being, “oh shit, I gotta find something, ANYTHING, right away”.
It’s annoying semantics, I know, but shouldn’t those two things be treated differently in financial planning?
Our current heloc limit brings us to less than 40% of appraised value, so I'm not worried. WF adjusted our heloc limit in 2009, but that heloc limit put us at 80% of appraised value pre-crisis
One of the reasons that I'm a big advocate of having a very decent sized reserve that covers a certain amount of salary is to take away some of the stress that comes with adversity in life. In my experience, stress is best avoided in life and the residual effects of it aren't positive at all.
In my particular situation, part of the reason I was afforded the opportunity to take such time away was a combination of my settlement/severance package on the way out the door combined with a little bit of a mix of naivety and arrogance about how quickly I'd be able to get through the hiring process. I definitely miscalculated a bit on that one.
I'd agree with you that depending on where you are in life it changes what you'd consider to be the right amounts or strategies. If you're in a position where it's much more of a struggle to match income with spend, the best advice that I can give is to make sure that you live within your means, don't fall victim to the debt train to live outside of your means, and focus on ways to enhance your financial future (streamline expenses, how can you grow in your career to increase your income, etc.). If you're relatively young in your career, you're in a position where you're growing your nest a bit and having discipline matters. That said, you're probably not in a spot where you can't make sure that you're splurging on yourself from time to time (it's ok to go get that steakhouse steak from time to time in Vegas for instance versus finding the all you can eat buffet once a day).
I can't overstate how important it is to be financially literate ... life is much easier if you are
I was lucky enough in my education and experience that behavioral finance was an area that I had a ton of exposure to. Not only is it vitally important to be able to understand how people react and the associated opportunities that arise from it, but it gives you a really great perspective on how you can avoid some of the common pitfalls that others walk in