68

I suppose this could really depend on the part of the world you're in, but there are still many instances of "emergencies" that need "cash". You have to decide how much cash is the right amount, but I still recommend having $1,000 or so in liquid cash. It can really make a huge difference. Let me give a few examples. Bad weather. I live in Florida and ...


61

Emergency funds have a very specific and obvious benefit; you'll have money sitting around in case you need it. A lot of people think a big car repair or some unexpected home repair is an emergency, and that's fine. Emergency also expands up to "I lost my job four months ago and we're a year in to a recession, the stock market is down 30% and I need to pay ...


60

An emergency fund is your money, sitting in a bank, that you can use for emergency purposes. A line of credit is somebody else's money, that they've provisionally promised to let you borrow. But they can change their mind at any time.


56

As well as paying 8% interest on your loan (i.e. $800/year), you're also wasting money on the car: depreciation, insurance etc. So it's worth a lot to you to get out of it. Set against that is the risk of having to borrow the $3000 you'll be taking from your emergency fund at a higher interest rate (say 30%?) for at most 6 months, which would only cost you $...


48

People treat an emergency fund as some kind of ace-in-the-hole when it comes to financial difficulty, but it is only one of many sources of money that you can utilize. What is an emergency? First, you have to define what an emergency is. Is it a lost job? Is it an unplanned event (pregnancy, perhaps)? Is it a medical emergency? Is it the death of you ...


48

Which of these categories are emergency funds meant to cover? Emergency funds are for emergencies, which to me means expenses that are unanticipated and can't be covered out of "normal" cash-flow. Oil changes are not an "emergency" and should be part of your normal budget. Car/house repairs and doctor visits might be an emergency depending on the severity ...


43

What nobody else mentioned yet is what you could do from now on. If you consider your current savings enough of an emergency fund, you can look into regularly overpaying your loan from now on. How much you keep in an emergency fund is your own personal choice. Typical advice is 3-6 months full expenses (rent/mortgage, bills and necessities such as food), ...


40

You are not wrong - just about anything can be charged and paid off in 30 days with a sale of non-liquid investments. So there are not any emergencies I can think of that require completely liquid funds (cash). For me, the risks are more behavioral than financial: What if you decide to keep your investments because you think they will earn more than the ...


35

Weather events and aging infrastructure. Cash will buy gasoline, food and water when there is no power or telephone connectivity to process ATMs and credit cards. Hurricane Katrina Superstorm Sandy power outages lasted for weeks, If contractors dredge the power cable to the island.


34

It sounds like you have some very real income risk, so I would not drain my savings completely just to get rid of the loan. I don't know how long £5000 would last you if you lost your job, or how long it would take to find a new job (even one way below your skills) to know how long the fund needs to last, but you could use some of it just to reduce the ...


31

If it were me, I would convert it to cash and keep it in a liquid account. The assumption that silver will increase in value is misguided. From 1985 to 2002, it was flat. It's gone up and been far more volatile since then, and there has been significant declines which could eat at the stability of an emergency fund. Precious metals are speculation, not ...


29

Firstly well done on building a really sold base of savings. An emergency fund needs to have two key characteristics: Be enough to get you through a typical emergency event (often seen as approx. ~6 months’ salary in your style of situation assuming you have no dependents etc) Be liquid and available to you instantly if an emergency arises Once you have ...


27

First I must say that I'm not a Ramsey fan. Sometimes loans will make your financial situation significantly better. Especially if its a 0% loan. Generally, I do think that leveraging has its place, its the ab-use of loans what causes problems, not the use. Re your question - you're right in trying to first build up an emergency fund. You should have enough ...


27

My take on this is that this reduces your liquidity risk. Stocks, bonds and many other investment vehicles on secondary markets you may think of are highly liquid but they still require that markets are open and then an additional 3-5 business days to settle the transaction and for funds to make their way to your bank account. If you require funds ...


26

What sort of emergency requires payment up front for which 2-3 days processing of a stock sale would pose a problem? In my case, the sudden and unexpected death of my wife. Back in 2011, my wife was struck and killed in a traffic incident. I had to immediately (not in 2 - 3 days) cover 50% of the entire costs of the funeral. The balance was due shortly ...


26

The bottom line is you are flirting with debt, much like I did during my younger years. Many ill-informed people will tell you to continue to march, build wealth by using other people's money. However, they never talk about the downside of doing so and the series of events that can lead to bankruptcy or near so. For the most part you are not doing bad, ...


24

The usual advice is that an emergency fund should aim to cover something in the region of 3 to 6 months living expenses. The exact amount is obviously a judgement for you to make based on your own circumstances. Once you have a comfortable safety net there is little point in padding it further unless your circumstances change significantly, and you would ...


22

With enough money in the emergency fund to get rid of the car and still have a cushion, I would definitely get rid of it, as the car is not needed. Your car is only going down in value, which makes the current setup even less desirable. In essence, you are paying over $300 a month for something that, every month, is worth less and less. Since you are paying ...


20

The purpose of the emergency fund is to enable you to pay for unplanned necessary expenses without going into debt. You know that cars don't last forever and eventually need to be replaced. Ideally, you would have a "car replacement fund" which you contribute to a little every month. (Essentially, it is a car payment to yourself.) Then when it comes time ...


20

Purely financially, giving up the employer match is hard to argue. It's mathematically a free 100% return, but you can't get to it for many years. So it's a great benefit for the future. On the other hand, paying off student loans gives you a return equal to your interest rate. Hopefully that's less than 100% :-), but you need to weigh that against locking ...


18

I know this is heresy but if you have funds for significantly more than 6 months of expenses (let's say 12 months), how risky would it be to put it all into stock index funds? Quite risky as if you do need to dip into it, how fast could you get the cash? Also, do you realize the tax implications when you do sell the shares should you have an emergency? ...


16

There's something very important no one else has mentioned... times when the stock market falls dramatically are often the times when you're most likely to lose your job, and when it's hardest to get loans. So if you ever do need your emergency fund, it will more than likely be related to a dip in the stock market.


16

Coming from an area that is hurricane prone, and seeing what happens to local businesses during evacuations/power outages/gas shortages, I think what you already have on hand should be sufficient. And it sounds like that's exactly what you're budgeting for. I'd say 2 weeks worth of fuel and food costs, with the budget for each in line with riding out a ...


16

The concept of emergency fund is a matter of opinion. I can tell you the consensus is that one should have 6-9 months worth of expenses kept as liquid cash. This is meant to cover literally all bills that you might encounter during that time. That's a lot of money. There are levels of savings that are shy of this but still responsible. Not enough to cover ...


16

I tend to agree that the need for liquidity is overplayed in this day and age. We live in a world of electronic transfers that take only a couple days at most. With my brokerage account I can go from stock to gas in my tank via debit card in about 3 days. We're a long way away from the days when it took weeks, phone calls, and physical checks in the mail ...


15

There are a few major risks to doing something like that. First, you should never invest money you can't afford to lose. An emergency fund is money you can't afford to lose - by definition, you may need to have quick access to that money. If you determine that you need, for example, $3000 in emergency savings, that means that you need to have at least $3000 ...


15

If you engage in any kind of dangerous activity, the training courses will often state that an accident is not the result of a simple error. Examples of this include SCUBA and motorcycle training. Properly maintained equipment and training will mitigate many emergencies. Recently my dive buddy was 60' down, and ran out of air due to a tank O ring failure. ...


14

I think that your intuition about the tough pill is correct, and that you should pay off those two credit cards today. Yes, paying them off will reduce your emergency fund for the moment, and that should make you uncomfortable, and you should use that discomfort to motivate you to build it back up quickly, even if that means that you have to deliver pizzas ...


13

If you aggressively pay off the debt, how would you handle the emergency? When I talk to someone who is proud to build the 6 month buffer, but is still floating 18% credit card debt, I observe that they are worse off for the fact that they are earning close to zero in their emergency fund, while paying 18% on the debt. They'd be better off sending it all ...


13

If you were asking if you should buy silver for an emergency fund, I'd say no. But, you already have it... Note: I wrote most of the below under the assumption that this is silver bullion coins/bars; it didn't occur to me till the end that it could be jewelry. Both of you have good arguments for your points of view. Breaking it down: Her points 1. A ...


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