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Buffer cash - how much and where?
Old 10-03-2018, 03:57 AM   #1
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Buffer cash - how much and where?

Hi everyone.

I have a couple questions about some easily accecible cash "just in case":

1. Some recommend 6 months worth expences, some recommend 6 months worth income. Big difference. How much do you have and why?
2. Where do you keep that cash?
3. I own my childhood home and my mother lives there until she is ready to move into something smaller. Im supposed to buy a smaller appartment for her and sell the house one day. God knows when that will happen. The house will take time to sell so I need this cash ready when she says "go". And buying will hapen before selling. I need equivalent of 70.000$ in cash stored somewhere with interest but available for quick withdrawal.

Thanks in advance.
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Old 10-03-2018, 05:08 AM   #2
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We had been keeping cash at Capitalone360. Now that interest rates are rising, I am finding that the Fido MM is paying just a little higher (1.92% last I looked), so I am going there.
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Old 10-03-2018, 06:44 AM   #3
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My emergency fund has varied in size over the years. I liked to keep 6 months of expenses in a money market account. That was actual expenses with no changes. I figured I could stretch that to 12 months with just a few adjustments (no dining out, no gifts).

Lately I have abandoned the emergency fund for the most part. My taxable account is large enough now to cover many years of expenses (it's over 10x what I need for an EF). I keep enough muni bonds in the taxable account to cover 6 months of expenses. I do still let my checking account float at around 2-3 months of expenses but that is just an artifact of cash flow.
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Old 10-03-2018, 06:59 AM   #4
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I never kept an emergency fund while I was accumulating. I preferred to keep it all invested, and if need be, I'd sell some funds. If the market happened to be low then, tough luck, but I figured a temporary low was probably still higher than keeping money out of the market long term. My job was pretty stable though, so that can change things. Now that I'm retired it's not an emergency fund, it's cash I know I'll be spending, so I tend to stay 3-12 months ahead. But you should keep whatever amount seems right to you.

I keep my cash in Vanguard's Prime MM, I think the yield is over 2% now.

It doesn't really make sense to me that your Mom will go from living with you to being independent. Usually it's the other way around but maybe there's more to the story. I don't know why you have to jump when she says jump though. I guess that's your business. But if you're doing this, it's different money than buffer cash, it's money set aside for a specific (near-term?) purpose.
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Old 10-03-2018, 07:12 AM   #5
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Originally Posted by RunningBum View Post
I
It doesn't really make sense to me that your Mom will go from living with you to being independent. Usually it's the other way around but maybe there's more to the story. I don't know why you have to jump when she says jump though. I guess that's your business. But if you're doing this, it's different money than buffer cash, it's money set aside for a specific (near-term?) purpose.
I own the house, but I dont live there. I live 1000km away. She lives in the house and "pays" me no rent. She does keep the house in good technical condition and she took care of her mother-in-law/my paternal grandmother (no eldery homes avaiable). Granny passed away one week ago Im considering my options.
So I jump when she says jump because of many things she did for me and the family. It is called gratitude. So she will be downsizing at some point. She is only 63 and her family lives 90-100 y.o.

That was a good point: it's different money than buffer cash, it's money set aside for a specific (near-term?) purpose. Thanks for reminding me that.
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Old 10-03-2018, 08:06 AM   #6
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Quote:
Originally Posted by henny-penny View Post
....I need equivalent of 70.000$ in cash stored somewhere with interest but available for quick withdrawal. ....
Quote:
Originally Posted by RunningBum View Post
....I keep my cash in Vanguard's Prime MM, I think the yield is over 2% now. ....
+1 currently 2.16% APR.
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Old 10-03-2018, 09:19 AM   #7
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My 2 emergency funds are a credit card (I never carry a balance) and a line of credit ($0 owing)
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Old 10-03-2018, 09:41 AM   #8
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Retired for 10 years now. We ditched our dedicated emergency fund over two decades ago. My entire portfolio is my emergency fund.
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Old 10-03-2018, 09:51 AM   #9
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If you really think you need 1 month or less accesibility to that cash, then using something highly liquid is important such as high yield savings, money market fund, no penalty CD etc. Lots of options for any of those yielding 1.9 to 2.1%. If you think you have more time or can accept a bit more hassle you can look at T-bills from a brokerage which are yielding a bit more and could be sold on the secondary market if needed or consider accepting an early withdrawal penalty on a higher yielding CD - looking for no more than 60 or 90 day interest penalty.

As others have pointed out, this is not a cash buffer, nor an emergency fund, this is setting aside money for a specific future purpose.
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Old 10-03-2018, 09:59 AM   #10
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We keep in the neighborhood of $1K of actual cash in the house. This is for emergencies such as an area-wide issue that could prevent credit card processing machines from working. As we are in the middle of selling our house, we have way too much cash (and will have more once closing occurs) that is currently sitting with Ally making 1.85%. Once we figure out what we are going to do with the move (buy outright or build) and get that all done, we will leave about $10K in that account (or the Vanguard MM account) and the rest will be shoveled into investments.
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Old 10-03-2018, 10:12 AM   #11
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Quote:
Originally Posted by henny-penny View Post
Hi everyone.

I have a couple questions about some easily accecible cash "just in case":

1. Some recommend 6 months worth expences, some recommend 6 months worth income. Big difference. How much do you have and why?
2. Where do you keep that cash?
3. I own my childhood home and my mother lives there until she is ready to move into something smaller. Im supposed to buy a smaller appartment for her and sell the house one day. God knows when that will happen. The house will take time to sell so I need this cash ready when she says "go". And buying will hapen before selling. I need equivalent of 70.000$ in cash stored somewhere with interest but available for quick withdrawal.

Thanks in advance.
From your introductory thread you live in Norway so I am guessing that some of the suggestions coming to you from this mostly USA membership such as Vanguard Money Market fund or any US bank will not be accessible to you.

I live in England, with most of my income coming from the USA, and keep a cash buffer of around a year’s expenses in England for when exchange rates go in the wrong direction for me. Although the interest rates are currently a little better in the USA I don’t keep any cash there as a mere twitch of the exchange rates in the wrong direction will wipe out any interest rate advantage.

I keep my cash in UK based bonds and a UK bank savings account. I would expect there may be Norwegian equivalents.
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Have a year's reserve, but it can come from several sources
Old 10-03-2018, 10:13 AM   #12
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Have a year's reserve, but it can come from several sources

Here's what we did. I don't know for certain whether it's a sound plan, because we ended up not encountering too many expensive crises. I guess it's better to be lucky than good.

For starters, I figured the buffer should be based on costs, not on income. Also, I don't think six months is enough. Work on building it to last at least twice that.

I also pondered what sort of shock a buffer needs to soften. If the shock is a large, unforecast expense, then having a bunch of credit available might be sufficient provision to handle it. Following this reasoning, DW and I arranged a HELOC worth three years' spending. As long as our income didn't collapse, we'd be able to repay the HELOC loan at a manageable rate.

If the shock is a sudden loss of income, that's a little different. When one is w*rking for a living, the biggest threat is j*b loss. If my paycheck stopped, I wouldn't be able to buy groceries, much less repay a HELOC loan. But even 20 years ago, my employer benefits included severance protection that would have kept me on full pay for over six months, and we were spending a bit less than that, so I really only needed to have about 3 more months' pay worth of actual cash. Three months pay isn't exactly a gigantic pile of money, so where it got parked didn't make much difference.

Finally, if the shock were my early demise, that's what life insurance is for. I've always had enough insurance to support DW for many years.


P.S. Of course, one's ability to withstand a shock varies at different stages of life. I'm nearing 60 and:
  • As of a year ago, our kids are grown and done with school; cars and mortgage are paid off; most of life's big expenses are behind us.
  • Since I'm now at the tail end of my career, a layoff today wouldn't harm me at all. I'd start collecting my pension, we'd pop a bottle of champagne and join the ranks of retirees. FIRECalc has us at 100%, plus I qualify for retiree health insurance which will carry me to Medicare, so we'd be fine.
  • Finally, if the shock is an early rendezvous with the Grim Reaper, my merry widow will get to squander my 401k entertaining toy boys. Everybody wins!
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