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Message
Emergency fund for high earners
Posted on 2/2/14 at 3:00 pm
Posted on 2/2/14 at 3:00 pm
Sorry if this has been covered. I searched other threads with the title "emergency fund" first.
If your monthly expenses are in the 10-15k range, is it really smart to have 6 to 12 months expenses sitting in cash? I guess it is foolproof, but it seems wrong to have 60-100+k sitting there slowly losing value.
Granted, many feel the market is due a correction, but would sticking half of it in bluechips really be that risky? What if you also have at least that much in equity in your home and therefore could do a heloc if things hit the fan?
Just looking for ideas. Thanks to any who respond.
If your monthly expenses are in the 10-15k range, is it really smart to have 6 to 12 months expenses sitting in cash? I guess it is foolproof, but it seems wrong to have 60-100+k sitting there slowly losing value.
Granted, many feel the market is due a correction, but would sticking half of it in bluechips really be that risky? What if you also have at least that much in equity in your home and therefore could do a heloc if things hit the fan?
Just looking for ideas. Thanks to any who respond.
6
Posted on 2/2/14 at 3:09 pm to JT
quote:
Just looking for ideas. Thanks to any who respond.
If I had 10 to 15k in expenses a month I wouldn't ask any one short of a professional about what to do with my money.
Posted on 2/2/14 at 3:09 pm to JT
People say 6 months cash, but if you can get most of that in a safe liquid investment then you only need as much cash as it takes to hold you over until you turn your liquid asset into cash. Also paying the penalty (EX: a CD) may not a big deal when compared to years of lost earning because you held cash.
This post was edited on 2/2/14 at 3:11 pm
Posted on 2/2/14 at 3:18 pm to JT
quote:
If your monthly expenses are in the 10-15k range, is it really smart to have 6 to 12 months expenses sitting in cash?
I find having 6-12 months living expenses helps me sleep better at night. But it's also just smart to have the liquid cash if you have an emergency that causes you to lose that great income.
If you really feel secure about your stream of income maybe only hold 3 months liquid cash. Invest the rest and do a heloc to bridge the gap. My 3 cents.
Posted on 2/2/14 at 3:23 pm to Teddy Ruxpin
Thanks, I am considering this. We have only recently moved into the higher earner category so my first instinct is to keep doing things myself. The cynic in me worries that if I go to a professional, I risk exposure to vehicles intended to make the financial adviser richer before myself if you know what I mean. Then I'll just be back here asking for advice regarding what he/she recommended. Thus, I am cutting out the middleman coming here first. 
Posted on 2/2/14 at 3:36 pm to JT
I can get a heloc fairly quickly should the need arise. I dont like to have money not earning interest.
Posted on 2/2/14 at 3:45 pm to bushwacker
quote:This, but why wait to set one up? It can take about a month and they verify income, etc. So waiting until you "need one" to set one up may not be the best route. Plus I forget what the formula is (varies by state) but the available equity calculation is lower than you might do on the back of an envelope. Maybe they take 80 or 90 percent of the value then subtract outstanding loan amount, if any?
I can get a heloc fairly quickly should the need arise. I dont like to have money not earning interest.
I set on up a while back and it is great peace of mind. Just one click and money can instantly be added to my checking account if the need arises.
Posted on 2/2/14 at 3:52 pm to Bayou Tiger
Thanks for this, didn't realize it could be set up in advance this way. I'll look into it.
Posted on 2/2/14 at 4:50 pm to JT
I agree with the HELOC suggestion and it's what I have done personally.
Posted on 2/2/14 at 7:53 pm to JT
Yep. Paying off your house is often derided around here, but having a HELOC as an emergency fund works out pretty well. For mine I would only have to make minimal interest payments (no principal) on withdrawals.
Posted on 2/2/14 at 8:21 pm to JT
quote:
The cynic in me worries that if I go to a professional, I risk exposure to vehicles intended to make the financial adviser richer before myself if you know what I mean.
A good retirement/investment advisor is there to provide you more value than pitches on expensive products. Matter of fact, the general advisor's business grows as his clients' asset bases build in value.
He/She may develop a long term plan for you that may prevent you from making a big mistake over the course of time, like taking too much financial advice from the MT.
Posted on 2/2/14 at 8:32 pm to Cmlsu5618
quote:
A good retirement/investment advisor is there to provide you more value than pitches on expensive products. Matter of fact, the general advisor's business grows as his clients' asset bases build in value. He/She may develop a long term plan for you that may prevent you from making a big mistake over the course of time, like taking too much financial advice from the MT.
Thanks, don't mean to insult the good guys out there. I think most advisors are probably pretty professional. I actually know a couple, they're just far away. I would prefer someone in town.
Anyone here do business with a good contact in Irving (or Dallas)?
And thanks to those who mentioned incorporating a heloc into the plan. This is something I will likely set up soon regardless of when I see a professional.
Posted on 2/2/14 at 9:12 pm to JT
I have 3 years expenses sitting in cash. Just don't trust the President with the economy, and I lost nearly 34% during the crash of 08.
Posted on 2/2/14 at 9:18 pm to JT
quote:
If your monthly expenses are in the 10-15k range, is it really smart to have 6 to 12 months expenses sitting in cash? I guess it is foolproof, but it seems wrong to have 60-100+k sitting there slowly losing value.
I would take out a CD that rolls over every 30 days - that gives you something against inflation - and keeps it from getting chipped away at for silly stuff.
Another alternative would be a very low risk mutual fund, perhaps a bond fund, even, for just this purpose.
Posted on 2/2/14 at 9:22 pm to matthew25
quote:
I have 3 years expenses sitting in cash. Just don't trust the President with the economy, and I lost nearly 34% during the crash of 08.
You only lost 34% if you sold. If you kept your money in, you're back to where you were. If you would have continued buying in, you would have made a killing this year, along with the rest of us.
So, yeah, bad call
Posted on 2/2/14 at 11:16 pm to Joshjrn
quote:
So, yeah, bad call
wowPosted on 2/3/14 at 1:33 am to matthew25
quote:
I lost nearly 34% during the crash of 08.
I lost about 30% but got it all back and then some in the subsequent recovery.
quote:
I have 3 years expenses sitting in cash.
I have almost none in cash, but can raise it quickly and pretty cheaply if needed.
Posted on 2/3/14 at 5:52 am to foshizzle
quote:
If your monthly expenses are in the 10-15k range
First, congrats on the new income. I'm sure you worked hard for it. Another idea is to aggressively lower your monthly expenses by paying off debt. If you are truly killing it income wise, there is no reason to have 10-15k of monthly expenses. If your paying off student loans that may take a long time. But lower your expenses to 6-8K a month and you only have 36-48k sitting in a savings account making nothing.
Posted on 2/3/14 at 7:47 am to Joshjrn
my first in a series of major market moves was in 2008 and the returns since then have been outstanding
Posted on 2/3/14 at 7:47 am to JT
This is exactly right.
No matter how much you make though I believe 10k a month is too high in debt. I would concentrate lowering that number before I got too deep into other things.
Read a few books on the market and you will be as in touch as most the mutual fund pushing advisors.
No matter how much you make though I believe 10k a month is too high in debt. I would concentrate lowering that number before I got too deep into other things.
Read a few books on the market and you will be as in touch as most the mutual fund pushing advisors.
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