Why bother having an emergency fund at all?

[Medio]

Can we get an example of the market dropping overnight? When the market declines you can decide to pull your money. Your S&P 500 ETF fund isn't going to lose half it's value in a single day.

If your ETF portfolio worth gets to say $500K and it lost 40% of it's value in a week and you only really need a $20K as an emergency fund are you really sweating that?

Also the S&P 500 has crashed before. Guess what it's at all time highs right now. The market goes in cycles but recovers after crashes. Even if you liquidated $20K and let the rest sit there till the market recovered you'd be fine.

I've pretty much settled on the idea of keeping about $4000-5000 in liquid cash on-hand and investing the rest of my money. My monthly living expenses are about $1000-1200 a month combined right now but I anticipate them going up to $1600. I view that liquid cash as a buffer to pay bills and stuff out of. I might trim that down to about $2000-$3000.

At one point I had $15K sitting in a checking account doing nothing. It was a so called emergency fund. That's beyond the money I had in my online savings account with Discover. It sat there over a year and I never used it nor did I need it.

That’s your financial decision and that’s your style. I just cannot get behind it.
Also just because it hasn’t happened overnight does not mean it will not one day, the point is, it can.

Even during the 1929 recession, it dropped a lot but someone with your style would brush it off but it keep sinking week over week for years and then if you are mentally able to survive those 3 years with that 5k while all your stocks are going to shyt and while companies you’re investing in are going to go out of business, more power to you. I’m not.

 

[Truefan31]

Seems like a primitive idea the more I think about it. This idea that you need quickly accessible funds in the range of 6-12 months of living expenses on hand in liquid savings in the event of an emergency.

The reality is when I hit an emergency I usually use a credit card like I do with all my purchases. I avoid using cash because I don't earn cashback on it. As long as I can make that payment in 30 days I'm good. If I liquidate enough stocks to make that payment I'll get that money in less than 30 days. Probably in less than a week even counting weekends.

I'm thinking of going to a system where I keep a paycheck buffer in a checking account and maybe $1000 cash liquid beyond that and just dump all the rest of the money into the market. I'm already using IVV and VOO for savings anyway. Might as well go all in. Having large amounts of cash sitting earning less than 2.5% is costing opportunity.

Even if the market drops if you have to take the loss and liquidate enough stocks to cover the emergency. You're already taking a loss the other way accepting 2.5% growth on 10s of thousands of dollars when it could be 7% or higher growth. The market crashes all the time and yet it recovers and goes higher over time.

I don't think it's ever primitive to have an emergency fund. But situations are different for everyone. Typically having a separate emergency fund helps keep things separate and organized. I don't think you need 12 months, most suggest 3-6 months. It's like a checklist item. Little/no debt, check. Decent income streams, check. Doing the retirement vehicles like Roth IRAs/401ks etc, check. Emergency fund, check.

It seem like you're disciplined so do whatever you feel is best. But obviously there's a ton who aren't , hence the massive credit card debts people carry, and the billions the credit card companies get. This is especially important for people with families. The chance of a real emergency rises as there are more people who depend on you, and the size of a good emergency fund would rise as well.

My friend uses his Roth IRA as a pseudo emergency fund. He's never touched it so he's basically getting the investment returns, but if something were to happen, he knows he can access the CONTRIBUTIONS only (leave the earnings in) penalty and tax free.

 

[OfTheCross]

I just look at it as self insurance. If I had an emergency, I'd rather just pay upfront, in cash and be done with it.

I don't want to charge my cc and prolong the emergency with added interest. I also wouldn't want to start liquidating my investments and lose the growth I've gained over the years.

The emergency fund is just cash you have stowed away for when life happens. I don't even calculate it as "lost potential". That money is not to grow, it's too insure and insulate me from life's ills.

You can pay for it upfront with some one else's money, though.

I use my BofA card as my, and my family's "emergency fund". I can take an advance of up to $20K and pay it over 2 years...in a worst case scenario it'll cost me about $1700 in interest to borrow that much money.

and if the shyt REALLY hit the fan...fukk BofA, lol. They just won't get paid back, but I'll still have all my cash on hand


Typically emergencies aren't that huge, though. They're more like what @winb83 is describing below...

My car broke down. I charged it to my newest credit card and got 1% cash back. I have no interest on it till July 2020 so that $1300 will be paid off long before then and I won't touch my emergency fund at all.

It's not even a legitimate debt because I have enough money in savings to wipe it out. I'll pay that off my next 2-3 pay checks instead.

I always use credit cards for every I purchase so I can get some cash back on it. That $13 will be added to my investments. I can get a share of Ford with that or just save it until I get more cash back and get something else.

 

[OfTheCross]

I just see it as if I can get my net worth as high as possible as fast as possible do I really need a fund rotting away from inflation in a savings account?

My net worth is pathetic right now. About 100K mostly just in cash and investments because I don't own a home. I need everything I can to improve that number.

I take that back. The average America's net worth is way worse off than mine
Average Net Worth by Age

Don't get caught up on that. Buying a home won't immediately make that number jump because you'll have new debt as well. Look into investing in a commercial property like @Cynic said

 

[phcitywarrior]

You can pay for it upfront with some one else's money, though.

I use my BofA card as my, and my family's "emergency fund". I can take an advance of up to $20K and pay it over 2 years...in a worst case scenario it'll cost me about $1700 in interest to borrow that much money.

Idk man, I just like the peace of mind knowing the emergency is behind me.

 

[sayyestothis]

Are people joking?

So many terrible blanket statements in here. Please aspire to 3-6 months living expenses in CASH.

 

[Cynic]

Cash buys you time to make mistakes, deal with crisis, fix mistakes and carry on from there.
Lack of cash flow and bad cash management probably kills more startups than
anything else in my estimation.

I know this isn't the scope of the conversation but it's when it comes to start ups
that are self funded and have little outside support, cash reserves are absolutely vital.

 

[winb83]

Cash buys you time to make mistakes, deal with crisis, fix mistakes and carry on from there.
Lack of cash flow and bad cash management probably kills more startups than
anything else in my estimation.

I know this isn't the scope of the conversation but it's when it comes to start ups
that are self funded and have little outside support, cash reserves are absolutely vital.

In that world leverage is king. It’s all about using other people’s money to get further than your own can take you. If you’re carrying more debt than you have cash on hand by a large amount that’s hardly an emergency fund. It’s somebody else’s money you’re trying to sit on.

 

[winb83]

Are people joking?

So many terrible blanket statements in here. Please aspire to 3-6 months living expenses in CASH.

I aspire for far more than that. I’m far more concerned about my total net worth than sitting on a pile of cash I’m unlikely to ever need.

My thinking is if I can get 10 years of living expenses in assets why would it matter if 3-6 months of it sat in cash?

I wonder if somebody like Jeff Bezos or Bill Gates has 6 months living expenses sitting in a 2.5% savings account.

 

[winb83]

What he's saying makes perfect sense.

If you live well below your means you can pay for common emergencies from what you'd be normally saving and a paycheck buffer in your checking account. If you leave $20,000 sitting in a savings or checking account it'll cost $14,000 a decade to sit there. Even at 2.5% it'll cost you $10,000 a decade just to have it parked.

 

[Cynic]

In that world leverage is king. It’s all about using other people’s money to get further than your own can take you. If you’re carrying more debt than you have cash on hand by a large amount that’s hardly an emergency fund. It’s somebody else’s money you’re trying to sit on.

did you miss the part where I said Self-funded ?

I'd personally rather use other peoples money to acquire businesses than start them

 

[Jimmy from Linkedin]

did you miss the part where I said Self-funded ?

I'd personally rather use other peoples money to acquire businesses than start them

Make a thread breh

 

[Skooby]

Posted this in another thread:

Just thinking out loud here...

Got about $27,000 in a general savings/emergency fund (earning 2.20% interest). Maybe that's too much but I feel like I should have cash on hand. I get paid bi-weekly and have about an extra $300 per check. I was putting that all to my savings to build it up.

Now I'm going to start taking that $300 and splitting it up into some commission free etfs each month (I'm with Charles Schwab). And every now and then buy some individual stocks (which I've been doing already).

I plan on buying a home someday, but not until around late 2020 or even 2021.

Thoughts?

 

[Cynic]

Make a thread breh

Nah. I've dropped enough gems

 

[ahomeplateslugger]

Posted this in another thread:

Just thinking out loud here...

Got about $27,000 in a general savings/emergency fund (earning 2.20% interest). Maybe that's too much but I feel like I should have cash on hand. I get paid bi-weekly and have about an extra $300 per check. I was putting that all to my savings to build it up.

Now I'm going to start taking that $300 and splitting it up into some commission free etfs each month (I'm with Charles Schwab). And every now and then buy some individual stocks (which I've been doing already).

I plan on buying a home someday, but not until around late 2020 or even 2021.

Thoughts?

normally i would say put that money in an ETF like VTI or VOO but since you plan to buy a house within 2 years then i think you should leave it in your savings since you won't have time to let it recover if it goes down. i would leave your savings alone and start depositing your money into an ETF. a rule of thumb is you don't wanna play with house money. use that for your down payment, inspection, closing cost, repairs/remodeling, appliances, new furniture, etc.