Announcement

Collapse
No announcement yet.

Emergency Fund

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Emergency Fund

    My wife and I have been discussing the concept of our emergency fund.  We have has 6 months worth of our expenses in a Capital One 360 fund that earns essentially nothing for the past 7 years.  I have been arguing that we should invest 40-50% of the emergency fund in mutual funds/bonds.  I realize that this is a bit more risky, but it seems that ER jobs are plentiful and it would not be difficult to work locums if the need were to come up.

     

  • #2
    Putting your emergency fund in mutual funds/bonds sounds like a bad idea to me. What if the market drops? The whole point of having your emergency fund is to have it be very liquid and immediately available, and the amount dependable. I'd just stick it in a savings account that can make 1% per year.

    Comment


    • #3
      Before you decide, read Benjamin Roth's The Great Depression: A Diary.

      Comment


      • #4
        Personally, I think everyone's need/reason for the EF is different. You're a doc so your job is stable - is your spouse's job stable too? If so, then you prolly don't need the EF so much for income loss but perhaps unexpected expenses and a cushion. If you own a home and/or a car, it is inevitable to have expenses. I wrote a short piece on EFs and how much and why - also links to Betterment's article (i think) on investing a portion of ur EF like you are suggesting.

         

        https://missbonniemd.com/rethinking-emergency-funds/

        Comment


        • #5
          Thank you, this is useful.

          Comment


          • #6
            ER jobs are plentiful but groups lose contracts and if you do need a new job- while you could likely get a new one in a few days in today's market credentialing can take months. I still think at least a 3-4 month EF in cash makes sense.

            Comment


            • #7
              I am on the other end of the spectrum, but it suits my personality and where I am both in my career and along life's road.

              http://www.physicianonfire.com/top-5-reasons-physician-holds-500000-cash/

              Most would say that I have too much in the emergency fund, but five years seems about right for me.

              Comment


              • #8
                Also depending on how you are paid you may have a lot of tax funds in cash. I am paid on a K1 through a partnership and routinely have 20-70k in cash ready to pay the tax man. I suppose that could serve as second tier emergency fund in a pinch.

                Comment


                • #9
                  First, you need to outline what is an actually emergency. Is it a car lost to accident, an AC repair, etc...? Can that be cash flowed out of regular expenses or is it needed from your ef? Next then is how long of an emergency in that case, until disability kicks in or my ability to generate any kind of cash flow whatsoever?

                  Whats the probability that both of you lose all your income generating potential at the same time and its due to a non insurable event? This is likely to be very rare.

                  Then you should apportion your ef partially (the amount you've decided is reasonable) to your taxable or wherever you want it. Its still wholly usable with a couple clicks and likely low transaction costs.

                  I pretty much put everything in taxable but a month or so cash flowed for everyday emergencies.

                   

                  Comment


                  • #10
                    Why not put half that money into a 3-month CD?  That would net you a slightly better interest rate, while still leaving you with a reasonable liquid cash reserve.  If the worst happened, the CD would mature just as the cash runs out.

                    Comment


                    • #11
                      Depends on where your funding situation is.  As one gets a larger taxable investment fund and equity in a home, there's a lot more tolerance and buffer for 'emergency' funds.    If you're closer to FI, would say smaller emergency fund would be fine.

                      Are virtual emergency fund is:  HELOC 250k with BOA that we have Platinum status, so risk of sudden closure is low  and 100K TE bonds held in reserve that we're floating instead of applying to mortgage because we don't want everything into a single property in HCOL and natural disaster risk zone.  Rest of taxable is in standard investment mode and as Zephod said--- easily accessible in 3days and earlier if you have a good local relationship with broker.

                       

                      Comment


                      • #12
                        I can relate to your situation Grosion77.  We have about 6 months of emergency funds sitting in a Capitol One 360 as well earning nothing.  I try to make the case to my wife (we are both physicians) that perhaps we could hedge a little and keep about 3 months of living expenses in mutual funds and 3 months in Capitol One 360 given the steady cash flow from our secure jobs. No dice! She simply refused. She is a die hard fan of Suzy Orman who always hammered the necessity of a 6-8 month emergency fund...

                        Comment


                        • #13
                          I really think a 6 month EF for an MD in a stable job is excessive especially for someone in a nonsubspecialty field. The chance that we would suddenly and unexpectedly lose a job is so small and even if it did I get 3-5 emails a day from locums companies promising expedited credentialing and premium rates.

                          If you're EM, anesthesia, FM, Peds etc you could be doing SOMETHING within probably 1 month of a sudden job loss. It might not be your dream job but what the ************************. I was able to credential for a locum job making almost 2x the market rate in about 5 weeks and I wasn't treating it with any sense of urgency.

                          3 months seems like a great plenty to me. If want to invest the rest in something fairly low risk, why not?

                          If you're a 2 doc household 6 months of expenses might be $60k plus. That's a ************************ of a lot of money to have on ice.

                          I had to tap our $40k emergency fund this year due to some (stupidly) unexpected tax liability. Frankly I drained it by half and I haven't bothered to rebuild it yet. The main value of an EF for me is peace of mind and I can achieve that at $20k. Although it bears noting that my wife and I have proven to ourselves that we can basically cut discretionary spending to $0 if we need to. May not be the case for everyone.

                          Comment


                          • #14
                            Maybe use the taxable in "safer" investments like a muni bond fund or something with lower vol yet higher return than a savings account at first. Then as time goes on and comfort grows along with the EF and other discretionary income move it into the vehicle of your choice.

                             

                            Comment


                            • #15
                              Interesting read on cash from Kitces:

                              https://www.kitces.com/blog/buying-happiness-life-satisfaction-wellbeing-with-cash-on-hand-reserves-ruberton-gladstone-lyubomirsky/

                              Comment

                              Working...
                              X