Why bother having an emergency fund at all?

[ahomeplateslugger]

seeing this thread and the more i think about it...not having an emergency savings is a bad idea. you don't have to go overboard and put 12 months of living expenses in there, but have something that is protected against a down market. it's like insurance. you don't necessarily need it, but it's there to cover you if shyt happens. if you need surgery or get into a bad accident and are at fault during a down market then you're guaranteed to have a baseline of money available to you. if you put $20k into the market and it drops 25% like it did in december then you'll only have around 15k. let's say it drops further in a 8-12 year bear market, even worse. you're gonna charge that on your credit card and have to pay interest while coming out of your pocket for the rest?

you said you want to buy a house soon, you gotta have money for home repairs. a damaged roof will run you 10k+ depending on the size of the house.

hell, brokerage firms advise putting money into bonds and gold during a down market because it's safer.

just seems like you are blurring the line of emergency money and investment/retirement money. i've made posts on here saying a big emergency fund is unnecessary so i'm not completely disagreeing with you but gotta find a better balance.

If you're a financially responsible person living well under your means you don't need a large pile of cash sitting around not working for you to make you feel better. That's a concept that's old and outdated.

I live off half of what I make. When an emergency happens I typically don't even touch my savings I just pause savings for the month and divert those funds to pay for the expenses and that's usually after I've charged them on a cash back credit card.

If I lost my job I have more than enough in investments to live a year off them. $20K sitting in a bank account for decades has an opportunity cost to it. in 30 years $20K sitting in investments that earn back 8% annually will compound to over $200K. That's if you simply let it sit and add nothing to it for 30 years. $200K @ 4% dividend returns is $8K a year so in my early 60s I could tap into those dividends and be getting $8000 a year in Dividend payments which adds to $600+ a month more than enough to pay taxes, insurance, and utilities on a paid off home.

Hell in 10 years that $20K doubles at n average return on 7% annually. You're telling me all that is dumb though. Ok.

you're counting your eggs before they hatch. it's not guaranteed the market will return 7% annually and you don't know where the market will be in 10 years. seems like you're being an extremist about investing and/or get a rush from the money making potential aspect of it, similar to gambling. but your situation is unique since your COL to income ratio is good. do you man.

 

[DamienWayne]

lets say u have 20k in a savings wat are some options to invest it?

 

[Panther]

If you're a financially responsible person living well under your means you don't need a large pile of cash sitting around not working for you to make you feel better. That's a concept that's old and outdated.

I live off half of what I make. When an emergency happens I typically don't even touch my savings I just pause savings for the month and divert those funds to pay for the expenses and that's usually after I've charged them on a cash back credit card.

If I lost my job I have more than enough in investments to live a year off them. $20K sitting in a bank account for decades has an opportunity cost to it. in 30 years $20K sitting in investments that earn back 8% annually will compound to over $200K. That's if you simply let it sit and add nothing to it for 30 years. $200K @ 4% dividend returns is $8K a year so in my early 60s I could tap into those dividends and be getting $8000 a year in Dividend payments which adds to $600+ a month more than enough to pay taxes, insurance, and utilities on a paid off home.

Hell in 10 years that $20K doubles at n average return on 7% annually. You're telling me all that is dumb though. Ok.

i think the plan you've laid out works really well for you

I don't think its a good idea for most people tho. Most people cant cover a $400 emergency, so when people are able to build a real surplus that e fund helps to put people at ease.

I think anything over 3 moths could be considered a little excessive, but i wouldn't trust my entire future to what the market is doing.

 

[Arcavian]

My emergency stash is acorns

Throw acorns in the bushes

Stash does the same thing but you can pick the stocks you want

 

[x-factor7]

Reading through the thread, your philosophy is fine OP, since it works for you. Hell, it's exactly what I did when I was single and renting. But then, marriage, kids, and house happens. It pretty much becomes vital to have a bigger emergency fund. You never know what will happen (car issues, medical bills, surprise tax bill, etc.). Housing alone will require a big buffer due to maintenance and repairs. If all that stuff can be paid using credit cards to get points, great, but it will be paid back via the e-fund.

The Personal Finance reddit (which sometimes has good advice) has a lot of humble brag going on, talking about having 30k+ emergency funds, which is overkill. You would never need that much, unless you own alot of rental properties.

 

[phcitywarrior]

The Personal Finance reddit (which sometimes has good advice) has a lot of humble brag going on, talking about having 30k+ emergency funds, which is overkill. You would never need that much, unless you own alot of rental properties.

I think it depends on where you are at life. If 30K is like half you're gross income, then that's overkill. But 30k for someone making 250k might even be too small. Like you said, once you get married and have kids it becomes a whole different ball game.

 

[fantabolous]

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.

This is a good thread, that has some terrible responses lol.

I've been a banker for years, you're on the right track. An emergency fund just means you need funds for emergencies, meaning not tied up and inaccessible. Money in the market is accessible, and I would say completely qualifies. People giving you shyt about credit cards just don't understand them correctly, it seems that you do.

The catch is the investment risk that you obviously take on by having it invested. Provided you don't go completely speculative its very unlikely that you'd lose your nest egg, but technically possible. A very low risk fund, or fixed rate option is best for this but, if you know your portfolio far exceeds what you'd need, all should be good. The other thing to consider using all invested funds are the tax implications in withdrawing.

 

[Hahahaha]

I'm keeping elevated cash in case stock/housing market goes down so I can buy cheap. I still invest pretty heavily but that is how I 'diversify'.

 

[YaFingerDealMe]

This thread has been surprisingly interesting

 

[Family Lives Matter]

If you lost your source of income wouldn't you file for unemployment? Again as long as you can liquidate whatever stock you need to pay off before the card's payment is due then you're good. If you become that concerned then liquidate 6 month worth of expenses all at once.

I'm talking about holding something like an ETF specifically for the purpose of liquidation in such events. It's somewhat of an emergency fund but it's being held in the market instead of in a bank where it's losing money. The best interest rates in a bank account either barely beat out inflation or lose to it.

I'm not really trying to have damn near $20K of cash sitting in a bank losing money waiting around for me to be fired from a job I've been at about a decade or waiting for me to become disabled from a freak accident.

I would rather mow lawns than claim unemployment

 

[dark_magic]

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 am a high liquidity guy myself, but I do prefer to have a multiplicity of credit and debt instruments at my disposal in addition to Federal Reserve Notes (i.e. cash).

I store cash in multiple areas. I don't store money in the market, however. Money I place in the market is for generating cash flow (whether dividends, munis, or stock options). Having a diversity of accounts can prevent liquidating a position needlessly.

I prefer to offset market volatility with non-correlated assets to the stock market. Loss in the market can be offset by gain in non-correlated assets, although gain in both is piff.

It seems you understand opportunity costs. Kudos to you.

 

[Panther]

Brehs still keeping your e-fund in the market?

 

[winb83]

Brehs still keeping your e-fund in the market?

I am. I've been saving for a down payment on a home that I have liquid cash but other than that and like $1200 of cash and a hand full of $500 checking accounts all my money is in the markets. Right now I have close to $40K in money invested that's not for my retirement or even in a retirement account. Granted I've probably lost $6K or so on those funds from the crash and rebound but I still practice what I preach.

 

[DamienWayne]

 

[MoneyTron]

My exposure to the market as a total of my assets is pretty minimal compared to most. Only about 25%. I'm just risk averse. My returns may not be as high but in uncertain times like these, you never know.