"Emergency Fund" thought process?

[W2R]

My retirement AA includes 5.5% cash, which I keep in money market at Vanguard and use as needed for rebalancing.

In addition to that 5.5%, I withdraw my full year's spending money in January each year and move it from Vanguard to my local bricks and mortar bank. So, whatever I haven't spent yet is right here at hand to spend in case of emergency.

With interest rates as low as they are, I don't pay as much attention to interest rate on cash savings as I do to convenience. I suppose I should so you may regard that as one of my personal failings. I don't know how long it would take for you to cash out that CD and actually have the money in your hand, but hopefully not long if you need emergency money from it.

[USGrant1962]

In my view the only "emergency" that could require a separate fund is a market crash. Otherwise your overall portfolio is your emergency fund.

I keep current year budget in cash and a second year of expenses in series I Bonds under the theory that I can cash them in the event of a market crash. So you could say I have a 2-year emergency fund.

[pb4uski]

I have never needed to use an emergency fund. Most emergencies (car repairs, home repairs, etc.) can be covered with credit cards or new financing.

I was lucky in that I had stable jobs... if i had job insecurity then I probably would have felt having and emergency fund more important.

In retirement, I now keep about 5% in cash (online savings) as a peace-of-mind thing since we don't have a steady paycheck coming in but I may shave that down some over time.

[calmloki]

We have been savers for decades - when we had loans on the rentals we pushed money as fast as possible. It was good to have goals. Now we only have one loan on a personal house, but since we pay 2.925% and Penfed pays us 3% on about the same amount we fight to not pay it off. Cash tends to build up in envelopes - haven't checked for awhile, but probably 10k worth. Like having cash around just in case (unspecified implausible disaster requiring plastic surgery, new fake ID, running for the border..). Checking accounts normally have 4-40k more than we owe on all the credit cards. Bank savings accounts now are 4-5 times our annual spend. Only get about 1% on them, but they also get tapped for loans we make; right now we could make a pretty good sized loan or I could have a major heart adventure and we could pay in full with a wire transfer.

We also have a California tax free bond we could tap as well as the other Vanguard stuff. Guess we really don't have an emergency fund, just a sloppy pool of bucks that can be tapped within 5 minutes or a week. Really casual and inefficient of me, but we can be sloppy rather than focused on absolute optimal returns now.

[Walt34]

We've always had an emergency fund, something both of our parents drilled into us. And we've had to use it. About 18 years ago the aging A/C in the previous house died and needed replacing and when we took the plenum off it was "Oh, man, that heat exchanger does not look good" so it was time to replace the furnace too. Nice to be able to simply write a check for both. We've had similar things happen - had to replace the A/C here, and had to replace the water line from the meter near the street to the house.

When FIL found he hadn't paid his property taxes we were the only ones in the family (some of which have higher incomes than we do) who could write a check for $3k on one day's notice. We did eventually get repaid.

So yes, it is nice to have a stash of cash to quickly and easily deal with things like that. As others have mentioned there are other ways to deal with things like that but this works for us.

[HillCountry]

I don't call it emergency fund. I do have 100k+ sitting idle in my two sets of business checking/saving and personal checking/saving and two papal accounts.

[audreyh1]

Quote:

Originally Posted by HillCountry I don't call it emergency fund. I do have 100k+ sitting idle in my two sets of business checking/saving and personal checking/saving and two papal accounts.

Papal accounts? Are you running funds for the Vatican?

[youbet]

I retired right into the 2008 - 2009 Great Recession with a well diversified 55/42/3 portfolio and found that it was easy to find liquidity without selling anything that was painful to sell. We had no unusual expenses during this time and did keep up full spending despite the portfolio tanking 30%.

At first I had feelings of regret for not setting aside a mountain of cash for such eventualities, but soon discovered that I didn't need all the money at once. Over the couple of years or so the portfolio was really in the dumpster I found I could collect divs, int and cap gains, take the cash from maturing bonds and even sell a few things as part of rebalancing. So, while I didn't have the security of a dedicated bucket of low-yielding cash to comfort me, I always found not-too-painful ways to come up with spending money.

I still carry only enough low yielding cash to smooth out peaks and valleys of divs, int, CG's and maturing bonds.

YMMV. You need to be able to mentally handle the idea of going into a downturn without a complete road map of how you'll get adequate liquidity without taking any losses but trust yourself and your well diversified portfolio.

[HillCountry]

Quote:

Originally Posted by audreyh1 Papal accounts? Are you running funds for the Vatican?

PayPal

[audreyh1]

Quote:

Originally Posted by HillCountry PayPal

Yeah I figured.

[Dash man]

Okay, I'm going to throw out the big "what if?"
Think Cyprus, Greece, Argentina and what's happened in those financial systems. What if an event similar to those three countries caused a widespread panic and there were a breakdown in the global financial markets and the government reacted by freezing the financial markets and institutions. Perhaps allowing minimal ATM withdrawals of $300 or so per day per individual and it took weeks or months before our financial systems were settled down, but hyperinflation was raising its ugly head. Debt default was widespread.
Is your "emergency fund" going to be accessible and sufficient?

[foxfirev5]

Quote:

Originally Posted by Walt34 We've always had an emergency fund, something both of our parents drilled into us. And we've had to use it. About 18 years ago the aging A/C in the previous house died and needed replacing and when we took the plenum off it was "Oh, man, that heat exchanger does not look good" so it was time to replace the furnace too. Nice to be able to simply write a check for both. We've had similar things happen - had to replace the A/C here, and had to replace the water line from the meter near the street to the house. When FIL found he hadn't paid his property taxes we were the only ones in the family (some of which have higher incomes than we do) who could write a check for $3k on one day's notice. We did eventually get repaid. So yes, it is nice to have a stash of cash to quickly and easily deal with things like that. As others have mentioned there are other ways to deal with things like that but this works for us.

Yep, nothing like cash. Last week during a quarterly inspection I discovered our 22 year old original roof should be replaced. Not a big deal. Who knows what is next?l
We save monthly from our retirement distributions just like we did when we made $150/WK nearly 40 years ago.

[Music Lover]

Cash can be important in a "what if" situation. Keep some on hand because you never know...

[W2R]

Quote:

Originally Posted by Dash man Okay, I'm going to throw out the big "what if?" Think Cyprus, Greece, Argentina and what's happened in those financial systems. What if an event similar to those three countries caused a widespread panic and there were a breakdown in the global financial markets and the government reacted by freezing the financial markets and institutions. Perhaps allowing minimal ATM withdrawals of $300 or so per day per individual and it took weeks or months before our financial systems were settled down, but hyperinflation was raising its ugly head. Debt default was widespread. Is your "emergency fund" going to be accessible and sufficient?

$300/day is the same as $109,500/year. You can't protect yourself from all catastrophic scenarios that the human mind can envision, but I'd be fine in the one you describe for about 2-3 years at my present spending level and present value of the dollar. Since I'd probably freak out and cut back severely on my spending, I'd probably be OK for 3-5 years.


Of course hyperinflation could cut any estimate by 100, 1000, 10,000, or whatever, depending on how bad it is. So there is no way that you or anybody can know. I do know that I'd be doing better than most, and if things get too bad it doesn't matter how much money I have because I'd be somebody's dinner.

[Rustic23]

We are like Mystang52. I created a 'cash' account and let it build up until the balance would cover just about all the things we need to replace. car/ac/roof/appliance/paint/etc. That fund is now fully funded. However, we continue to save. Money now goes to investments.

[jebmke]

Quote:

Originally Posted by Dash man Okay, I'm going to throw out the big "what if?" Think Cyprus, Greece, Argentina and what's happened in those financial systems. What if an event similar to those three countries caused a widespread panic and there were a breakdown in the global financial markets and the government reacted by freezing the financial markets and institutions. Perhaps allowing minimal ATM withdrawals of $300 or so per day per individual and it took weeks or months before our financial systems were settled down, but hyperinflation was raising its ugly head. Debt default was widespread. Is your "emergency fund" going to be accessible and sufficient?

In the winter we normally have a few hundred migratory geese in the creek. In summer there are at least a few dozen of the local geese on the nearby golf course. I could eat goose for a while. At least I'd finally get some real use out of my 3-iron.

[Al in Ohio]

I have had no less than 2-3 years of annual expenses in cash my whole adult life. I never lost a minutes sleep over money. Nowadays with low interest rates it is tiered in CDs, muni bonds, tax advantaged balanced funds and such.

[Scuba]

Quote:

Originally Posted by jebmke In the winter we normally have a few hundred migratory geese in the creek. In summer there are at least a few dozen of the local geese on the nearby golf course. I could eat goose for a while. At least I'd finally get some real use out of my 3-iron.

[emoji23]

[Koolau]

Quote:

Originally Posted by Dash man Okay, I'm going to throw out the big "what if?" Think Cyprus, Greece, Argentina and what's happened in those financial systems. What if an event similar to those three countries caused a widespread panic and there were a breakdown in the global financial markets and the government reacted by freezing the financial markets and institutions. Perhaps allowing minimal ATM withdrawals of $300 or so per day per individual and it took weeks or months before our financial systems were settled down, but hyperinflation was raising its ugly head. Debt default was widespread. Is your "emergency fund" going to be accessible and sufficient?

I guess I should have mentioned this in my post. I hope it's a relatively unlikely situation, but how can one discount it? My parents went through the depression in which they could not get to their cash (what little they had in the bank.) I realize the FED and US Congress have put in place "solutions" to such problems - but that's a bit like fighting the last war since we do not know what might happen with the US or more likely, the world economy. Perhaps that even speaks for PMs held in a safe place, but that's another thread, heh, heh. YMMV

[mickeyd]

We no longer have a EF but do maintain a pretty healthy cash reserve stash. Most of it is in Ally online account (soon to go to PMMF) but about 5% sits in a STB fund. I have tapped the savings account from time to time, but have never had to draw down the STB account.