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Expenses to include in emergency fund

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  • Expenses to include in emergency fund

    Stage of Life: New Attending

    Social Situation: Married

    Immediate financial situation: Building up emergency fund, then accelerated loan payment.

    This is a pretty simple question. When planning the size of our emergency fund, should we include loan payments? My loans are currently refi'd with SoFi, and if needed I could apply for forbearance for up to 12 months. I'm thinking that I could calculate the interest only payments and include those in the emergency fund instead of my full payments. The plan for my spouse's loans is PSLF, so we would include those payments in full

    Does that sound reasonable?

  • #2
    Just sit aside 6 months of your typical spending. You don’t have to have your EF determined down to the dollar. You just need to have some cash just in case.

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    • #3
      I think the purpose of an emergency fund, is to have enough money to live , with out touching long term investments at the wrong or any time I would keep enough to cover the basics, such as housing, food, car and health care. I would include healthcare, because if you dont have a job , you probably wont have a health plan. As far as the loans, if you dont have a job, sounds like you can put them in forebearance for a period of time. Although , not the smartest thing to do financially , it will allow you to get buy until you situation changes.

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      • #4
        ^^^ how on earth would you figure “health care” expenses in the event you don’t have insurance?

        if you lose your job and don’t have insurance and you get seriously ill or injured, that means you didn’t have a plan

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        • #5
          how on earth would you figure “health care” expenses in the event you don’t have insurance?

          if you lose your job, having enough to cover premiums though the health care exchange for a period of time.

          if you get seriously ill or injured , disability insurance is more important at a younger age

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          • #6
            So many nuances to this puzzle and I’m not going through them here (that’s why good FAs are in demand )

            CordMcNally’s ROT is reasonable and, I believe, perfectly suitable for you at this point in your lives. Try not to get bogged down in the weeds to the point that you pursue the perfect to the detriment of the good. Focus on common sense choices and the less consequential areas when you can devote the effort and/or $$ to figuring out the nuances.

            Very (very!) few of our clients have to worry about running out of money in their lifetimes. But there is a huge gulf between dying broke and leaving behind $500M+ in net worth (future dollars). If this surprises you, you might be stunned at where many of the participants and lurkers on WCI fall. That is one of the reasons they seek out a trustworthy, physician-focused planner. Others include lack of time, not trusting personal instincts, and the realization of how complex really good financial planning can be. There is no reason to feel shame at this decision.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              I have never liked the term emergency fund. It implies that all needs are immediate, liquid and for emergencies.

              Rather, I have a multitiered contingency plan within my overall financial plan. A good financial plan should be a multifaceted.

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              • #8
                “Rather, I have a multitiered contingency plan within my overall financial plan. A good financial plan should be a multifaceted.”

                Disaster and Recovery:
                Enough funds to cover 6 months current cash flow plus any additional expenses for living where you are (I.e. cobra) without any life changes. Give yourself the ability to pay bills and figure things out. Money readily available to pay bills for 6 months.

                The multifaceted approach takes the additional aspects of recovery primarily. You don’t know the recovery costs until you know the disaster or the changes needed in your life. Got to move and credential for a new job is a lot different than permanent disability. Second level liquidity and/or risks need to be considered. Lack of planning will block recovery.

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                • #9
                  my efund figure is set at the number that i think could cover the most likely unexpected expenses with cash - replace a roof or a vehicle.

                  vehicle assumes we'd get a kid-mobile similar to what we have and we are not in the clunker stage of life right now.

                  we are dual MD so efund math is a bit different.

                  for me/us that's $40k. def not 6 mo expenses but like i said dual income changes your math a bit.

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                  • #10
                    you should treat forbearance as an emergency. prevent it if you can. I would include all the minimum monthly student loan payments in your emergency fund. it's part of your monthly expenses

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                    • #11
                      I have enough to cover an average 3 months of typical life. If it was a true emergency it could easily be stretched to 6 months if I get rid of discretionary spending. Especially if the emergency was job loss and daycare is not a further expense.

                      Some months are heavier then others due to once a year expenses. Property taxes, School taxes, Insurance premiums, etc. But I usually save up ahead of time for these bigger ones.

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                      • #12
                        Thank you everyone. It sounds like there will be no "right" answer to things like these. I appreciate all the different perspectives, very helpful for me to hear the discussion

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