8 ms·

My wife grew up very close to the poverty line, with her parents always just about to lose the house. And she has this anxiety. (Edit: to be clear, she's a succ

by mabbo 4y ago

My wife grew up very close to the poverty line, with her parents always just about to lose the house. And she has this anxiety. (Edit: to be clear, she's a successful civil engineer, considered one of the best in her field locally and makes great money- she has nothing to worry about.) In order to help with it, we have a bank account that our bills come out of that has a little more than 6 months worth of all our bills (mortgage payment included) just sitting there, collecting zero interest. Every time a bill is paid, we top it up to the target amount. If we stop making money today, we don't have to do anything differently for 6 months. It's not logical or financially wise, but it means that she doesn't worry about money as much. I consider the opportunity cost on the interest we might collect on that money as a bill that I'm happy to pay.

collinvandyck76 4y ago
with the market being as it is, actually very wise to have a lot of cash on hand :) we also operate this way. i could become unemployed today and we buffer enough so that it's not an emergency at all.
- Melatonic 4y ago
  I prefer a layered approach - some investments take longer than others to cash out. And some are in between but still provide some return. A ton of cash on hand is probably a bad idea
  - moffkalast 4y ago
    https://www.reddit.com/r/dataisbeautiful/comments/tou7v2/oc_warren_buffetts_2022_portfolio_update_at/ https://www.reddit.com/r/dataisbeautiful/comments/tou7v2/oc_... Even Warren Buffet always keeps at least something like a fifth of his investments in cash. Otherwise how the hell are you going to buy low?
    - Melatonic 4y ago
      I would imagine though that he is also very often selling / buying so that hes not just sitting on a pile of cash for months at a time?
      - moffkalast 4y ago
        See reverse repos.
    - petronio 4y ago
      Should be noted that a significant portion of Berkshire Hathaway's usual cash pile is not for deal making, but as a backstop for their large insurance portfolio.
bombcar 4y ago
People vastly underestimate the "peace of mind" costs - once those are taken into effect it can suddenly make sense to do things that many consider "financially unwise", such as having a large emergency fund, paying off a mortgage, etc. And once you do that you can find yourself suddenly feeling much more free - knowing that even if everything goes south room and board is taken care of can give you the courage to take risks you'd not otherwise take, such as starting a business, a family, even moving. The main thing about "living paycheck to paycheck" that scares me is that feeling of being trapped.
- deleted 4y ago
  [deleted]
Gamemaster1379 4y ago
> It's not logical or financially wise I'm taken aback by this statement. I am in an incredibly similar situation to your wife in terms of growing up and being successful today, and I do this. Granted, I think I'm at 3.5 months, but the point stands. Sure, the money isn't generating more wealth, but that amount is finite. It's a cushion that should effectively indefinitely and every dollar beyond is vigorously invested. And, should something happen to employment, you use it as a buffer (assuming no severance) and replenish as soon as you're employed again. I have a friend who helped me get where I am. He makes even more than I do, but financially, I'm more well off than he is because he thinks that every single dollar needs invested -- to the point that despite making the top 2-3% of income for our entire region, he regularly is paying off revolving credit card interest because he isn't equipped to pay a $500 unexpected expense. Sure, if you invest every single dollar, it's always earning 7-10% on average. But if you have to then pay 20%+ APR on credit cards because you can't handle unexpected expenses, it begs the question whether you're really getting ahead.
- yunwal 4y ago
  Stocks are liquid enough that you can sell enough to pay your credit card off before getting hit with interest. There's no reason to have 6 months worth of expenses in cash just sitting around unless you strongly suspect a crash.
  - mcguire 4y ago
    The S&P 500 is down 21% since the beginning of the year.
    - astrange 4y ago
      Muni bond and treasury ETFs are not down 21%, and neither is my emergency fund investment account.
      - pishpash 4y ago
        Broad munis and intermediate treasuries are both down 10% YTD, and so are TIPS (though at least those have had inflation adjustments). You might want to check your "emergency fund investment account" lol...
ticviking 4y ago
Having a solid emergency fund is actually pretty wise. Maybe split some of that into something low risk like I-bonds. My wife has similar anxiety, and it took years of financial education to get her comfortable with the idea that we only need a month of backup, and can float the rest on CC until we liquidate other assets.
- nomel 4y ago
  > we only need a month of backup As someone who went through two recessions, survived multiple layoffs, and had a few medical things, this seems like crazy talk. The general rule of thumb is 6 months of savings. I've known many that didn't follow this rule, and ended up in very bad debt.
  - cableshaft 4y ago
    Do you need it all sitting in a savings account, though? Inflation ate almost 9% of its value this past year. Granted stocks are down 20% this year, but assuming you don't have to touch it for a while, they should more than recover in a few years (well, assuming no massive global disaster, which seem more and more common lately). We have a decent amount sitting in our savings account, but not six months worth. But I can liquidate assets to get us the rest of that six months if necessary, and it would take about a week to get that into our bank account.
    - happyopossum 4y ago
      > Inflation ate almost 9% of its value this past year. Granted stocks are down 20% this year, yeah, so you're still ahead of the game if you had it saved.
      - cableshaft 4y ago
        This year. Meanwhile it would have missed out on 27% in gains the previous year (and its associated dividends), if I kept it in a bank account. Also that 20% loss will most likely recover in time. Inflation almost never reverses itself, it only slows down. There's a reason rich people park most of their money in assets, and not in savings accounts. If they got more returns by keeping it in savings accounts, they would do that.
thebigspacefuck 4y ago
I have a high yield savings account and interest is 0.75%, 6 withdrawals per month and the transfer completes same day if I need it in an emergency, plus it’s FDIC insured. Same peace of mind plus interest.
- abnercoimbre 4y ago
  You might be talking about AMEX Savings? I remember when it was 1.70% before the pandemic. That almost beat inflation!
  - thebigspacefuck 4y ago
    That’s the one. It looks like some others are offering 1%+ now.
throwawayarnty 4y ago
How is this not logical or financially wise ? It is common advice to have an emergency fund equal to several months of expenses in cash. What is the alternative ? Having no emergency fund?
- aoeusnth1 4y ago
  Minimum buffer / maximizing investments in ETFs has higher EV and depending on your time horizon and model, may even be lower risk.
  - throwawayarnty 4y ago
    This strategy essentially ensures that you will never have much capital ready for when stocks and other assets suddenly get cheap. Your strategy means that the best time to buy assets correlates with when your net worth dips then lowest.
    - aoeusnth1 4y ago
      Do you try to time the market? Holding cash waiting for stocks to "get cheap" is a losing strategy unless you have some serious edge.
- lmm 4y ago
  Several months is excessive. Even if you think you might going to spend six months with no income, you don't need six months' expenses in cash - one month's worth in instant access savings (or, sure, half in savings and half in cash under the matress, just in case), two months' in one months' notice savings, and three months' worth in three months' notice savings works just as well and will get you a better return.
  - throwawayarnty 4y ago
    To think one would ever have three months savings in cash sounds insane to me. In the USA unexpected expenses (beyond monthly savings) can completely wipe a three month savings in a heartbeat. Add to that getting laid off during a recession and you’re in for real pain. I guess it’s just been 12 years since people ever had to deal with a bad economy.
dageshi 4y ago
It's both logical and financially wise. Nothing is more valuable than time when you need it. That money will give you time when you need it.
happyopossum 4y ago
> It's not logical or financially wise It's absolutely both of those things. It's financially unwise to take any risks at all with your emergency funds and operating expenses, so having 3-6 months worth locked up is absolutely the best thing you can do.
fdr 4y ago
Six months is not unwise, in my view.
mmcnl 4y ago
Is 6 months a lot? I have my bills covered in a similar way for 24 months.

by mabbo 4y ago

collinvandyck76 4y ago

with the market being as it is, actually very wise to have a lot of cash on hand :) we also operate this way. i could become unemployed today and we buffer enough so that it's not an emergency at all.

Melatonic 4y ago
I prefer a layered approach - some investments take longer than others to cash out. And some are in between but still provide some return. A ton of cash on hand is probably a bad idea
- moffkalast 4y ago
  https://www.reddit.com/r/dataisbeautiful/comments/tou7v2/oc_warren_buffetts_2022_portfolio_update_at/ https://www.reddit.com/r/dataisbeautiful/comments/tou7v2/oc_... Even Warren Buffet always keeps at least something like a fifth of his investments in cash. Otherwise how the hell are you going to buy low?
  - Melatonic 4y ago
    I would imagine though that he is also very often selling / buying so that hes not just sitting on a pile of cash for months at a time?
    - moffkalast 4y ago
      See reverse repos.
  - petronio 4y ago
    Should be noted that a significant portion of Berkshire Hathaway's usual cash pile is not for deal making, but as a backstop for their large insurance portfolio.

bombcar 4y ago

People vastly underestimate the "peace of mind" costs - once those are taken into effect it can suddenly make sense to do things that many consider "financially unwise", such as having a large emergency fund, paying off a mortgage, etc. And once you do that you can find yourself suddenly feeling much more free - knowing that even if everything goes south room and board is taken care of can give you the courage to take risks you'd not otherwise take, such as starting a business, a family, even moving. The main thing about "living paycheck to paycheck" that scares me is that feeling of being trapped.

deleted 4y ago
[deleted]

Gamemaster1379 4y ago

> It's not logical or financially wise I'm taken aback by this statement. I am in an incredibly similar situation to your wife in terms of growing up and being successful today, and I do this. Granted, I think I'm at 3.5 months, but the point stands. Sure, the money isn't generating more wealth, but that amount is finite. It's a cushion that should effectively indefinitely and every dollar beyond is vigorously invested. And, should something happen to employment, you use it as a buffer (assuming no severance) and replenish as soon as you're employed again. I have a friend who helped me get where I am. He makes even more than I do, but financially, I'm more well off than he is because he thinks that every single dollar needs invested -- to the point that despite making the top 2-3% of income for our entire region, he regularly is paying off revolving credit card interest because he isn't equipped to pay a $500 unexpected expense. Sure, if you invest every single dollar, it's always earning 7-10% on average. But if you have to then pay 20%+ APR on credit cards because you can't handle unexpected expenses, it begs the question whether you're really getting ahead.

yunwal 4y ago
Stocks are liquid enough that you can sell enough to pay your credit card off before getting hit with interest. There's no reason to have 6 months worth of expenses in cash just sitting around unless you strongly suspect a crash.
- mcguire 4y ago
  The S&P 500 is down 21% since the beginning of the year.
  - astrange 4y ago
    Muni bond and treasury ETFs are not down 21%, and neither is my emergency fund investment account.
    - pishpash 4y ago
      Broad munis and intermediate treasuries are both down 10% YTD, and so are TIPS (though at least those have had inflation adjustments). You might want to check your "emergency fund investment account" lol...

ticviking 4y ago

Having a solid emergency fund is actually pretty wise. Maybe split some of that into something low risk like I-bonds. My wife has similar anxiety, and it took years of financial education to get her comfortable with the idea that we only need a month of backup, and can float the rest on CC until we liquidate other assets.

nomel 4y ago
> we only need a month of backup As someone who went through two recessions, survived multiple layoffs, and had a few medical things, this seems like crazy talk. The general rule of thumb is 6 months of savings. I've known many that didn't follow this rule, and ended up in very bad debt.
- cableshaft 4y ago
  Do you need it all sitting in a savings account, though? Inflation ate almost 9% of its value this past year. Granted stocks are down 20% this year, but assuming you don't have to touch it for a while, they should more than recover in a few years (well, assuming no massive global disaster, which seem more and more common lately). We have a decent amount sitting in our savings account, but not six months worth. But I can liquidate assets to get us the rest of that six months if necessary, and it would take about a week to get that into our bank account.
  - happyopossum 4y ago
    > Inflation ate almost 9% of its value this past year. Granted stocks are down 20% this year, yeah, so you're still ahead of the game if you had it saved.
    - cableshaft 4y ago
      This year. Meanwhile it would have missed out on 27% in gains the previous year (and its associated dividends), if I kept it in a bank account. Also that 20% loss will most likely recover in time. Inflation almost never reverses itself, it only slows down. There's a reason rich people park most of their money in assets, and not in savings accounts. If they got more returns by keeping it in savings accounts, they would do that.

thebigspacefuck 4y ago

I have a high yield savings account and interest is 0.75%, 6 withdrawals per month and the transfer completes same day if I need it in an emergency, plus it’s FDIC insured. Same peace of mind plus interest.

abnercoimbre 4y ago
You might be talking about AMEX Savings? I remember when it was 1.70% before the pandemic. That almost beat inflation!
- thebigspacefuck 4y ago
  That’s the one. It looks like some others are offering 1%+ now.

throwawayarnty 4y ago

How is this not logical or financially wise ? It is common advice to have an emergency fund equal to several months of expenses in cash. What is the alternative ? Having no emergency fund?

aoeusnth1 4y ago
Minimum buffer / maximizing investments in ETFs has higher EV and depending on your time horizon and model, may even be lower risk.
- throwawayarnty 4y ago
  This strategy essentially ensures that you will never have much capital ready for when stocks and other assets suddenly get cheap. Your strategy means that the best time to buy assets correlates with when your net worth dips then lowest.
  - aoeusnth1 4y ago
    Do you try to time the market? Holding cash waiting for stocks to "get cheap" is a losing strategy unless you have some serious edge.
lmm 4y ago
Several months is excessive. Even if you think you might going to spend six months with no income, you don't need six months' expenses in cash - one month's worth in instant access savings (or, sure, half in savings and half in cash under the matress, just in case), two months' in one months' notice savings, and three months' worth in three months' notice savings works just as well and will get you a better return.
- throwawayarnty 4y ago
  To think one would ever have three months savings in cash sounds insane to me. In the USA unexpected expenses (beyond monthly savings) can completely wipe a three month savings in a heartbeat. Add to that getting laid off during a recession and you’re in for real pain. I guess it’s just been 12 years since people ever had to deal with a bad economy.

dageshi 4y ago

It's both logical and financially wise. Nothing is more valuable than time when you need it. That money will give you time when you need it.

happyopossum 4y ago

> It's not logical or financially wise It's absolutely both of those things. It's financially unwise to take any risks at all with your emergency funds and operating expenses, so having 3-6 months worth locked up is absolutely the best thing you can do.

fdr 4y ago

Six months is not unwise, in my view.

mmcnl 4y ago

Is 6 months a lot? I have my bills covered in a similar way for 24 months.