7 ms·

Your emergency fund doesn't mean much if things keep inflating like they are right now.

by js4 4y ago

avgDev 4y ago
You can place your emergency fund in I-Bonds over several years. You can buy $10k max a year, and withdraw with a 3 month interest penalty after a year. Right now the rate is 7.6% I believe for the first 6 months. It should protect that money from inflation.
- deanmoriarty 4y ago
  You will pay taxes on the interest, so the purchasing power will still diminish. Disclaimer: I still happily purchase 20k of I bonds and EE bonds a year for diversification purposes, in addition to my index funds.
  - ryandrake 4y ago
    They are at least exempt from state and local taxes, which is nice.
bbrree66 4y ago
gcharris 4y ago
You're better off to stay fully invested and keep a line of credit in place of an emergency fund.
- avgDev 4y ago
  This is terrible advice, and it seems you never went through a massive crash. Imagine, market crashes 50%, you lose your job, and what? Are you going max out your cards with 20%+ APR? Are you going to realize your losses? Emergency fund is there to help ride out bad times, so you don't have to take shitty jobs, realize losses in your investments, sell your home or not undergo medical treatment due to financial stress.
  - mythz 4y ago
    > and what are you going max out your cards? No, that's what the line of credit is for. Maximizing your savings/investments isn't a bad approach when your young as every $ made ads cumulative value over time. I wouldn't recommend it when you have a family.
    - avgDev 4y ago
      Emergency fund should always be first but adjusted for your age and obviously cost of living. No kids and living with parents? Sure, invest anything you make.
    - gigaflop 4y ago
      I feel that having a certain amount of physical and liquid cash assets is almost mandatory for basic financial survival. I use credit cards for most purchases('selling' my data to the card companies for reward points, too), but cushioning matters. If life were 100% predictable, and I never had to worry about a sudden expense, or a bill being higher than expected, or gas/grocery prices rising, then I'd totally be down to invest my entire net worth and live off of a portion of my paycheck, maintaining minimum balance in my checking account, and sweating bullets whenever the market dips. I went through several weeks of unemployment last year while I was between jobs. I was fortunate enough to receive the covid+standard unemployment payments, but still had to supplement that with cash from my savings to skim by. The alternative would have been to break my lease to live with my parents, incur bad credit, potentially have my car repo'd, etc. It would have set me back several years, and wrecked my self image.
      - mythz 4y ago
        I've never had an emergency fund because I purchased my first home as soon as I could with all my salary going into my savings account which also served as an offset account with the full amount offset against my mortgage to keep the interest down, so I had access to my savings whenever I needed it & when I didn't, the full amount would be used to reduce the interest on my mortgage repayments - in effect maximizing the full amount of my savings. Since the demand for programmers has always been good wherever I've lived I've always opted for higher paying contracting gigs since I was never concerned about job security, i.e. before kids, I'd most likely be more risk averse and look for permanent roles after starting a family. After I paid off my mortgage my expenses came down and after saving ~6 months of living expenses (easy w/o rent/mortgage) was able to take the leap to quit my FT job and go off on my own to create a commercial product which I worked on tirelessly until achieving my financial independence goals.
- matanshavit 4y ago
  I'm having trouble finding a bank that still offers lines of credit. Do you have a particular recommendation that you are comfortable sharing? Thanks
  - candiddevmike 4y ago
    Home equity line of credit (HELOCs) are pretty easy to get, assuming you have some equity built up in a home. Works like a credit card. The rising interest rates will make using it pretty painful though.
    - avgDev 4y ago
      It might be difficult to get a loan without a job.
      - candiddevmike 4y ago
        You get a HELOC when you have a job. It's good for X number of years at X rate for loaning up to X amount of money.
    - matanshavit 4y ago
      Darn, I rent (in NYC). I'm still not sure if buying an apartment here is a good bet long term, but I do wish I had gotten in on something when prices weren't going so crazy. I would only consider it right now if I found an amazing deal. Either that or wait for something to change with the housing market. From what I can tell, though, things are just going to get harder for individuals who want to own a home in major cities.
      - candiddevmike 4y ago
        Talk to your politicians about banning or severely taxing non-primary resident single family homes. Affordable housing should be a right.
        4y ago
- gunfighthacksaw 4y ago
  What happens when the crash occurs and your bank nixes your line of credit? They are well within their right to, at least it says so in the fine print. Then you’re broke, and left holding a very baggy looking portfolio.
  - Asparagirl 4y ago
    Yes, people seem to forget that HELOCs are usually callable too. If you have a $500k HELOC and have used $200k of it for something, the bank usually has the right to force you to start making principal repayments (not just interest), to change the interest rate, and/or even in extreme circumstances to “call” the loan and ask you to repay everything ASAP. Read your fine print.
    - gunfighthacksaw 4y ago
      That said (and this goes counter to my previous comment) I think HELOCs are probably the safest credit source, purely because if the banks started calling them there would be an economic meltdown. Obviously if you’re going to overleverage yourself, a HELOC makes the most sense because of low rates, so I’d assume anyone who is overleveraged is doing it through a HELOC. However, if you can get a HELOC, you own property and are therefore much better off and less precarious than people who don’t. Ceteris paribus, I’d rather lose my shirt in a house I own rather than a rental.
- rich_sasha 4y ago
  In general, you pay enormous interest on unsecured credit. House? Mortgages have single-digit interest. Car financing? More complicated, but often free, or even negative (I bought my car for less with financing that it would cost me outright). Credit card? Tens of %. I guess a "line of credit" is essentially the same as a credit card. A bank can in principle recover your credit card debt off your house, but it's difficult.
WJW 4y ago
Even if inflation spikes to 10% per year, if you have an emergency fund covering (say) three months of expenses right now you'd still have a fund for 2.7 months in a year. And, of course, there aren't any rules saying you can't top it up to keep it sufficient for whatever time period you set it up for. It's infinitely better to have a buffer and not need it than to not keep any buffer at all and suddenly find yourself with an income and bills to pay.
theandrewbailey 4y ago
So? Make sure you add at least inflation_rate to your emergency fund per year.
- tuckerpo 4y ago
  Sort of assumes people are somehow making `inflation_rate` more money then, no?
  - theandrewbailey 4y ago
    Only if one is living at or above their means.
xboxnolifes 4y ago
I'd rather have fund available than not have funds available going into a financial crisis.
Melatonic 4y ago
Many fairly safe investments make approximately what we are dealing with in terms of inflation right now. Your emergency fund might not be MAKING money but you won't be losing it either. Of course this is a slightly different type of emergency fund (your money will not be able to be withdrawn that same day) but a balanced approach between multiple investments can work well. And of course it probably would not hurt to own some gold and silver safely secured as well if you are really worried about inflation and needing to quickly physically move your assets.

Your emergency fund doesn't mean much if things keep inflating like they are right now.

by js4 4y ago

Your emergency fund doesn't mean much if things keep inflating like they are right now.

You can place your emergency fund in I-Bonds over several years. You can buy $10k max a year, and withdraw with a 3 month interest penalty after a year. Right now the rate is 7.6% I believe for the first 6 months. It should protect that money from inflation.

deanmoriarty 4y ago
You will pay taxes on the interest, so the purchasing power will still diminish. Disclaimer: I still happily purchase 20k of I bonds and EE bonds a year for diversification purposes, in addition to my index funds.
- ryandrake 4y ago
  They are at least exempt from state and local taxes, which is nice.

bbrree66 4y ago

gcharris 4y ago

You're better off to stay fully invested and keep a line of credit in place of an emergency fund.

avgDev 4y ago
This is terrible advice, and it seems you never went through a massive crash. Imagine, market crashes 50%, you lose your job, and what? Are you going max out your cards with 20%+ APR? Are you going to realize your losses? Emergency fund is there to help ride out bad times, so you don't have to take shitty jobs, realize losses in your investments, sell your home or not undergo medical treatment due to financial stress.
- mythz 4y ago
  > and what are you going max out your cards? No, that's what the line of credit is for. Maximizing your savings/investments isn't a bad approach when your young as every $ made ads cumulative value over time. I wouldn't recommend it when you have a family.
  - avgDev 4y ago
    Emergency fund should always be first but adjusted for your age and obviously cost of living. No kids and living with parents? Sure, invest anything you make.
  - gigaflop 4y ago
    I feel that having a certain amount of physical and liquid cash assets is almost mandatory for basic financial survival. I use credit cards for most purchases('selling' my data to the card companies for reward points, too), but cushioning matters. If life were 100% predictable, and I never had to worry about a sudden expense, or a bill being higher than expected, or gas/grocery prices rising, then I'd totally be down to invest my entire net worth and live off of a portion of my paycheck, maintaining minimum balance in my checking account, and sweating bullets whenever the market dips. I went through several weeks of unemployment last year while I was between jobs. I was fortunate enough to receive the covid+standard unemployment payments, but still had to supplement that with cash from my savings to skim by. The alternative would have been to break my lease to live with my parents, incur bad credit, potentially have my car repo'd, etc. It would have set me back several years, and wrecked my self image.
    - mythz 4y ago
      I've never had an emergency fund because I purchased my first home as soon as I could with all my salary going into my savings account which also served as an offset account with the full amount offset against my mortgage to keep the interest down, so I had access to my savings whenever I needed it & when I didn't, the full amount would be used to reduce the interest on my mortgage repayments - in effect maximizing the full amount of my savings. Since the demand for programmers has always been good wherever I've lived I've always opted for higher paying contracting gigs since I was never concerned about job security, i.e. before kids, I'd most likely be more risk averse and look for permanent roles after starting a family. After I paid off my mortgage my expenses came down and after saving ~6 months of living expenses (easy w/o rent/mortgage) was able to take the leap to quit my FT job and go off on my own to create a commercial product which I worked on tirelessly until achieving my financial independence goals.
matanshavit 4y ago
I'm having trouble finding a bank that still offers lines of credit. Do you have a particular recommendation that you are comfortable sharing? Thanks
- candiddevmike 4y ago
  Home equity line of credit (HELOCs) are pretty easy to get, assuming you have some equity built up in a home. Works like a credit card. The rising interest rates will make using it pretty painful though.
  - avgDev 4y ago
    It might be difficult to get a loan without a job.
    - candiddevmike 4y ago
      You get a HELOC when you have a job. It's good for X number of years at X rate for loaning up to X amount of money.
  - matanshavit 4y ago
    Darn, I rent (in NYC). I'm still not sure if buying an apartment here is a good bet long term, but I do wish I had gotten in on something when prices weren't going so crazy. I would only consider it right now if I found an amazing deal. Either that or wait for something to change with the housing market. From what I can tell, though, things are just going to get harder for individuals who want to own a home in major cities.
    - candiddevmike 4y ago
      Talk to your politicians about banning or severely taxing non-primary resident single family homes. Affordable housing should be a right.
      - 4y ago
gunfighthacksaw 4y ago
What happens when the crash occurs and your bank nixes your line of credit? They are well within their right to, at least it says so in the fine print. Then you’re broke, and left holding a very baggy looking portfolio.
- Asparagirl 4y ago
  Yes, people seem to forget that HELOCs are usually callable too. If you have a $500k HELOC and have used $200k of it for something, the bank usually has the right to force you to start making principal repayments (not just interest), to change the interest rate, and/or even in extreme circumstances to “call” the loan and ask you to repay everything ASAP. Read your fine print.
  - gunfighthacksaw 4y ago
    That said (and this goes counter to my previous comment) I think HELOCs are probably the safest credit source, purely because if the banks started calling them there would be an economic meltdown. Obviously if you’re going to overleverage yourself, a HELOC makes the most sense because of low rates, so I’d assume anyone who is overleveraged is doing it through a HELOC. However, if you can get a HELOC, you own property and are therefore much better off and less precarious than people who don’t. Ceteris paribus, I’d rather lose my shirt in a house I own rather than a rental.
rich_sasha 4y ago
In general, you pay enormous interest on unsecured credit. House? Mortgages have single-digit interest. Car financing? More complicated, but often free, or even negative (I bought my car for less with financing that it would cost me outright). Credit card? Tens of %. I guess a "line of credit" is essentially the same as a credit card. A bank can in principle recover your credit card debt off your house, but it's difficult.

WJW 4y ago

Even if inflation spikes to 10% per year, if you have an emergency fund covering (say) three months of expenses right now you'd still have a fund for 2.7 months in a year. And, of course, there aren't any rules saying you can't top it up to keep it sufficient for whatever time period you set it up for. It's infinitely better to have a buffer and not need it than to not keep any buffer at all and suddenly find yourself with an income and bills to pay.

theandrewbailey 4y ago

So? Make sure you add at least inflation_rate to your emergency fund per year.

tuckerpo 4y ago
Sort of assumes people are somehow making `inflation_rate` more money then, no?
- theandrewbailey 4y ago
  Only if one is living at or above their means.

xboxnolifes 4y ago

I'd rather have fund available than not have funds available going into a financial crisis.

Melatonic 4y ago

Many fairly safe investments make approximately what we are dealing with in terms of inflation right now. Your emergency fund might not be MAKING money but you won't be losing it either. Of course this is a slightly different type of emergency fund (your money will not be able to be withdrawn that same day) but a balanced approach between multiple investments can work well. And of course it probably would not hurt to own some gold and silver safely secured as well if you are really worried about inflation and needing to quickly physically move your assets.