Why bother having an emergency fund at all?

[winb83]

Seems like a primitive idea the more I think about it. This idea that you need quickly accessible funds in the range of 6-12 months of living expenses on hand in liquid savings in the event of an emergency.

The reality is when I hit an emergency I usually use a credit card like I do with all my purchases. I avoid using cash because I don't earn cashback on it. As long as I can make that payment in 30 days I'm good. If I liquidate enough stocks to make that payment I'll get that money in less than 30 days. Probably in less than a week even counting weekends.

I'm thinking of going to a system where I keep a paycheck buffer in a checking account and maybe $1000 cash liquid beyond that and just dump all the rest of the money into the market. I'm already using IVV and VOO for savings anyway. Might as well go all in. Having large amounts of cash sitting earning less than 2.5% is costing opportunity.

Even if the market drops if you have to take the loss and liquidate enough stocks to cover the emergency. You're already taking a loss the other way accepting 2.5% growth on 10s of thousands of dollars when it could be 7% or higher growth. The market crashes all the time and yet it recovers and goes higher over time.

 

[OfTheCross]

Seems like a primitive idea the more I think about it. This idea that you need quickly accessible funds in the range of 6-12 months of living expenses on hand in liquid savings in the event of an emergency.

The reality is when I hit an emergency I usually use a credit card like I do with all my purchases. I avoid using cash because I don't earn cashback on it. As long as I can make that payment in 30 days I'm good. If I liquidate enough stocks to make that payment I'll get that money in less than 30 days. Probably in less than a week even counting weekends.

I'm thinking of going to a system where I keep a paycheck buffer in a checking account and maybe $1000 cash liquid beyond that and just dump all the rest of the money into the market. I'm already using IVV and VOO for savings anyway. Might as well go all in. Having large amounts of cash sitting earning less than 2.5% is costing opportunity.

Even if the market drops if you have to take the loss and liquidate enough stocks to cover the emergency. You're already taking a loss the other way accepting 2.5% growth on 10s of thousands of dollars when it could be 7% or higher growth. The market crashes all the time and yet it recovers and goes higher over time.

I agree with you.

Emergency Funds don't need to be cash.

I like to keep some cash for a few reasons: discounts, fukkery purchases that I don't want tracked, and immediate emergencies that can't be handled with credit cards. All in all that doesn't have to be more that $5000.

 

[Uitomy]

Yeah majority of my emergency funds are in the stock market ETFs and bit coin
I ain't made big money but between all three I've made like an added 1000 dollars that I wouldn't have got with just a savings

I keep probably like 500 in there usually

 

[Ghostface Trillah]

If you lost your source of income the last thing you would need is to be covering your expenses with something you'd be paying interest on. You don't need cash, you need money on hand that isn't going to turn into a expense.

 

[kej718]

I keep about 5K in my checking that I don't even consider at all. If my balance ever came close to that I know I need to save more. I also have an investment account on Robinhood where every 2 weeks I take 20% of my check and put it in there. I had a friend tell me about this app where you link it to you debit or credit card and every time you spend money it rounds up and puts the rest in a savings account. So I guess if you spend $10.75 it would put $.25 in you account. (not 100% sure how it works, Link to thread about it.) I also have a few savings account in other banks. Thinking about buying bonds in the future too once I get my money up. I worked at a bank years ago and this dude would come in an cash bonds he bought years ago once they matured and didn't earn any more interest, he would show up every month and do this.

 

[winb83]

If you lost your source of income the last thing you would need is to be covering your expenses with something you'd be paying interest on. You don't need cash, you need money on hand that isn't going to turn into a expense.

If you lost your source of income wouldn't you file for unemployment? Again as long as you can liquidate whatever stock you need to pay off before the card's payment is due then you're good. If you become that concerned then liquidate 6 month worth of expenses all at once.

I'm talking about holding something like an ETF specifically for the purpose of liquidation in such events. It's somewhat of an emergency fund but it's being held in the market instead of in a bank where it's losing money. The best interest rates in a bank account either barely beat out inflation or lose to it.

I'm not really trying to have damn near $20K of cash sitting in a bank losing money waiting around for me to be fired from a job I've been at about a decade or waiting for me to become disabled from a freak accident.

 

[ahomeplateslugger]

Yeah I feel the same way. I do have an online saving account where I deposited 10k in case of an emergency where I'll need access to cash in a short time tho. It gets 2.5% so it's a decent return every year for an emergency money account. I also like to keep my checking account above a certain amount to be safe.

Depositing that "emergency money" into the market whether IRA, ETF or stocks has grown way faster than in any savings or CD.

 

[Ghostface Trillah]

If you lost your source of income wouldn't you file for unemployment? Again as long as you can liquidate whatever stock you need to pay off before the card's payment is due then you're good. If you become that concerned then liquidate 6 month worth of expenses all at once.

I'm talking about holding something like an ETF specifically for the purpose of liquidation in such events. It's somewhat of an emergency fund but it's being held in the market instead of in a bank where it's losing money. The best interest rates in a bank account either barely beat out inflation or lose to it.

I'm not really trying to have damn near $20K of cash sitting in a bank losing money waiting around for me to be fired from a job I've been at about a decade or waiting for me to become disabled from a freak accident.

Unemployment isn't going to give you 100% of what you were earning. Even if you do get it then it would be like taking a huge pay cut.

If I have $1000 dollars of monthly bills and I just lost my job.

Why would I pay that with a credit card with an interest rate that would be adding on to my debt over using the $1000 dollars that I have saved? Why add a middle man that I have to pay in some form or fashion? Doesn't make sense.

 

[winb83]

Unemployment isn't going to give you 100% of what you were earning. Even if you do get it then it would be like taking a huge pay cut.

If I have $1000 dollars of monthly bills and I just lost my job.

Why would I pay that with a credit card with an interest rate that would be adding on to my debt over using the $1000 dollars that I have saved? Why add a middle man that I have to pay in some form or fashion? Doesn't make sense.

My living expenses add up to less than 50% of what I earn after tax. In the event of a job loss I'm going to cut down to the bare minimum. I can live off 40% of my after tax take home pay easy. If I cut out all the subscription services I don't need and trim my wasteful disposable income spend I could probably get down to 35%.

I already pay all my bills minus rent on a credit card as it is. The difference would be the source of what I'm using to pay back the credit card company.

I get that it's a risky play but the reward seems more than worth it.

 

[phcitywarrior]

I just look at it as self insurance. If I had an emergency, I'd rather just pay upfront, in cash and be done with it.

I don't want to charge my cc and prolong the emergency with added interest. I also wouldn't want to start liquidating my investments and lose the growth I've gained over the years.

The emergency fund is just cash you have stowed away for when life happens. I don't even calculate it as "lost potential". That money is not to grow, it's too insure and insulate me from life's ills.

 

[ahomeplateslugger]

My living expenses add up to less than 50% of what I earn after tax. In the event of a job loss I'm going to cut down to the bare minimum. I can live off 40% of my after tax take home pay easy. If I cut out all the subscription services I don't need and trim my wasteful disposable income spend I could probably get down to 35%.

I already pay all my bills minus rent on a credit card as it is. The difference would be the source of what I'm using to pay back the credit card company.

I get that it's a risky play but the reward seems more than worth it.

Seems like this approach applies to your situation better than others. Are you buying shares of voo through Robinhood? Because there's also the fee you're paying with each purchase.

The saving account should be looked at as a safety net instead of losing on money not having it in the market. Shouldn't go cold turkey with it and not have one at all imo.

 

[winb83]

I just look at it as self insurance. If I had an emergency, I'd rather just pay upfront, in cash and be done with it.

I don't want to charge my cc and prolong the emergency with added interest. I also wouldn't want to start liquidating my investments and lose the growth I've gained over the years.

The emergency fund is just cash you have stowed away for when life happens. I don't even calculate it as "lost potential". That money is not to grow, it's too insure and insulate me from life's ills.

You dont want to lose the growth you're already forfeiting now to keep the money in a bank account that doesn't really even beat out inflation?

I guess my thread title is somewhat wrong. It's not that there isn't emergency money it's that the money that would sit in a high interest savings account instead sits in the market in an ETF or index fund.

Yeah you face the potential of a market downturn lowering those funds but at the same time if my emergency fund was sitting in the market growing at a higher rate I'd be more likely to over fund it to compensate instead of funding it to 6-12 months then stopping. I could easily fund it to 5 years wages over time with adding to it and it compounding on growth.

I view that position as different than my individual stock positions and wouldn't invest such money into individual stocks. That money would only go only into that ETF or index fund.

I'm not gonna sell my position in say Apple to pay an emergency bill but my position in VOO that's specifically there for me to liquidate in the event of an emergency or to grow otherwise I would.

 

[phcitywarrior]

You dont want to lose the growth you're already forfeiting now to keep the money in a bank account that doesn't really beat the inflation rate

For me it’s this. The money in my emergency fund is in Ally bank 2.5% but I don’t really care too much for the interest it bears. For me, it’s the principals of persnal finance. The rainy day fund is for rainy days. That’s it. A few years back my car broke down. $750 to repair. Took the money out my fund and fixed the car. No penalty, nothing.

My growth funds are for just that, growth.

I just like having a clear demarcation within my financial plan. Each thing has it’s role. Sure, do I lose some money for not having money in the market? But at the end of the day the difference is marginal.

I value having division of labour within my financial plan over the marginal $300-400 extra I’d net putting my emergency fund into the market.

 

[winb83]

For me it’s this. The money in my emergency fund is in Ally bank 2.5% but I don’t really care too much for the interest it bears. For me, it’s the principals of persnal finance. The rainy day fund is for rainy days. That’s it. A few years back my car broke down. $750 to repair. Took the money out my fund and fixed the car. No penalty, nothing.

My growth funds are for just that, growth.

I just like having a clear demarcation within my financial plan. Each thing has it’s role. Sure, do I lose some money for not having money in the market? Sure, but at the end of the day the difference is marginal.

I value having division of labour within my financial plan over the marginal $300-400 extra I’d net putting my emergency fund into the market.

My car broke down. I charged it to my newest credit card and got 1% cash back. I have no interest on it till July 2020 so that $1300 will be paid off long before then and I won't touch my emergency fund at all.

It's not even a legitimate debt because I have enough money in savings to wipe it out. I'll pay that off my next 2-3 pay checks instead.

I always use credit cards for every I purchase so I can get some cash back on it. That $13 will be added to my investments. I can get a share of Ford with that or just save it until I get more cash back and get something else.

 

[Macallik86]

6-12 months is OD for an emergency fund. I think the average suggestion is 3-6 months.

But yeah, overall, I agree with the premise. I have money that I can get at a moments notice, but it isn't in a savings account getting minimal interest. I usually throw mines in my Roth IRA since I can withdraw from it at any time. I haven't had an emergency yet in the ~5 years I've had a Roth so the money gets to grow tax free. It beats the alternatives imo.