Emergency funds

[Tiger]

Do you include your emergency funds as part of your AA?

 

[FIREd]

I don't. I always keep my emergency fund separate from my other investments. That way if I have to dip into my EF it doesn't mess up my whole AA.

 

[youbet]

Do you include your emergency funds as part of your AA?

Absolutely. I carry enough cash and near-cash in my AA so I have liquidity to cover unforecasted urgent or emergency situations. If I need to use some cash, my AA needs to be brought back to target. This is no different than saying an emergency fund needs to be replinished.

It's all terminology. I just happen to be comfortable keeping all $$ on one spreadsheet. But, in the end, $$ is $$.

 

[LOL!]

Yes, but our e-fund is less than 1% of total assets, so it wouldn't really matter one way or the other for us. I have been known to use the e-fund when equities dip in order make short term gains.

 

[chinaco]

Yup.

 

[W2R]

My emergency funds ebb and flow, depending on whether I have had an emergency or not. This year has been great -- no emergencies at all. But last year, in one month my A/C broke (requiring replacement of almost the whole system), I found out that I needed two root canals, and I bought a 42" plasma TV since my old TV bit the dust and I wanted a plasma TV so bad I could taste it. So that was not such a good year for emergencies. You never know what demands you might have on your emergency funds. Imagine the impact on emergency funds if I had to replace my car! I could pay for the new one in cash, but I wouldn't have much left. I want to feel free to spend emergency funds as needed without unbalancing my AA. So no, they are not part of my asset allocation.

 

[Spanky]

Money Market Fund is 6% of my AA.

 

[d]

i maintain an "escrow" account which includes my emergency fund and some potential expenses (some predictable, some uncertain) ... it is a fair portion of my total assets ... so for purposes of AA i look at two numbers: 1) including and 2) excluding. i base my investments on the "excluding" numbers, but reference the "including" so that i don't lose sight of my overall portfolio.

 

[saluki9]

Yes, I include my emergency funds in my asset allocation. It makes up about 15% of my total assets and I keep it in short term bonds.

 

[audreyh1]

I don't include my cash/emergency funds as part of my AA. I keep 2 to 3 years of living expenses in a separate cash account from my "retirement fund" brokerage account.

This works well for me, because I don't have to think about short term needs when I am rebalancing my investments.

I never actually considered the cash fund an "emergency" fund, but obviously if I have > 1 year of expense needs available, I have room for surprises.

Audrey

 

[NinjaPigeon]

I consider my e-fund as the bond portion of my AA. At some point, I will probably actually have bonds, and then I will treat my e-fund as a separate entity.

But since I'm just starting out, it's important for me to track that 10% of my assets are in cash.

 

[Moemg]

I don't have a seperate emergency fund anymore but I have a lot of padding in my yearly income so If I don't use it it's available for emergencies .

 

[Milton]

I don't have a seperate emergency fund anymore but I have a lot of padding in my yearly income so If I don't use it it's available for emergencies .

Agreed. IMHO, an emergency fund is a good idea for persons of limited means, but once you have sufficient capital built up (God bless the miracle of compounding!) it becomes unnecessary and unproductive.

When an unforeseen problem occurs, temporarily suspend your regular investments / dividend reinvestments, and divert the surplus cash to the problem.

 

[mickeyd]

Do you include your emergency funds as part of your AA?

I always include it for my use however, when I update my financial plan with Vanguard I only include my long term assets and lump all of my ST and cash assets outside of the plan. This way my plan reflects only my LT goals. I have thought about including them, but I really do not think it would make that much difference as it is less than 5%.

 

[FIREd]

I don't have a seperate emergency fund anymore but I have a lot of padding in my yearly income so If I don't use it it's available for emergencies .

We do have some slack in our budget as well to cover most unexpected expenses (replace a fried computer, plumbing emergencies, most car repairs...) and we very rarely dip into our Emergency fund. But there are times, when we need a lot of money at once and in this case we take money out of the EF. Last year we had a nasty hail strom going through our area and it damaged the roof. Insurance paid for part of the damage but we still had to fork out more than $12,000 to put a new roof on the house. In this case, we were glad to have money set aside so we didn't have to take a loan or sell any of our investments.

 

[FIREd]

I always include it for my use however, when I update my financial plan with Vanguard I only include my long term assets and lump all of my ST and cash assets outside of the plan. This way my plan reflects only my LT goals. I have thought about including them, but I really do not think it would make that much difference as it is less than 5%.

I agree. I don't like to mix short term and long term investments. I keep all my long term money at Vanguard and my short term money at ING. I make it a rule to never withdraw money from my LT accounts (which I use exclusively for my early retirement calculations) and never have for the past 7 years. I actually considered moving the ST money to my VG taxable account (because I could earn a higher interest rate on the ST money), but I finally decided against it. I know that money is money and I am aware that it's purely a psychological limitation on my part, but I think I would not feel good having to withdraw money from Vanguard in case of an emergency. In my mind, VG money is only to be used for retirement. Anyways, my EF (6 months worth of living expenses) represents only about 6% of my total financial assets, so I don't think it makes a big difference.

 

[DblDoc]

Count me in as another that keeps the EF seperate, it is currently almost 12m of living expenses and about 12% of our total NW (-house) and dwindling. Post-retirement I anticipate it will be merged with our total AA, or at least smaller then what we have now.

DD