Real world importance of that emergency fund

[REWahoo]

Whether anyone here agrees or disagrees with your life choices (to which you are perfectly entitled!), the fact of the matter is the storm hit, you made good solid decisions to weather the storm, and came out the other side.

Thanks for sharing.

+1

OP, don't be discouraged by the Monday morning quarterbacks. You had the skills and discipline to avoid financial disaster - well done.

 

[Dash man]

I went through similar tough times in the mid nineties losing a job after buying a new (fortunately small) home and car after a divorce, followed by a job loss and continued custody battle over my son. I managed to survive and recover. But when the dot com bust hit, followed by 9-11, I started to think a lot more about the "what if" scenarios that could have played out. So my new DW and I began doing some serious saving and investing, but always keeping a larger than most emergency fund. I know a lot of people look more at the missing out of potential gains by keeping too much in cash or CDs, but by having several years of expenses in cash, I sleep much better at night. We all saw the markets dive just a few years ago in 2008, and we were fortunate they rebounded within a reasonable amount of time. But the big "what if" scenario for those who maintain debt in a mortgage, car loan or other instruments, is what if the markets didn't come back like Japan has been seeing for a couple of decades. What if the bond bubble burst causing a liquidity and credit crisis along with a drop in the stock market. What if bond funds drop sharply in value or close altogether and bring the stock market down with it. Layoffs could rise and finding a new job may take longer than people are prepared for, and may be for less money. Home equity loans could be reduced/cancelled by the banks if credit tightens, just like they did in 2008. Retirees with everything invested may see a prolonged drop in their portfolios forcing a drastic reduction in the withdrawal rate.
I know a lot on this board don't believe this will happen, or think they have enough to weather any storm. But we're in a situation we've never seen before with global government manipulation of interest rates and such a high level of money creation and debt spending. Geopolitical tensions are rising that could easily trigger a crisis of some sort. Many think things will chug along and everything will be great. Others make fun exaggerating this to be some sort of apocalyptic scenario. I still have half my money in stocks, but I do sleep much better with a large amount of cash and some paid off real estate.

 

[hnzw_rui]

@kgtest
Congrats on the baby! Glad to hear you pulled through. Can't imagine how scary that must have been.

Thanks for sharing. I do have an emergency fund, and I'll admit that every once in a while I think "it's just sitting there - maybe I could do something else with those dollars...". I talk myself out of it and it's stories like this that reinforce that call! Plus, being single, there is no one else whose income and/or savings stash could be tapped in time of trouble.

I'm actually going for a 3-tiered approach.

1. Cash in a savings account with the same bank as primary checking.
2. Cash in a money market account on an online bank.
3. Invested in low to moderate risk mutual funds (either Betterment Safety Net or Vanguard VWINX/VBINX/VSCGX/VTINX) as hedge for inflation.

Unfortunately, I depleted my emergency fund for downpayment on car and going on vacation to visit my two grandmothers overseas. Worth it though, since they're 89 and 91 years old and we want to spend time with them while we still can. Rebuilding the cash reserves first and once those are replenished, I'll start putting money in the mutual funds.

 

[NYEXPAT]

Congratulations on the baby boy, isn't it amazing?

I still can't believe it, now if I could only get this ridiculous smile off my face!