[Jerry]

I have a thought exercise for how we think of our emergency funds. Consensus is that you keep it in cash. Let’s PRETEND we are rethinking that. How would you do it?

Please don’t respond to say that the all cash way is the only way. Assume 6 months is what you are saving.

30% case in a money market
20% in short term govt debt
30% in high yieding funds for REITs, Covered call funds, BD funds.

Half the distributions are reinvested in the high yielders, half go to t-bills.

15% in gold
5% Silver

My thought with this PRETEND approach is to trade liquidity to reduce the risk of loss of purchasing power over time.

I can make decisions on what I use if first in an emergency.

Perhaps selling metals first is best because they had a run up is better, or if I sell the high yielders first, or save them until later and use the cash and t bills if the high yielders are down.

Or, maybe i just want to save them and use the yield for as long as possible.

[Chet]

An emergency fund is certainly a financial security blanket, but it is also cash that is available at what could also be an emotionally difficult time.

I would rather trade simplicity to ensure that I don’t make bad choices while I am already suffering in some way or another.

My emergency fund is a very small % of my overall savings, so by leaving it in a very simple money market account in my local and accessible bank, I have immediate and uncomplicated access to it.

In addition, it frees my other money to be in more aggressive funds earning 28% this year.

[Steve]

I say this a bajillion times… once your brokerage account matches your emergency fund, put your emergency fund into your brokerage account and get a line of credit against it.

Now if you don’t ever have an emergency, your money is fully invested.

And if you do, you can use the credit line without selling anything; which means no gains taxes and your portfolio keeps growing.

[Farris]

Make enough monthly cash flow that you never have to worry about an emergency fund is the best thing to do

[David]

Zero cash and instead there are a few better ways to nail things when life happens. This strategy works great for me but comes once you reach a certain wealth status.

1) Cash flow emergency.

This is great for those like me who have a high savings rate. We have a lot of cash flow and low expenses.

2) CC use, put the thing on the CC and pay it off.

3) Margin loans, I can borrow against my taxable account even now with a lower than 7% APR.

4) Most emergencies I see are often just people not keeping up on routine maintenance ie roof replacement, car needing something, water heater needing replacing and the list goes on.

5) Sell stocks and I bet even if the market was down I would still be selling at a gain for how long that money was invested.

I still keep a little cash not so much for an emergency more so if I want to buy something and don’t want to wait for the above ways or they might only accept cash.

[Ian]

Open a HELOC and don’t utilize it unless you have an emergency. There’s your emergency fund.

It has a secondary effect of raising your credit score because your debt utilization percentage is lower.

[Jason]

Good question. FIRE should be for independent thinkers, not just dogma. For myself, I keep my emergency fund in a short/ultrashort bond fund.

Historically, that should deliver ~1% higher return annually, and drawdowns are rarely greater than 2%. I can live with the risk to get the return.

[Darrell]

You’re pretend approach is well, should we say overly complicated. It doesn’t have to be anywhere near that hard.

I’m retired so I no longer require an emergency fund.

I am my income source and I have promised not to cut myself off lol.

And if I need more money, I take more money.

Many people overthink this and end up with ridiculously large emergency funds.

It’s not how much can I possibly spend in 6 months, but rather what could I get by on for 6 months. This is one of the places where being debt-free makes it easy.

Because suddenly realize, I don’t actually need that much money to survive because I have no debt.

So then your big concern is, whether or not you’re investing 6 to 12 grand?

Yeah I’m not losing any sleep about that and I’m sure as hell not coming up with some complicated scheme of 2.75 in this account in 3.15 in this account and and and. Nope.

[Mark]

I feel like the juice isnt worth the squeeze to do any of this. overall an EF doenst represent a large part of a portfolio, so ur doing a lot of work to possibly get a few more basis points.

EF is for insurance, not for guarding against losing purchasing power.

[Nick]

Invest for long term, save for purchases you will need in the next year. We save money for car, vacation, house stuff, and gifts.

We save consistently for these items and earn a little.

I don’t care. We invest a lot.

Over 60% of our income. Live on less than you make, don’t buy things you don’t need or can’t afford. Don’t finance wants.

Then the pennies of you cash accounts won’t matter much.

[Dan]

I’ve found that many emergency situations result in no power (so, no access to electronic funds). For that reason, I keep a stack of cash in a safe place that I can get to any time.

This is primarily for perishable/consumable items like food/fuel or unforeseen problems.

Having a year of so of nonperishable supplies is like cash in the bank.

I suspect I could stay locked down for many months without too much of a problem.

Have a tiered plan, but keep it simple. I don’t know why so many folks like to overcomplicate stuff.

If the shit really hits the fan, I’m not gonna be concerned with how much return I get on one asset or another.

I’ll be sitting by the fire pit with a nice mixed drink…and maybe some canned meat.

[Jim]

I don’t get it… I dont have an emerg fund beyond a few thous in chk/svgs for regular bill paying… now for any ’emergency’ ($10k-40k, roof or new car), if you can put it on ccard, & then cash in some brokerage accnt $$… at worst, it takes just a few days to sell & trnsfer… no problem.

Even if stock prices were down then, yrs of >10% yrly growth overweigh short term needs or tying up tens of thousands $$ in emer accnt/cash -makes no sense when you can always get $ (short of WW3).

[Christine]

The best way to have liquidity or “cash” for emergencies is a HYSA or CD

[John]

A would call ‘cash’ anything that has zero chance of plummeting in value (other than by broad civilization collapse) and that you can get to within a couple days.

[Andrew]

Emergency funds need to be liquid or near liquid to be of use – in my opinion access should be immediate for a % and the staggered over 15 to 60 day notice periods – certainly nothing longer than 6 months

[Michael]

My emergency fund is 60% stocks and 40% bonds, both index funds. My reasoning is the same as yours: protect against the loss of purchasing power.

I am two months ahead in my budget and am retired.

[Hin]

I consider emergency money as quickly accessible guaranteed money. It does not have to be cash, it can even be stocks. For example if I needed a $50k emergency fund and had $500k in stocks, say in VOO.

I would consider my emergency fund needs covered.

I can convert the stock into cash reasonably quickly and even if in the extremely unlikely event that the S&P500 drops 90%, I would still have $50k.

You can even get a line of credit against the stocks so you don’t have to sell anything.

[Author]

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