4 ms·

> There's a reason it's recommended that you have 6 months of living expenses liquid. Do you mean cash equivalents? Public stocks are liquid. Personally I thi

> There's a reason it's recommended that you have 6 months of living expenses liquid. Do you mean cash equivalents? Public stocks are liquid. Personally I think the 6 months advice is too conservative. If everyone calculated the damage inflation tax did to their savings account each year, probably more people would be willing to take a bit of a risk and invest their savings (or a greater portion of it).

pfranz 10y ago
You're right, public stocks are liquid and I meant cash equivalent. There's a lot of variance on how much is recommended in an emergency fund. Most seem to say 3-6 months. I know if I lost my job I could cut down my living expenses and stretch it out. But if I had to move for a job, had an extended gap, or had to take a lower paying job I might have to dip into those investments prematurely. Having to cash out at the bottom of the market burns years of investments where it would have been better if you just held onto cash even if your interest rate is a pittance. Just like putting money into 401k is more than negated if you have to cash out early. Everybody has different risk tolerances and the amount needed in an emergency fund varies depending on a bunch of things (if you have debt, variety of incomes vs a single paycheck, gap between expenses and earning). I've never seen anyone actually do a study or source why they chose 3-6months--so it's really hard to argue for or against. I'd be curious if anyone has done a study. It hurts to have money just sitting there, but I'm not trying to eek out every penny. I really don't think all those extra risks are worth it. Keep your living expenses low and it won't be that much money ;)
danielhooper 10y ago
6 months is not conservative. We aren't all programmers with a list of recruiters to talk to when we lose our jobs.
- dlubarov 10y ago
  I get that. That's why you diversify your assets and hold a bit of cash as well. But 6 months is a bit extreme. It's not as if a diversified portfolio is going to drop to zero during a major recession (unless the government collapses, in which case cash might not be useful either). It might lose around 30%, depending on how you diversify and how extreme the recession is.

pfranz 10y ago

You're right, public stocks are liquid and I meant cash equivalent. There's a lot of variance on how much is recommended in an emergency fund. Most seem to say 3-6 months. I know if I lost my job I could cut down my living expenses and stretch it out. But if I had to move for a job, had an extended gap, or had to take a lower paying job I might have to dip into those investments prematurely. Having to cash out at the bottom of the market burns years of investments where it would have been better if you just held onto cash even if your interest rate is a pittance. Just like putting money into 401k is more than negated if you have to cash out early. Everybody has different risk tolerances and the amount needed in an emergency fund varies depending on a bunch of things (if you have debt, variety of incomes vs a single paycheck, gap between expenses and earning). I've never seen anyone actually do a study or source why they chose 3-6months--so it's really hard to argue for or against. I'd be curious if anyone has done a study. It hurts to have money just sitting there, but I'm not trying to eek out every penny. I really don't think all those extra risks are worth it. Keep your living expenses low and it won't be that much money ;)

danielhooper 10y ago

6 months is not conservative. We aren't all programmers with a list of recruiters to talk to when we lose our jobs.

dlubarov 10y ago
I get that. That's why you diversify your assets and hold a bit of cash as well. But 6 months is a bit extreme. It's not as if a diversified portfolio is going to drop to zero during a major recession (unless the government collapses, in which case cash might not be useful either). It might lose around 30%, depending on how you diversify and how extreme the recession is.