Money Matters
bmo88
member
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What's the size of your e-fund?
Just curious how much others carry in their e-fund. I realize all of our expenses, finances and level of comfort are different. But if you are comfortable sharing either the amount or number of months in the e-fund, please do.
I sometimes wonder how much is the right amount in terms of being too much or too little for our situation. We currently have about 7 months worth of expenses, which is $26,500, in a high yield savings account (a whopping 1% interest rate). It's a fair amount of cash and some days I want to add more, while other days I want to put some in the market.
What's your general philosophy on how much you keep in it?
I sometimes wonder how much is the right amount in terms of being too much or too little for our situation. We currently have about 7 months worth of expenses, which is $26,500, in a high yield savings account (a whopping 1% interest rate). It's a fair amount of cash and some days I want to add more, while other days I want to put some in the market.
What's your general philosophy on how much you keep in it?
Re: What's the size of your e-fund?
We can live on DH's salary and he is in a high demand role so I'm okay with that amount. It is only about 2.5 months of expenses if we don't change a thing about our spending savings habits, but in a true emergency we would cut a few grand out of our budget (ROTH contributions, general savings, vacation savings, gifts, etc.) not to mention cutting back on entertainment and fun money.
How much is "right" varies so much depending on your comfort level and specific circumstances.
How stable are your job(s)? Are you both likely to be out of work at the same time? How long would it take you to find new work? How much debt to you have that you would need to continue to make payments on? How much is the bare minimum you need to live on for a month?
All of those questions (and probably more) plays into how big your EF needs to be.
I know it's not the norm to keep so much liquid, earning next to nothing. But the peace of mind it provides is worth so much more than any gains I would see in the market.
We have less of an emergency fund and more of an emergency plan. If we were to have a true life-altering emergency, we would tackle it in this order:
1) Normal cashflow - $2,000/month without changing retirement or lifestyle
2) Checking account buffer - $1,500
3) Spending funds - approx $1,500 - $7,500, depending on time of year
4) Interest-free credit card for 12 months to provide float (I always keep one open)
5) Emergency fund - $5,000
6) HSA - $8,700
7) Adjust lifestyle and eliminate retirement- $5,000/month available in cash flow
8) Sell the house - $50K equity
9) Roth IRA contributions - $75K, which is approx. 14 months of expenses
10) $145K per month in available credit on cards that could be discharged in bankruptcy. My husband is a bankruptcy attorney.
We also have the following as part of our emergency plan:
-Comprehensive home, car, and umbrella insurance
-$1.5M life insurance on each of us
-Portable disability policies with own-occupation clauses and a retirement contribution rider
-The ability to live on either one of our incomes and meet our legal obligations while contributing to retirement
-$500 in cash plus a bug-out bag for natural disasters
The biggest thing missing is a comprehensive estate plan. It's just because I've been too lazy to do it, and there hasn't been a pressing need for it. It's on my list for the end of the year.
While the usual approach is to hoard cash, it doesn't really make sense in our situation. We make sure to insure against most huge catastrophes. Our job situation makes it enormously unlikely we will ever face a job-loss crisis. We would have to both lose our jobs at the same time to face a true job-loss crisis. If we were a single-income household, I would keep more cash on hand.
Currently, most of our extra income goes to paying down debt to lower our exposure, but I am due for a large raise next year, and we're going to use it to really focus on taxable investments. Those accounts will become my new #6 on this list.
Our jobs are pretty stable right now, but I am the breadwinner by far (make about 2.5 times DH). I am the Executive Director of a school and DH works as a teacher/Athletic Director at the same school. Our school is in it's 8th year running, so much more stable now, but a swing in enrollment or fundraising could change things dramatically. I am on the 2nd year of a 5 year contract and have had great performance reviews thus far, but finances of the institution are main main metric for evaluation. Raising $650k annually is not always easy.
Our overall approach has been to knock out as much debt as possible, as quickly as possibly. We live way below our means (spend about 30% of total income on expenses) and we are socking away funds in savings and retirement accounts. Once I finish paying for grad school (cash flowing it), we will have more discretionary income.
We both have life insurance policies, but stuck with $500k each. We don't believe in the 10-20 times income approach because that would be around $1.5-$2 million for me, which would be more than needed.Our approach was to pay off the house (about $220k balance right now) and then the surviving spouse would have some additional funds. When we have a child, we will each add an additional $250k policy.
We also carry other insurance policies at the appropriate levels. If necessary, we could tap into our roth IRAs, which have about $20k in them at the moment.
We have no debt aside from our mortgage and our loan to value ratio is only 34% so we could take out a loan if we needed to in a DIRE emergency. Or, we could use our CCs since those have high limits. Or, we could borrow money from DH's parents or from mine.
We do have living items set aside for emergencies including food, so if we got really desperate, we would tap into our food stash.
Basically, it doesn't worry me.
My normal, true e-fund is $10k. $10k would cover a little over 3 months of expenses if we cut back a bit. This would also be assuming we had zero income coming in, which really seems unlikely as we would both have to lose our jobs, get no unemployment and also have no rental income coming in either (which we normally take in about $750/month in profit). So, with either some form of unemployment and some rental income, it would last longer. I am comfortable with this low amount because the reality is that we are in a good place financially and if there actually was a true emergency or sustained period of job loss, there are a lot of places we could cut back and then other sources to pull money from if we needed to.
We are definitely closer to the type of emergency-contingency plan that @Hoffse described. The e-fund really is like last-resort someone needs bail money, lol.
All that being said, I am embarrassed to say that I have about 3 years of expenses in my general 1% savings account right now. I need to get on top of moving the money.
Right now we are at $4200 in our e-fund. And that is basically our only savings at this point (sad I know). We are close to paying off my SL and at that point I will work to get that number up to at least $10K and then start separate savings for various categories like: House Down payment, Home improvements, Dog, Clothing, etc.
We also have $3000 in our HSA that I don't plan to touch unless it's a true medical emergency.
ETA: We do have a loan on our boat (I know that's not very MM, yikes!) however we paid over 50% of the price in cash so I am confident we could dump the boat quickly if a true emergency like job loss or death happened. Although we can live off my salary alone and H would get close to $500K if I were to die which is more than enough to pay off our mortgage ($170K) and have money left over for living.
Even though we don't have any debt other than our mortgage (and our payment is only $860ish a month), DH grew up with a loving but financially unstable family and he has some pretty serious hang-ups from that even now. He doesn't feel "safe" without a large buffer in both our checking and our savings accounts.
We're both pretty stable in our careers and if I were to get laid off, I could easily find work doing just about anything pretty quickly. Something we've been discussing recently is starting up a rolling CD so we could at least do a little bit more with our cash savings than have it sit earning hardly any interest in a savings account.
Our current total cash/investment savings is about $33k not including retirement. Definitely not ideal but we had a $17k emergency during the holidays last year that we were able to pay for in "cash" (i.e. charge it for the massive amounts of points and then pay it off immediately) so it's been a rebuilding year.
We also have access to about $100k in credit that we could tap if we ran out of efund and got desperate. I don't count the equity in our home because it would be far more expensive to rent so we wouldn't sell the house in an emergency. We bought before our local market exploded so we couldn't even get a condo for what we pay for our single family home and our PITI is only 14% of our gross income.
H and I had $500K policies up until very recently. That's probably a bit more than we would need if we intended to stay child-less. We intend life insurance to cover college and potentially graduate school in addition to living expenses.
Our only debt is our low interest rate mortgage. We can afford this on one salary. We do not have kids.
When H didn't have a job we did a good job maintaining efund levels by belt tightening and we decreased financial risk by creating side gig income. He drove Uber and we put our guest room on AirBnB. Knowing those options exist are an extra level of assurance.
We can also live off of just 1 of our incomes, so this would only be used if we both lost our jobs.
Then beyond that we have $100k in a mutual fund that's a non-retirement investment. So we could touch that if we needed to. We also have a $28,000 paid for Mustang that is one of only so many made so it has kept its value well. That would be the first to go if we needed cash. Our house is also paid for so we could sell it and have all profit. That's about $100k.
So our #1 emergency plan is to live off 1 income. #2 would be tapping the Efund, #3 would be selling the Mustang, #4 we would tap into our mutual fund, then lastly we would sell the house. It would take a lot to get to any of these though.
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I'm not great about an e-fund. I like to keep $1,000 in cash around ($1500 during hurricane season). But it's not unusual to raid it a few times a year to pay a plumber/electrician/whatever, anyone who prefers being paid in cash, and then pay it right back. So we don't use it for just emergencies.
I keep at least $100 in a few checking/savings accounts here and there. Sometimes there is a good bit more, but not usually.
I typically don't carry balances on my CCs, so that is a lot of credit available in a worst case scenario.
There are a few reasons I don't keep much of an e-fund. Primarily, I have a HELOC with a good sized balance...but also (usually) a lot of credit available on it. I'd rather pay that loan down with my excess cash every month than put it into a savings account, because it is still liquid funds if I needed it. I try to keep at least $20K available in credit at any one time.
I also have multiple sources of income. I could lose my main f/t job and still be able to more than pay my bills.
My bills each month including everything, even my rental property expenses, are around $3,000. I could cut that down a little but, I already live fairly frugally, so not much.
Right now, I'm in "growth" mode for my real estate investing. Once I hit $5K/month pure cash flow, I plan to shift my priorities and focus more on debt repayment (ie mortgages, HELOC) and savings, rather than building my portfolio. After I feel pretty solid in that step, then I'll go back to buying more properties.
My biggest financial fear is an event like Hurricane Katrina. If the city was evacuated for a long time, ALL my sources of income would be gone. At least temporarily. Though I do have rental payment insurance on one of my duplexes. That would keep $2K/month coming in for up to 6 months. And mystery shopping, lol. I stepped that up big time when I was stuck in Miami for three months. But MSing does not pay the bills.
Always something to save for...
So yeah, that shouldn't be anybody's first action plan in an emergency, but it is something that's available if needed.
The worst emergency we had was a collapsed sewer line from our house to the street- 80+ year old clay tile pipe in the northeast. We had about 5 days to come up with $8,600. The only thing insurance would have covered is if it flooded our basement, but we have a drain tile system with a sump pump so it didn't do any damage. We had the money in savings, but opted for a 0% interest card and it was paid off in 12 months.
I grew up really poor, so I tend to over save so that my girls don't have to live through what I did as a kid. Like I said in the other post, baby steps..
The thing I finally realized about dedicated emergency funds is that the more you make and save in other types of assets, the less you really need in a dedicated fund (even if your lifestyle creeps up). I occasionally use our efund for reimbursable expenses because I know I will get that money back, and it helps grease the wheels of our cash flow. Those aren't emergencies though, just large expenses that I have to float until a specified date.
We MIGHT increase that fund a little bit at the end of the year, or we might not. H and I are on the fence about it. Even if we have a huge expense like the A/C dying, we usually have enough cash on hand to cover it, and if not, we have a really high savings rate.
We are in the same position in terms of the approx. $2K cash flow. We could also cut back from student loans a bit if we needed to. We can handle any one of our individual insurance deductibles out of cash flow, and we have the HSA as a backstop if for example H and I were in a car wreck together.
There are only a couple of things I can think of that would necessitate a huge chunk of money very quickly that wouldn't be manageable out of cash flow. The biggie for us is the A/C. It's on borrowed time, but we know that. This is the main reason I keep a cash fund around at all.
Of course if a bunch of stuff happens at once that can get very expensive, but eventually you get to a point of catastrophe where you claim insurance.