Do you keep a reserve fund?

[megacorp-firee]

I'm certainly no expert on exchange rates (to say the least!), but even if the current exchange rate is unfavorable, as long as it held steady while I had funds in an Australian interest bearing vehicle, I would suffer no penalty when I exchanged back. Right? It's the relative exchange rate varying over time that causes exchange rate risk, no?

Yes, if all you got 'charged' was the exchange rate. However when you go the banks you will see that they have a 'buy' and a 'sell' price. It's the way they make their money (the spread). So you are going to get hit on the way in and on the way out when you exchange USD for AusD.

 

[megacorp-firee]

Rich for the Insurance premiums, I just put that into the expenses side of the equation. So it's figured in the swr. No bucket or fund needed.

I have about 10% in cash, CD, MM (cash bucket). It represents 5 years of money that are used to add to my pension, income bucket (preferreds, muni's, and other income producing investments) to make up my swr. My 'swr' has a bit of fluff in it, so I don't really spend the entire planned allocation, so this adds to (or is left in) the cash bucket. The cash bucket actually has 6 years worth of funds, so the slush is for the roof leaks, the new boiler, and yes even the new (used) car.

 

[Allegany]

I use a Heloc

We budget for everything. But as you all know there are unexpected expenses, so if they are large enough we have a heloc to tap for large expenses. Last year our fridge and dishwasher died but we just paid it out of normal expenses. If it's something larger we may have to hit the heloc.

 

[Kronk]

I've been struggling with this.

My house is paid off. I have a HELOC with a zero balance that is large enough to cover maybe five years of living expenses. The HELOC has a $50 per year account fee. My marginal tax rate is 25%. Income minus expenses is good enough that there is always a couple thousand dollars per month in excess money. So an emergency fund would be more for $10k-plus expenses, and more to smooth out cash flow issues than anything else.

My internal struggle is that an emergency fund would make me feel more comfortable. There's a significant psychological difference to me between taking on debt and taking money out of a fund earmarked for such things. I hate being in debt.

The flip side is that money markets or short term bond funds are horribly tax-inefficient. It seems silly to have a $25k emergency fund that is barely matching inflation, if that. I could always increase my bond holdings in my 401k by $25k and call that my emergency fund. If I needed that 25k, I could sell that much out of my tax efficient Total Stock Market after-tax account and then re-jigger my allocations to drop $25k from my 401k bond total and correspondingly increase my 401k Total Stock Market allocation.

But, like Rich in Tampa said early on, even though it is smoke and mirrors, there is a comfort in having a "real" emergency account, rather than kind of a virtual emergency fund.

Is this too much angst for $250-$300 per year?

 

[TickTock]

Instead of MM or ST Bonds in taxable accounts, try a CD ladder and accept the penalties if/when you need to cash one in early?

 

[HFWR]

My emergency fund was a few piddling dollars, until last January, when Megaconglomocorp made the dreaded announcement.

I switched to emergency mode, and now have about two years worth of basic living expenses stashed in VGMMX. My severence runs out in June; unemployment will last about 4.5 more months. Plus I have about 250 hours of timebank left to cash out. So, I'm good for a l-o-n-g stretch, if necessary...

 

[Kronk]

Instead of MM or ST Bonds in taxable accounts, try a CD ladder and accept the penalties if/when you need to cash one in early?

Why? I'm probably missing something, but CD's don't seem to have a big return premium (if any) over short-term bonds, though the returns are of course guaranteed for CDs. The money isn't particularly liquid, you still have taxes on the interest, and you have to do the work every month or three to reinvest in a new CD. I just don't see the appeal unless you're talking about a lot more money than this.