Any point at which an Emergency Fund becomes unnecessary?

[FI by 2024]

Is there a reason to maintain a separate Emergency Fund if the rest of your finances are set up to absorb hits?

I have about $11K in a dedicated emergency fund. I also have:
>$100K in an easily accessed taxable account
>$20K available credit
>$20K available in cash for other line items (vacation, car expenses, etc)
A very stable job that pays ~2x my expenses

Is there really a reason to maintain an emergency fund at this point? It earns just a few dollars each month sitting in a savings account, when it could be earning far more elsewhere. Since I could easily cover an emergency with the other accounts, it seems silly to let the money languish at .75% APY.

 

[audreyh1]

We don't have an emergency fund because we are financially independent, and already have several years of expenses and other set asides in cash which could cover emergencies, and we can always tap into our retirement portfolio if necessary.

We have plenty of money "languishing" at 0.9 to 1.3% APY, but I don't worry about that, because we have a whole lot more invested in riskier investments.

 

[Meadbh]

I don't have a dedicated emergency fund either. I have several years' worth of expenses in a GIC ladder and HISA and a HELOC at prime +0.5%. I also have insurance. I figure that's sufficient liquidity to get me through most foreseeable emergencies, unless I am kidnapped for ransom.

 

[RunningBum]

I've never really had one. Way back when, in a different life when we were trying to keep up with the Jones' and struggling to make mortgage payments and pay down credit cards, it didn't make sense to me to set money aside while paying high credit card interest rates. I figured if an emergency did come along I'd tap into the credit cards more.


Once I got ahead, I figured I was better off investing the money while I was getting fantastic returns in the mid/late 90s. If I had to I'd sell off some stocks, but it worked well for me to stay fully invested. I was usually well ahead of my budget too, so when cash built up and I had no foreseeable need I'd add to the investments.


Now in ER, I keep a year or so of cash for living expenses on hand, so that's also available for emergencies. I can tap into investments if needed, and if it's a bad time to sell equities I can buy them back in my IRA, exchanging from the bond fund.

 

[Sunset]

If it really is your emergency fund then 2% cashable 5yr CD's so you know the money is all then when needed.

Not sure the the 100K in taxable account really can be counted.
What would you do if the stock market tanks by 50% next year, and then you get your emergency of say 15K ?

 

[Animorph]

I was happy to let my taxable brokerage account double as my emergency fund. Never needed emergency cash, so it always remained invested in equities.

 

[FI by 2024]

Not sure the the 100K in taxable account really can be counted.
What would you do if the stock market tanks by 50% next year, and then you get your emergency of say 15K ?

Use the $45K+ in savings and credit availability that isn't my EF.

 

[kcowan]

Because we carry no debt. I have many sources of emergency cash. Even the credit cards (our last choice) have $30k on them which would be paid off by arranging more permanent choices before any interest came due.

(I spent my working life on commission so I have lots of experience.)

 

[Sunset]

Use the $45K+ in savings and credit availability that isn't my EF.

Pretty obvious you don't need an emergency fund.

 

[Walt34]

DW is more conservative than me so there is some in savings acct. to cover any readily foreseeable emergency. Yes it could be invested at a higher ROI elsewhere but it also lets her sleep at night so there is value in that too.

 

[scrabbler1]

This has been discussed many times over the years. What I have, as many others do, is a layered or tiered approach in my portfolio. I keep about $750 extra in my local bank's checking account over and above what I would need to avoid monthly account fees. That is readily available cash or personal check to cover an immediate emergency.


My next tier is about $40k I keep in an intermediate-term muni bond fund which has checkwriting privileges. It earns just over 2% mostly tax-free interest per year with a little but not a lot of risk to principal. I can write a check from there or transfer money to my local bank's checking account to use in a few days. I average about 1 check per year from that account over the 10+ years I have had the account.


After that, I have less liquid, less secure (i.e. invested in equities) accounts I rarely tap into except for a large, usually anticipated purchase such as a new car.


I hate the idea of having a lot of my money tied up in investments which earn nothing or next to nothing.


And I always have the ability to charge things on my CC which wouldn't have to be paid off for at least a few weeks without incurring interest charged, giving me plenty of time to move money around to pay the bill.

 

[papadad111]

Never had one.

I do keep around 5 grand in cash in a basement safe along with some fire arms. Some ammo. And some nice 30 year old scotch.

I'm not a doomsday Prepper...but I guess I am somewhat prepared ...

 

[FI by 2024]

Pretty obvious you don't need an emergency fund.

I agree, it seems obvious to me but goes against conventional wisdom. Just wanted to make sure I wasn't missing something.

 

[LOL!]

I have about $11K in a dedicated emergency fund. I also have:
[...]
>$20K available in cash for other line items (vacation, car expenses, emergencies. etc)

You seem to have two emergency funds right now. Maybe even three.

 

[Music Lover]

I've never had an emergency fund. I keep around $500 in cash in the house and if there's an emergency that's what a credit card or line of credit is for.

And like papadad, I always keep some extra bottles on hand...but rum instead of scotch.

 

[Dash man]

We keep a few years living expenses in online savings accounts and CDs in case of a market meltdown. We also keep plenty in diversified equities for growth, income and inflation protection. We also have a rental property and two personal residences for seasonal use. Overall growth and income is satisfactory for our needs, though we will seem overly cautious to many.


Enjoying life!

 

[Bogaigh]

Seems like your $100k is a good enough emergency fund.


Sent from my iPhone using Early Retirement Forum

 

[devans0]

We got caught in a natural disaster that closed our banks while we were evacuated from our home. We always keep some extended travel cash available. Learned from my mistake.

 

[DrRoy]

I never had a designated emergency fund either. I have and do keep some of my portfolio in cash and I suppose this serves the same purpose.

 

[kcowan]

We got caught in a natural disaster that closed our banks while we were evacuated from our home. We always keep some extended travel cash available. Learned from my mistake.

These must have been local banks with no online capability?

If I lost all online access, I would be at the pawn shop!

 

[ziggy29]

If you have enough cash equivalents in a taxable portfolio to cover (say) 6-12 months of expenses, you may not need a dedicated emergency fund. If an emergency hits, you may need to rebalance your taxable portfolio a little bit, but that's a separate issue.

That said, in reality everyone has to assess their own level of comfort in determining the size of that cash reserve.

 

[bingybear]

Is there a reason to maintain a separate Emergency Fund if the rest of your finances are set up to absorb hits?

I have about $11K in a dedicated emergency fund. I also have:
>$100K in an easily accessed taxable account
>$20K available credit
>$20K available in cash for other line items (vacation, car expenses, etc)
A very stable job that pays ~2x my expenses

Is there really a reason to maintain an emergency fund at this point? It earns just a few dollars each month sitting in a savings account, when it could be earning far more elsewhere. Since I could easily cover an emergency with the other accounts, it seems silly to let the money languish at .75% APY.

do you have several emergency funds already? maybe. The idea of an emergency account is so you don't have to sell investments at a bad time. your 20k credit should cover that... you don't define the 100k account well enough to see how it fits. your vacation account may work if never runs dry.
for those RE... some cash for the next year or two works well too.

 

[Loving Life]

Well, this is a very timely topic - up until the last few years, my cash/emergency fund was basically two months expenses..(10K) now, I really do not no what has happened, but I now keep in excess of 200k in liquid cash - I am just do not feel comfortable as in the past- I feel the world has become a little crazy. I am FI and have a well diversified portfolio

 

[Senator]

You need to define for yourself what a true emergency is. Is it an ongoing emergency, or a one-time expense? Is it a $4K expense, or a $10K expense? Is it a rental expense, or one for your own home or car? Or is it a 'great deal' expense, something that you cannot pass up? Or an unexpected tax withholding expense. Then, have many alternate plans to fund it.

To me, an unexpected expense is a one-time lifetime event. You may have several of these, but they are truly unexpected. A new roof should not be unexpected. Nor should a new furnace or major car expense be unexpected. You may not know the timing, but you know it is expected. A major healthcare expense would be considered unexpected. Or a major weather event.

You should be able to fund an expense at least equal to 2-3 months worth of extra spending at one time, maybe a year's worth. If you spend $5K a month, have a ready/instantaneous source of cash that can cover that and then some.

A ready source of cash can be savings, HELOC, a credit card, selling a bond/CD, or even selling equities. You should have a priority system in place to take the least expensive cash first.

I do not have a specific emergency fund. I have a bit of cash in my safe. I have some liquid cash in my checking and savings accounts. I have a bit of cash in my investment accounts. I can wait for next month's rent to come in. I can take my dividends. I can sell some equities. I can charge something on my CC(s). I can borrow some from a property.

An emergency fund, is more of an emergency strategy. Not a place that I have cash sitting waiting fir the emergency.

 

[Greg V]

We have ~$11K in a local savings account. It is both an emergency fund and immediate source of cash for DW as she sorts things out if I die first...really more for the latter purpose than the former.