How many months living expenses needed now?

[Retch The Grate]

So I'm wrestling with feeling like I need a larger cash position. Normally I hold as much in equities as I can since I'm in for the long run and don't want to miss out on market gains, BUT, I'm looking at the current situation and wondering how long my job will be stable for and thinking about how much cash I should have on hand to get through the recession. This hasn't traditionally been an issue in video games, but "this time is different!"

I had cut my flow of money into my investments down to just maxing out my 401k when my wife lost her job in january, so we are sitting on about $90k in cash at the moment, which unfortunately at Bay Area COL is about a year of current living expenses (rent alone is over $50k). I'm struggling with should I move another $100k in my investment accounts to cash and have a long runway if my job goes away, or should I just leave it all in (my usual behaviour) and assume that my currently existing job + 1 year of backstop is ok and if I end up having to dip into my equities in a year such is life?

On the upside, my paper losses dwarf my annual salary, and I'm not feeling like fleeing stocks, so yay, emotionally I can still do buy and hold through market downturns (during the Great Recession my annual contributions to my investments were still outweighing the market movements impact, so it didn't count as a challenge to my ability to buy and hold). In fact the issue here is feeling like if I pull money out to provide a longer runway on cash I'm going to miss out on some of the market upside.

I've been angsting over it for weeks, but haven't been able to come to a clear resolution of feeling like I'm doing the right thing. I don't want to have to deal with moving during the pandemic, I don't want to be job hunting in a completely shut down job market, etc... If I was already at the point where 3% covered my Bay Area living expenses this would be easy, but I am not. Anyways, I don't expect anybody to be able to solve it for me, but I'm interested in all of your perspectives to see if it can get me to make a decision and stop worrying.

 

[Aerides]

Well you are still working, and have a year of expenses. I'd probably stay there financially, but continue to shore up a bit extra cash until your gut unwinds by saving instead of investing over the coming months (but still max 401k as you mention, just any you are saving on top of that.) I wouldn't move money out of investments; I wouldn't sell to put cash in the bank.

You might want to look into a HELOC - generally free but then you have it available as another "cash" alternative to tap if ever needed. Get a credit card maximum raised, that sort of thing.

You're right the gaming industry is probably a lot more solid than most, perhaps even helped (hello FF7 remake and Animal Crossing timing.)

 

[The Cosmic Avenger]

The rule of thumb I've always heard is 3-6 months of expenses on two incomes, 6-12 months on one income, so it sounds like you're in pretty good shape. Of course, I don't follow the rule the way I should, but we also have other places to pull cash (savings, bonds, home equity) so that we could probably go a year without selling stocks or stock funds, which is why I let myself get away with a lower emergency fund.

 

[brewer12345]

I'd guess his landlord might object to retch taking out a HELOC on the property.

If you have a taxable account, I suppose you could look to a margin loan. There are always credit card cash advances on promo rates, but their availability is fickle.

What is the most cash you can think of needing? How long would you need in the way of breathing room to move or otherwise change your situation so that you could greatly trim your expenses/?

 

[jazz4cash]

I’d pump up the cash reserves if I was in a state of angst. You could go 6 months extra or the full extra year. You don’t want to find that you have to sell at depressed prices.

 

[targatom2019]

Delay 401k, build up saving from W2 income and don’t withdraw from investment account.

 

[Aerides]

I'd guess his landlord might object to retch taking out a HELOC on the property.

yeah i missed the word "rent" so scratch that, assumed OP owned.

 

[HI Bill]

Normally, 6-12 months would be enough. But what if it takes 18 months or more until a vaccine or treatment for SARS CoV-19 becomes available? Are those with job losses likely to stop buying new video games? I'd go with 18-24 months at this point in time.

Between money market and bonds, I'm sitting on 6 years (72 months), but without travel, that's really like 10+ years. But I'm hoping to FIRE later this year or earlier next year.

 

[Retch The Grate]

yeah, the risk that it could take a couple years for jobs to recover is what worries me and is pushing me to want to get my cash on hand to that range... :/ Meh. No HELOCs, I could cut my 401k contributions down to just the company match to get some more cash flowing in, but alternatively I can keep that maxed and sell from my taxable accounts... I DO want to be buying into the downturn, I just don't want to end up having to move before there is a vaccine or effective therapeutic treatment if things get really bad job-wise. This would all be easier if I had about 3x the investments.

 

[pb4uski]

I think this is a time to be defensive. Since you have been angsting on this for weeks, you probably don't have enough liquidity.

Will the loss of your wife's job put you in a lower tax bracket and reduce the benefit of tax-deferred contributions? If so, then you might reduce your 401k contributions to what will earn the match and use the difference to bolster liquidity. Otherwise, sell some taxable to bolster liquidity.

 

[eytonxav]

Sometimes a person's best asset is that thing that sits between and above their 2 shoulders. Is your wife trying to get another job and how marketable are both of your skills? If the answer is yes to both of those and your skills are still valued in the marketplace and not too old, you are probably in decent shape. However, with times so uncertain, if you added another 6 months of living expense that might put your mind at ease.

 

[Retch The Grate]

I think this is a time to be defensive. Since you have been angsting on this for weeks, you probably don't have enough liquidity.

Will the loss of your wife's job put you in a lower tax bracket and reduce the benefit of tax-deferred contributions? If so, then you might reduce your 401k contributions to what will earn the match and use the difference to bolster liquidity. Otherwise, sell some taxable to bolster liquidity.

that's certainly the emotional feeling, heh.

It moves us from the 32% bracket to 24% so yeah, that's a fairly significant change in the benefit, but to be fair, changing the percentage of 401k contribution at this point is pretty minor compared to monthly expenses.

 

[Retch The Grate]

Sometimes a person's best asset is that thing that sits between and above their 2 shoulders. Is your wife trying to get another job and how marketable are both of your skills? If the answer is yes to both of those and your skills are still valued in the marketplace and not too old, you are probably in decent shape. However, with times so uncertain, if you added another 6 months of living expense that might put your mind at ease.

DW is being actively hunted by recruiters, today's question was how do I feel about moving to NYC so she can work at a hedge fund. Former Google cybersecurity experts are in demand. The collapse arriving at the same time that she is unable to work due to visa issues. Google's lawyers got the dates wrong and her work authorization ran out. We were in the middle of getting her immigration status changed and a new EAD issued, but then USCIS shut down their offices for the pandemic and they haven't rescheduled her biometrics appointment yet. Not really clear what the implications are, but as soon as she can work I'd expect her to swiftly find a job. My industry is harder for job hunting, but I can always search outside of games too, I've done enough producer work to be able to talk convincingly about my appropriateness for a PM role.

 

[bonvoyage]

I count my cash buffer in years of living costs. Right now it's about 5 years

 

[RetireBy90]

Given that you have a years of living expenses and sounds like you are living on one income, and your wife is going to be able to work again once USCIS opens and finishes her processing, I would suggest you are in good shape. I'm sure that the 2 check to 1 check is part of your angst along with the wife's status so perhaps if those two issues were removed you would be less concerned ? If you cut back a bit on the 401K contributions and you sleep better, then that sleep is worth something.



Bottom line, I would stick with your 1 year of emergency savings and wait for a while. If you are still worried then do what you have to so you can sleep and not worry.



Best of luck in this, hope DW gets USCIS and a job soon !