# Size of Emergency fund



## George (Apr 3, 2009)

Ok, so the usual advice is that an emergency fund should cover around "3-6 months" of expenses. Some people say 3 months' income, others say something else.

What does this mean to you in actual dollar figures? 

Personally, for us (two-income family with two young kids), we're aiming for an E-Fund of about $20,000. This would cover 6 months of expenses in case of a major emergency (job loss, major illness etc). I'm curious as to whether this is bigger or smaller than what other people might aim for.


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## GeanOliveira (Apr 3, 2009)

George said:


> Ok, so the usual advice is that an emergency fund should cover around "3-6 months" of expenses. Some people say 3 months' income, others say something else.
> 
> What does this mean to you in actual dollar figures?
> 
> Personally, for us (two-income family with two young kids), we're aiming for an E-Fund of about $20,000. This would cover 6 months of expenses in case of a major emergency (job loss, major illness etc). I'm curious as to whether this is bigger or smaller than what other people might aim for.


Can we also consider a LOC as an emergency fund?


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## George (Apr 3, 2009)

I don't really include our LOC as part of our emergency fund, since in the case of a true emergency (major illness or job loss), it's quite possible that the lender would either reduce the credit available or mandate payments on the loaned amount.


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## FrugalTrader (Oct 13, 2008)

George said:


> Ok, so the usual advice is that an emergency fund should cover around "3-6 months" of expenses. Some people say 3 months' income, others say something else.
> 
> What does this mean to you in actual dollar figures?
> 
> Personally, for us (two-income family with two young kids), we're aiming for an E-Fund of about $20,000. This would cover 6 months of expenses in case of a major emergency (job loss, major illness etc). I'm curious as to whether this is bigger or smaller than what other people might aim for.


I think it really depends on the "type" of income as well. For example a business owner with variable income should have a larger cash reserve than someone working for the government.

We personally have a tendency to build cash reserves. We're comfortable in the $10-$20k cash range.


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## CanadianCapitalist (Mar 31, 2009)

George said:


> I'm curious as to whether this is bigger or smaller than what other people might aim for.


We keep about 3 months expenses in cash, say between $10K to $20K. I don't consider LOC as an emergency fund. It is hard to say what is the "right" number because it depends on family circumstances. A two-income family has less risk than an one-income family. A two-income family where the spouses work in different fields / sectors may have more/less risk than another family where both work in the same place. For instance, a few years back both of us worked in the private sector. Now, one of us works for the government and so the risk of a job loss is a lot less. 

I would say that "enough cash reserves to sleep well at night" would be a good thumb rule.


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## Canadian Finance (Apr 3, 2009)

I know it sounds bad, but I'm not a huge fan of emergency funds.

The reason being that you would normally come out ahead paying off any debt, reducing your mortgage, or investing for a longer time frame.

In a true emergency, using a credit line, or even withdrawing from your RRSPs would work. Any emergency should be temporary and these would provide you with the ability to survive.

All that said, if I did decide to have an emergency fund, I'd only fund a savings account in a TFSA for one year / $5000 and that would be the max.


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## fifi (Apr 3, 2009)

I consider our LOC our reserve fund as well. I also think that the $2000 min balance we keep to keep our bank fees at $0 could be considered reserve cash.


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## lb71 (Apr 3, 2009)

Canadian Finance said:


> I know it sounds bad, but I'm not a huge fan of emergency funds.


I would agree with you, but it also depends on the circumstances of the individual. I also use my LOC as an emergency fund because I feel that any money set aside could be better used to reduce my current mortgage. Also my wife and I are in different industries, so the risk of both of us losing our jobs is very slim.


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## chilly (Apr 3, 2009)

I aim for roughly 3 months of expenses in my E fund.

This brings me to a related question. I'm using a dedicated high interest savings account for the E fund. However, I'm wondering whether it would be a good idea, for example, to use a TFSA for the E fund, and invest a portion of the $ into a money market fund for instance.

The rationale is that the interest from the money market fund is higher than that of the savings account, and the tax-free component of the TFSA vehicle of course makes this attractive. I do want to make sure, however, that the $ in the account is liquid.

Has anyone done something like this? Any comments/suggestions/pitfalls?


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## moneygardener (Apr 3, 2009)

http://themoneygardener.com/2007/10/defying-cash-emergency-funds.html

I don't feel like the traditional meaning makes sense for us.


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## Patricia (Apr 3, 2009)

I like to keep about $5000.00 in easily accessable funds at all times. These are usually in a combination of short term deposits and high interest accounts. When savings exceed this amount I tend to reinvest the money in longer term investments.


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## Sampson (Apr 3, 2009)

I'm in the 1.5 months range, although recent events have made us get closer to the 3 month range.

We don't have a true emergency fund per se, as I sorta consider it as cash in our portfolio allocation, ready to use it any time now....


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## DAvid (Apr 3, 2009)

Our emergency "fund" includes the following:

all accelerated mortgage payments
6 months + of accumulated sick leave
Banked overtime
Banked Vacation
LTD plan
RRSP
TFSA
investment portfolio
Employment insurance
"Passive" income 

Spouses income

The passive income would cover all our necessary (household) bills, except some food.

DAvid


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## CanadianCapitalist (Mar 31, 2009)

DAvid said:


> The passive income would cover all our necessary (household) bills, except some food.


I agree with this point. You'll have to figure in EI benefits, passive income via dividends and in a pinch even the fixed income in your RRSP (if it's a question of survival). There is also the potential to reduce expenses in some situations. For instance, if one of us loses a job, we'd definitely think about pulling the kids out of daycare.

My 3 months estimate is assuming I maintain our current expenses. YMMV.


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## Arcaneind (Apr 3, 2009)

*Line of Credit*

With my wife & I being in an extremely stable government jobs with seniority, we use our LOC as an emergency fund. We have the money in savings, but we don't think of it like that.


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## Phalene (Apr 3, 2009)

Our emergency fund is currently 12 000 (we plan to bump it up to 15k over the next year or two). This money is held in a high interest savings account.


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## mfd (Apr 3, 2009)

We decided that we were comfortable if we had an emergency fund for a year. So we are currently saving up $30k


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## ethos1 (Apr 4, 2009)

DAvid said:


> Our emergency "fund" includes the following:
> 
> all accelerated mortgage payments
> 6 months + of accumulated sick leave
> ...


DAvid, I really like the list that you have provided. 

Do you mind me asking, what do you classify as passive income


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## The Financial Blogger (Apr 4, 2009)

George said:


> Ok, so the usual advice is that an emergency fund should cover around "3-6 months" of expenses. Some people say 3 months' income, others say something else.
> 
> What does this mean to you in actual dollar figures?
> 
> Personally, for us (two-income family with two young kids), we're aiming for an E-Fund of about $20,000. This would cover 6 months of expenses in case of a major emergency (job loss, major illness etc). I'm curious as to whether this is bigger or smaller than what other people might aim for.



Hey George, have you think to simply get a line of credit of 20K and never use it unless it would be for your emergency fund? If you think of the odd of using your full 20K as emergency fund during your life, chances are that you would be better off investing that money and make a much better return than the 1.5%-2% in a money market fund.

On the other side, the cost of a line of credit may vary. The cost of interest would probably be around 7%-8%... if you ever use it!


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## Northern Engineer (Apr 3, 2009)

The Financial Blogger said:


> Hey George, have you think to simply get a line of credit of 20K and never use it unless it would be for your emergency fund? If you think of the odd of using your full 20K as emergency fund during your life, chances are that you would be better off investing that money and make a much better return than the 1.5%-2% in a money market fund.
> 
> On the other side, the cost of a line of credit may vary. The cost of interest would probably be around 7%-8%... if you ever use it!


I like the idea of a combination of those. A small emergency fund of $1000-2000 to cover insurance deductibles, furnace breakdowns, etc., kept in a high interest savings account. A LOC to be used only to supplement EI, disability, or whatever else, and otherwise kept at a balance of zero.

Once my student LOC is paid off, I'll look into this, but until then, it's a cash only emergency fund.


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## Financial Highway (Apr 3, 2009)

I think Emergency funds are important part of financial planning, but at the same time if you have set-up proper protection in you planning there will not be a need for a large Emergency Fund. 

If you loose your job you have EI for up to 52 weeks, If you get sick you probably have some sort of disability insurance etc......

We hold about 1-2 month worth of EXPENSES in a High interest savings account, we also have a LOC. I do not like money sitting idle


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## bingfot (Apr 3, 2009)

Our emergency fund isn't as high as it should be (currently approx $3000) but we're increasing it $100 per month indefinitely..


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## seven3 (Apr 4, 2009)

Chilly - which MMF funds have you seen pay a higher rate that the high-rate savings accounts? I looked into it a month ago and found that the high-rate savings accts are best for cash right now (even though they're all below 2% now)


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## 83gemini (Apr 4, 2009)

I'm aiming (in the expectation of unemployment when my contract is up) for a year's expenses. Hopefully 9 months of the that will be the start of a down payment instead.


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## lister (Apr 3, 2009)

This year we're trying to aim for $10000 and then repeating that next year for $20000. At that point monies will be saved for a wedding and we may dip in to the emergency fund a bit for that as well.


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## sa44ron (Apr 4, 2009)

*Line of credit as Emergency Fund*

Emergency Fund
With a home equity line of credit, the excess room is the emergency fund. Why have six months income sitting in a savings account at 1/4 percent taxable interest income? And at the same time be paying 4 percent interest on the line of credit?


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## The Financial Blogger (Apr 4, 2009)

Northern Engineer said:


> I like the idea of a combination of those. A small emergency fund of $1000-2000 to cover insurance deductibles, furnace breakdowns, etc., kept in a high interest savings account. A LOC to be used only to supplement EI, disability, or whatever else, and otherwise kept at a balance of zero.
> 
> Once my student LOC is paid off, I'll look into this, but until then, it's a cash only emergency fund.


I agree with you to keep a few thousand bucks aside. Many banks will actually spare you bank account fees if you hold a certain balance in your account (usually between $1,500 and $3,000). Therefore, you will be making a good return (considering what you save in fees, you will probably be making 3 to 5% net of taxes!) and have a small emergency fund as well :-D


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## rusty (Apr 5, 2009)

We used to keep about $5K in an ING account but have since used it to pay down the mortgage. We now consider the HELOC for the emergency fund.


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## MTNG (Apr 3, 2009)

I'm aiming for 6 months of total expenses.


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## Hampton N/S (Apr 3, 2009)

*Emergency funds*

Although I believe in Insurance I don't believe in over-insuring for every possible risk.
So an emergency fund is a measure of your adversity to risk.

We consider our HELOC our emergency fund.
We use our extra cash to pay down mortgage, purchase a vacation home/investment property.
We are both professionals and unemployment will not be too long- yes I'm an optimist (most of the time).
We have insured against my self-employed spouse's disability.

I know all the books say have an emergency fund but I think it is so personal a choice - I like my money working for me more than a low interest rate of return from a bank.


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## George (Apr 3, 2009)

I'm amazed at how averse people seem to be from having a large (say, $10000+) cash reserve, preferring instead to utilize a line of credit as an "emergency" fund.

My concern with a LOC is that it's tempting to over-withdraw in a time of emergency, leaving you with a huge hole to dig yourself out of once the emergency passes. At least if it's YOUR money that you're spending from the emergency fund, you're more likely to conserve it to make it last as long as possible.

Of course, it could just be that I'm averse to risk. My wife and I will have $20k in a high-interest savings account within the next few months, and plan on leaving the money there indefinitely. We both have stable jobs (government and health care) but I like the idea of covering as many angles as possible.

Sure, I might not earn as much money on the pile of cash as I would if I tossed it toward our mortgage or invested it for the long term, but for the time being it gives me a huge measure of comfort.


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## DAvid (Apr 3, 2009)

ethos1 said:


> DAvid, I really like the list that you have provided.
> 
> Do you mind me asking, what do you classify as passive income


Income that arrives without an expenditure of effort on my part.

DAvid


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## bgc_fan (Apr 5, 2009)

I agree with George. I personally have a small emergency fund held in an high interest account, and find it counter intuitive to use a LOC as a source of funds in an emergency. If I was in a financial emergency, or if some sort of surprise cost appears (say, minor roof repairs), the last thing I'd want is to start taking on debt, even if it is considered low interest.

But then again, everyone is different.


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## MoneyEnergy (Apr 5, 2009)

I agree with George and bgc_fan that using a LOC, or worse, a credit card, for an "emergency fund" is a bad idea. But when you're still just getting started on that E-fund (as I am, unfortunately!) I'm not sure there's much way around it. As I'm in graduate school currently, I don't have alot of room to maneuvre financially, so it's important to keep all my expenditures moderate and balanced. I've started an e-fund, but it's going to take a bit to build it up. I'd like at least $5000 in it for now, but I'm going to have to start with $500, then $1000...


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## Northern Engineer (Apr 3, 2009)

George said:


> My concern with a LOC is that it's tempting to over-withdraw in a time of emergency, leaving you with a huge hole to dig yourself out of once the emergency passes. At least if it's YOUR money that you're spending from the emergency fund, you're more likely to conserve it to make it last as long as possible.


That depends on the person, though. Given the experience I'm having getting out of a LOC hole that I dug, I'm sure that I won't be tempted to put myself in this position again, should I get into using the LOC. I don't know if the others advocating the LOC are the same, but if I wasn't sure that I could treat it like my own money, I wouldn't use it.



bgc_fan said:


> I agree with George. I personally have a small emergency fund held in an high interest account, and find it counter intuitive to use a LOC as a source of funds in an emergency. If I was in a financial emergency, or if some sort of surprise cost appears (say, minor roof repairs), the last thing I'd want is to start taking on debt, even if it is considered low interest.
> 
> But then again, everyone is different.


I've never had my roof repaired, so I don't know what that costs, but I am keeping (and intend to keep) a small cash fund for situations like that (unless I discover that home-ownering comes with regular unexpected expenses that are larger than I think they are). In a worst case scenario of job loss or disability, the Emergency LOC will buy me enough time to liquidate my (non-retirement) investments if I have to. That way I have the access I would if I kept them in cash, but can invest them however I want.

This is all very theoretical, though, as I don't haven't created a decent emergency fund, yet. I've been thinking about it since this thread came up, and am liking the idea of holding a zero balance LOC more and more, so long as it's buffered by a few thousand in cash.

On a related note, has anyone actually tapped a LOC as an emergency fund? How did that work out?


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## Ben (Apr 3, 2009)

I would also echo George's comments. We currently have a substantial amount of cash sitting in "high" interest savings accounts.

I am a little perturbed, but not surprised, at the willingness of so many to relay almost entirely on the LOC as the safety net between having your home and lifestyle, and not having those things. 

I would be very curious to see a study on how the approach to using/having LOC's as the emergency fund varies with the person's age. For me, I am young, and familiar with the propaganda of the boom decade that just ended ("You're a fool to leave cash sitting around, put it to work and earn 10% in the stock market). For others who have posted here, and are also young, we have to remember that all we know are boom times. We have never been through a recession, nor lost our jobs, nor had our house values deflate. The previous generation has seen a couple of recessions, and real estate busts. The generation before that - well, let's just say there's a good reason why grandparents collectively are a wealthy generation. 

It could happen to our generation too, and I believe that it will in the coming couple of years. Our jobs are not a right, and real estate does not always go up. Your SLOC is good only as long as your house is worth more than the mortgage. After that, there's nothing left to secure it. For those with less than 25% equity in your house, there's an outside chance that the value of your house in 2 years time will be less than your mortgage. If that were to happen, how would you then deal with a job loss? And compound that with the possibility that you lost your job at the same time as your wife was home on maternity. 

Job security will be poor for the next couple of years in this country, with varying degrees of weakness depending on the province. Ontario in particular is in for a rough ride. Once a job it lost, it will be much harder to find a job paying comparable wages than when we first got out of school. House values will decline in all provinces in this country - some areas will slide hardly a bit, and others more significantly. 

This is not 2007 anymore. We need a fundamental change in our attitudes toward debt to see us through what will be a very challenging couple of years. For me, it's fundamental - I cannot be sure that a LOC I have today will be there for me when I need it tomorrow. Credit is not cash, and credit can be taken away at the least opportune time. I want more standing between me and foreclosure than the whim of a bad bank manager.

I challenge you to build up a cash emergency fund in the next months. You will not regret doing it, but you may regret not doing it.


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## maniac (Apr 3, 2009)

I too think it's crazy to rely on LOC for an emergency fund. We've all seen what's coming by watching the US experience. If you lose your job and can't find a new one for months and months the LOC will let you down. That's not a risk I'd ever take. If you rely on your LOC for an emergency fund you are fairly close to the edge and by that I mean the street. Think about what would happen if BOOM tomorrow you lost your job, you LOC and your credit cards. How long will it take before you are on the street begging for change? It's happened to lots of people lately and I'm talking middle class people.


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## CanadianCapitalist (Mar 31, 2009)

Ben said:


> I am a little perturbed, but not surprised, at the willingness of so many to relay almost entirely on the LOC as the safety net between having your home and lifestyle, and not having those things.


I used to question the wisdom of emergency funds (such as in this old post "*Are Emergency Funds for Everyone?*") but I've long since changed my opinion. The reason: when I first obtained a secured LOC, the agreement clearly states "We may ask you to repay the loan at any time for any reason". I believe this is standard in all LOCs. That made me worry that when I really want a loan, it may not be there. Or worse, obtained a loan only to find that the bank wants the money back. Admittedly, this is a low probability scenario, but that doesn't mean that the risk isn't there. I've decided that I'd rather sleep well at night knowing there is some cold, hard cash tucked away just in case.


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## MGL (Apr 6, 2009)

CC, it's not as low probability as you might think. If you lose your job and your other debts are creeping higher, banks are quite willing to pull the plug on your LOC, particularly if it's unsecured. The purpose of an emergency fund is to provide for your needs when the unexpected strikes, and it is at precisely those times that your access to credit is most in jeopardy.


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## Alexandra (Apr 3, 2009)

My good friend miscalculated how much he had put into his RRSPs this year, and realized at the last day that he had about 5K of extra room. He went to take money out of his LOC, the one he had set up years ago as his emergency fund. To his surprise, there was an invisible hold on it, due to its inactive state. The bank was more than happy to resurrect it...it would just take three business days. 

So for those if you leaving an LOC unused as your emergency fund, be advised that they can "time out" and need to be reactivated, at the bank's convenience. 

I didn't know this either. 

(By the way, my friend went to the bank down the street who gave him an RRSP loan on the spot.)


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## stephenheath (Apr 3, 2009)

I've always kept a $2000 small cash emergency account just for small emergencies (I refuse to pay interest on a credit card), but before the TFSA I'd put the extra onto the mortgage because the spread between the interest I was paying and what I was getting after taxes was huge.

Now with the TFSA I am maxxing it out first each year, and that $10k per year may be my emergency fund, or it might be my "need to buy a new car and don't want more payments" fund, or it might wind up being "the TFSA is big enough to pay off the mortgage now" fund... the nice thing is, since it is gaining interest tax free, the spread between extra mortgage payments and saving is so small that it is worth having the flexibility.


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## lazy cdn (Apr 3, 2009)

*emergency fund*

your emergency fund shouild mirror your investment portfolio .... it should be big enough to make you smile, and small enough to make you walk away from it. Because thats whats going to happen to your emergency fund, in an emergency.


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## markievicz (Apr 11, 2009)

George said:


> Ok, so the usual advice is that an emergency fund should cover around "3-6 months" of expenses. Some people say 3 months' income, others say something else.


But doesn't this "standard advice" mostly come from US sources? One of the things that I found hard to wrap my head around after moving from the US to Canada was the lower level of individual risk I carry here ... I know if I'm laid off tomorrow I don't need to worry about COBRA and if I find out I'm pregnant tomorrow I'll have 12-ish months mat leave. Things are significantly different for my USian counterpart.


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## Guest (Apr 12, 2009)

If you are making ends meet each month and use credit or LOC as your emergency fund, how do you avoid not going into debt when you have no money to pay off the debt?

Am I the only one thinking that people are just lazy and will use credit because its so easy and then pay for it with interest.


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## Hazelnut (Apr 10, 2009)

When I was younger and I had an emergency I was able to borrow interest-free from my dad, so I guess HE was my emergency fund. Now I find that I'm never satisfied with how much is my emergency fund. I thought I would feel comfortable once I had $10,000 socked away, now I want $15,000. Sometimes I wonder why I feel the need for such a large cushion - I think it's just the weight of our economic times weighing me down.


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## mfd (Apr 3, 2009)

Hazelnut said:


> When I was younger and I had an emergency I was able to borrow interest-free from my dad, so I guess HE was my emergency fund. Now I find that I'm never satisfied with how much is my emergency fund. I thought I would feel comfortable once I had $10,000 socked away, now I want $15,000. Sometimes I wonder why I feel the need for such a large cushion - I think it's just the weight of our economic times weighing me down.


Maybe its the fact that you like watching that bank account grow. I find there is an addictive property to having a large pile of cash in the bank.


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## ShowMeTheMoney (Apr 12, 2009)

It really depends on your circumstances. I use my secured LOC as an emergency fund, to pay for large emergency purchases like a roof or furnace. I pay it off as fast as I can. But I have a secure job where I would get a year's notice if my 5 year contract was not renewed. If that were to happen I'd save every penny I could in that year, making minimum payments to the mortgage, and build up the fund that way until I find a new job. I can save enough in a year to last almost a year, otherwise, it goes to the mortgage. I'd be in trouble if the roof caved in that year I guess, but it's new and so is the furnace, and both are paid off. And there's EI which will make my savings last longer.
Once my mortgage is paid off, then I would not use the LOC at all, except maybe for an investment loan. With no mortgage (and a job) I could then afford to save up for an e-fund, and anything else I might want or need.


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## Retireat50 (Apr 6, 2009)

I am in the camp of sleeping better at night and must have enough liquid funds available to account for any emergency. ie furnace, roof, major appliances, car repair, or purchase, etc. I would not like going into debt for any purchase that is not going to make money for me. I voted for $20,0000+


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## Rickson9 (Apr 9, 2009)

Retireat50 said:


> I am in the camp of sleeping better at night and must have enough liquid funds available to account for any emergency. ie furnace, roof, major appliances, car repair, or purchase, etc. I would not like going into debt for any purchase that is not going to make money for me. I voted for $20,0000+


The wife and I agree with this.


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## Hazelnut (Apr 10, 2009)

mfd said:


> Maybe its the fact that you like watching that bank account grow. I find there is an addictive property to having a large pile of cash in the bank.


MFD - you might be on to something there - I do love watching it grow and hate to use it for anything. You can't have your cake and eat it too!


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## BeautifulAngel (Jun 30, 2017)

I feel like for me $20,000 is best as it's a year worth of essential expenses.


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## like_to_retire (Oct 9, 2016)

I generally keep about 2 years expenses in cash. 

I usually keep about a year in my chequing account that yields 0%, and about a year in my investment account in an HISA at 0.75% interest. It tends to go up and down as opportunities present themselves, and then builds back up after those situations.

ltr


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## none (Jan 15, 2013)

My line of credit is my emergency fund. I like to have $2K or so lying around in case a feel a binge for something coming on.


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## Koogie (Dec 15, 2014)

none said:


> My line of credit is my emergency fund. I like to have $2K or so lying around in case a feel a binge for something coming on.


+1 The HELOC is the emergency fund, should it ever be required. DW and I keep only a few hundred dollars in our chequing accounts for those instances/people that still require cash on short notice.


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## Mukhang pera (Feb 26, 2016)

Some say size doesn't matter; it's how you use what you have.:tennis:

https://www.youtube.com/watch?v=8sljSf7KVlQ


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## LXG (Feb 16, 2017)

> Some say size doesn't matter; it's how you use what you have.


^^^Hahaha!

I am in the camp of having a high emergency fund. I'm a single parent in an industry that is not doing well at the moment, so I have low security (only one income-earner) and high responsibility (young kids dependent on me, as well as child and spousal support payments). In the last several years, I've had enough emergencies arise, and seen friends and colleagues struggle with different situations, that I want a large buffer against the many misfortunes life can throw at you: job loss, divorce, illness or injury (yours, your child's, your spouse's, your parent's). Expenses don't always go down when an emergency occurs; they can even increase; so I don't want to count on just spending on essentials.


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## Mookie (Feb 29, 2012)

Koogie said:


> +1 The HELOC is the emergency fund, should it ever be required. DW and I keep only a few hundred dollars in our chequing accounts for those instances/people that still require cash on short notice.


Same here. Why have money sitting around not working for you? The HELOC is always there when needed, which is not very often in my experience.


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## canew90 (Jul 13, 2016)

We always kept $5-10k. But now we are retired and don't need to worry about money, we,ve kept $25-$30k in cash handy


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## AltaRed (Jun 8, 2009)

like_to_retire said:


> I generally keep about 2 years expenses in cash.
> 
> I usually keep about a year in my chequing account that yields 0%, and about a year in my investment account in an HISA at 0.75% interest. It tends to go up and down as opportunities present themselves, and then builds back up after those situations.
> 
> ltr


It makes sense for retirees to keep 1-2 years of expenses in HISA (or equivalent) cash. It helps smooth out the ups and downs of both the equity and bond markets, i.e. helps mitigate capital withdrawals in down markets, and allows for expensive and spontaneous expenses.


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## OhGreatGuru (May 24, 2009)

How did this 8-year old poll get restarted? I thought the subject was flogged to death in 2009. As pointed out by others at the time, the poll is meaningless as the answer is dependent on too many personal circumstances. :grumpy:


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## AltaRed (Jun 8, 2009)

Indeed it is meaningless. Someone in accumulation mode without a family is in a different situation than one is with a family and mortgage, and is clearly in a different situation than someone in withdrawal mode.


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## Rusty O'Toole (Feb 1, 2012)

I don't keep ANY emergency fund. None at all and never have! I might keep a few hundred, or a couple thousand in the bank to cover immediate expenses. Any surplus money gets invested. I can sell stocks and have the cash in hand in a day if I need it. But normally if I have an emergency expense I put it on a credit card or home equity line of credit and pay it off quickly. For a really big disaster I have insurance.

I can't see the sense of keeping money in the bank at essentially zero interest in case of an emergency that may never happen, and that I can handle easily without any emergency fund.


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## like_to_retire (Oct 9, 2016)

Rusty O'Toole said:


> I don't keep ANY emergency fund. None at all and never have! I might keep a few hundred, or a couple thousand in the bank to cover immediate expenses. Any surplus money gets invested. I can sell stocks and have the cash in hand in a day if I need it. But normally if I have an emergency expense I put it on a credit card or home equity line of credit and pay it off quickly. For a really big disaster I have insurance.
> 
> I can't see the sense of keeping money in the bank at essentially zero interest in case of an emergency that may never happen, and that I can handle easily without any emergency fund.


Some people may not be comfortable with your scenario. It has its risks, but if you take risk, then you expect to be compensated as long as it all works out. Situations may occur such that you don't have income for an extended period of time, and it's nice to draw on a year or two of stored income. Selling stocks if the market is especially depressed, doesn't usually work out too well - but then that's the risk you've accepted. Credit cards need to be paid back within a month or you pay usury rates, and lines of credit run out rather quickly.

There's a reason for a year or two of emergency funds that pay poorly. It's a low risk approach. You've taken the high risk approach.

ltr


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## DollaWine (Aug 4, 2015)

Personally it boggles my mind that people rely on _borrowing money_ in a situation where they need money in an emergency, rather than just having the cash set aside. 

You never know when you'll be caught with your pants down... but to each their own!


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## AltaRed (Jun 8, 2009)

DollaWine said:


> Personally it boggles my mind that people rely on _borrowing money_ in a situation where they need money in an emergency, rather than just having the cash set aside.
> 
> You never know when you'll be caught with your pants down... but to each their own!


Me either but planning to do that might be more a strategy on paper (idealism) more than an actual practice? It would be interesting to hear from people who were actually in a 'real' situation of that nature. How did it feel to be racking up debt (or selling investments) with no income (no job) coming in for an extended period of time?


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## new dog (Jun 21, 2016)

Personally I don't like the thought of not having some form of cash flow to live my daily life. I don't want to rely on selling stocks or assets to keep me going.


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## DollaWine (Aug 4, 2015)

AltaRed said:


> Me either but planning to do that might be more a strategy on paper (idealism) more than an actual practice? It would be interesting to hear from people who were actually in a 'real' situation of that nature. How did it feel to be racking up debt (or selling investments) with no income (no job) coming in for an extended period of time?


I'd love to know their experiences too. I wonder if it's more nerve-wracking when it's actually happening or not?


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## AltaRed (Jun 8, 2009)

DollaWine said:


> I'd love to know their experiences too. I wonder if it's more nerve-wracking when it's actually happening or not?


I'd hate to have to tell my wife and my kids that I am putting us into debt while I am unemployed rather than have the foresight to be tapping into an emergency fund. I'd say good luck with that.


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## Ag Driver (Dec 13, 2012)

Deleted


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## BeautifulAngel (Jun 30, 2017)

@Ag Driver I found it on one of the last pages and replied to it, sorry didn't know the poll was meaningless  I just thought it was a good thread idea. Sorry


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## Mukhang pera (Feb 26, 2016)

BeautifulAngel said:


> @Ag Driver I found it on one of the last pages and replied to it, sorry didn't know the poll was meaningless  I just thought it was a good thread idea. Sorry



I would hesitate to call it any more meaningless than a thread bearing the title “Trump discussion” which has generated 2,146 replies over 215 pages thus far. The within thread at least touches on the topic of “Canadian money”. The Trump thread does not pretend to ask what impact the election of Trump might have for Canadians and their finances. That might have clothed it with some semblance of meaning on this forum. But that was never its purpose.

At post #15 in that thread, TomB19 commented thus:



TomB19 said:


> I don't understand the value of having the same people continuing to pitch the same views in an investment forum.
> 
> We are investors. Isn't the goal to use objectivity to profit on situations and events wherever possible?
> 
> Why are we debating philosophy?


A cry in the wilderness. CMFers get more enjoyment out of butting heads over irrelevant matters than discussing anything to do with finances/investing.


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## londoncalling (Sep 17, 2011)

AltaRed said:


> Me either but planning to do that might be more a strategy on paper (idealism) more than an actual practice? It would be interesting to hear from people who were actually in a 'real' situation of that nature. How did it feel to be racking up debt (or selling investments) with no income (no job) coming in for an extended period of time?


10 years ago both my wife and I were unemployed. She left her job when we got married we went on a month long honeymoon and a couple months later I lost my job due to disability. We quickly depleted our meagre savings, maxed our credit lines and credit cards and finally had to borrow from family. It took about a year to receive my disability insurance coverage. After we got back on our feet we decided a small emergency fund was necessary. We use our TFSAs for such a vehicle. What that e fund has allowed us recently was for my wife to leave her job to spend more time with our son. My work has gotten ridiculously busy the past few months with no end in site. She will head back to work this fall after we take some holidays in late August. We will rely on the emergency fund/TFSA to supplement the loss in income but the holiday has already been paid for out of regular income. There will still be enough funds left should disaster strike. This is the freedom created by fiscal responsibility. I would rather use a credit line in case of emergency but my wife likes the security of such savings.

Cheers


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## londoncalling (Sep 17, 2011)

AltaRed said:


> Me either but planning to do that might be more a strategy on paper (idealism) more than an actual practice? It would be interesting to hear from people who were actually in a 'real' situation of that nature. How did it feel to be racking up debt (or selling investments) with no income (no job) coming in for an extended period of time?


10 years ago both my wife and I were unemployed. She left her job when we got married we went on a month long honeymoon and a couple months later I lost my job due to disability. We quickly depleted our meagre savings, maxed our credit lines and credit cards and finally had to borrow from family. It took about a year to receive my disability insurance coverage. It was a horrible year for us in many ways. It was quite depressing to see wealth evaporate so quickly even while watching every penny. I did experience bouts of depression and felt completely useless at times. However, in one way it showed us our commitment to each other could survive such hardship ("for richer or for poorer... in sickness and in health...). After we got back on our feet we decided a small emergency fund was necessary. We use our TFSAs for such a vehicle. What that e fund has allowed us recently was for my wife to leave her job to spend more time with our son. My work has gotten ridiculously busy the past few months with no end in site. She will head back to work this fall after we take some holidays in late August. We will rely on the emergency fund/TFSA to supplement the loss in income but the holiday has already been paid for out of regular income. There will still be enough funds left should disaster strike. This is the freedom created by fiscal responsibility. I would rather use a credit line in case of emergency but my wife likes the security of such savings.

Cheers


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## Ag Driver (Dec 13, 2012)

Deleted


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## OnlyMyOpinion (Sep 1, 2013)

Ag Driver said:


> For the record, I wasn't one of the negative Nancy's saying a topic about money on a money forum was meaningless.


And just to be accurate, others weren't saying the topic of an emergency fund was meaningless. They were saying that a survey asking whether you had $1000, $2000... set aside was meaningless because the 'correct' answer is so dependant on your individual circumstances.


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## humble_pie (Jun 7, 2009)

Mukhang pera said:


> I would hesitate to call it any more meaningless than a thread bearing the title “Trump discussion” which has generated 2,146 replies over 215 pages thus far. The within thread at least touches on the topic of “Canadian money”. The Trump thread does not pretend to ask what impact the election of Trump might have for Canadians and their finances. That might have clothed it with some semblance of meaning on this forum. But that was never its purpose.
> 
> At post #15 in that thread, TomB19 commented thus:
> 
> A cry in the wilderness. CMFers get more enjoyment out of butting heads over irrelevant matters than discussing anything to do with finances/investing.




but MP u can see how it's always the same cmffers. The folks who believe in zerohedge, infowars, breitbart, russian propaganda, ezra levant, no-ME-refugees. The folks who say that "everybody" agrees with them "100%" while "mainstream media" are "liars" & most forum members are "stupid sheep."

if they weren't posting about donald trump they'd be posting in another non-financial thread.

you can see that the forum owner's reform policy is presently to move them into the hot button once they start to insult or harass or curse.

majority owner of the forum is the toronto Star, i believe

.


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## Rusty O'Toole (Feb 1, 2012)

like_to_retire said:


> Some people may not be comfortable with your scenario. It has its risks, but if you take risk, then you expect to be compensated as long as it all works out. Situations may occur such that you don't have income for an extended period of time, and it's nice to draw on a year or two of stored income. Selling stocks if the market is especially depressed, doesn't usually work out too well - but then that's the risk you've accepted. Credit cards need to be paid back within a month or you pay usury rates, and lines of credit run out rather quickly.
> 
> There's a reason for a year or two of emergency funds that pay poorly. It's a low risk approach. You've taken the high risk approach.
> 
> ltr


I wasn't taking any risk at all that I could see. My money was invested in rental real estate with positive cash flow so I had that income. I also have money in the stock market and I don't like to risk that either. If they drop to a certain point, I'm out. What do you guys do, ride them all the way down and hope they come back? To me that is the real gamble, risking your money on the turn of a lucky card.

At least put your surplus funds into a mutual fund or ETF rather than watch it eaten away by inflation while the bank laughs at you for a sucker.


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## milhouse (Nov 16, 2016)

I'd like to move towards a HELOC to serve as our emergency fund but the missus doesn't like the concept as she's scared of "potential" debt.
Instead, we both allocate a portion of our paychecks to our working chequing account which has now grown to more than a year's worth of our core expenses which of course is lazy money making no interest. We have to agree to take some of that money out and throw it into some kind of longer term investment.


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## like_to_retire (Oct 9, 2016)

milhouse said:


> We have to agree to take some of that money out and throw it into some kind of longer term investment.


Doesn't that kinda negate the term emergency fund if you have it in a longer term investment? 

Emergency funds are typically invested in HISA's where you can have the funds available tomorrow.

ltr


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## milhouse (Nov 16, 2016)

like_to_retire said:


> Doesn't that kinda negate the term emergency fund if you have it in a longer term investment?
> 
> Emergency funds are typically invested in HISA's where you can have the funds available tomorrow.
> 
> ltr


I was implying having a year's worth of spend available for an emergency is likely too much for our situation. I think we'd be comfortable reducing it down to something like half that and even more if I can convince her to set up the HELOC only for use in an emergency.


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## james4beach (Nov 15, 2012)

In previous discussions, many people talked about using a LOC as an emergency fund (instead of holding cash).

I'm curious if today's higher interest rates have changed anyone's view on this. Are people still relying on the LOC for emergency needs?


The Prime rate is going to exceed 6% after next week's BoC rate hike.


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## Ponderling (Mar 1, 2013)

I keep my emergency fund at about half a years expenses by sitting in cash in the checking account. I am still working. So when pays have piled the balance beyond the six month value the excess gets transferred to an investment account. Then not always invested right away. Sometimes I leave cash in investment accounts for a good deal to come along. This week that deal was buying more of a managed ETF we own a good chunk already of that has seen its price beaten down as of late, but still spits the same payment to us.


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## MrMatt (Dec 21, 2011)

james4beach said:


> In previous discussions, many people talked about using a LOC as an emergency fund (instead of holding cash).
> 
> I'm curious if today's higher interest rates have changed anyone's view on this. Are people still relying on the LOC for emergency needs?
> 
> ...


I have an emergency fund, it's sizeable, but I don't touch it.

LOC is a convenience tool. It's not really an emergency to pay off my credit card in full on Wednesday, if the paycheck is showing up on Friday.
If you lose your job, the bank can immediately shut down your LOC, then you're in trouble.


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## Beaver101 (Nov 14, 2011)

MrMatt said:


> I have an emergency fund, it's sizeable, but I don't touch it.
> 
> LOC is a convenience tool. It's not really an emergency to pay off my credit card in full on Wednesday, if the paycheck is showing up on Friday.
> *If you lose your job, the bank can immediately shut down your LOC,* then you're in trouble.


 ... I find that VERY difficult to believe. 

That's like getting the bank to "kill the goose laying the golden eggs", especially if the borrower has been faithfully paying off his LOC. And has the means to pay off another one.


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## MrMatt (Dec 21, 2011)

Beaver101 said:


> ... I find that VERY difficult to believe.


That it CAN happen? 
Why would you not believe this? It's literally in there in black and white on the terms and conditions.

That it DOES happen? I understand doubt.
But when I lost my job I lost my margin account, but they let me keep my LOC
That is why I don't "rely" on credit.



> That's like getting the bank to "kill the goose laying the golden eggs", especially if the borrower has been faithfully paying off his LOC. And has the means to pay off another one.


A margin account is much more secure than an unsecured LOC.
I'm not saying they're logical, I'm saying that they have the power to do so, and that I would not rely on something that can be withdrawn at any time.

If they feel there is a an increase in credit risk, they WILL "de-risk"


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## cainvest (May 1, 2013)

james4beach said:


> Are people still relying on the LOC for emergency needs?


I wouldn't rely on a LOC for an emergency fund.


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## Beaver101 (Nov 14, 2011)

MrMatt said:


> That it CAN happen?
> Why would you not believe this? It's literally in there in black and white on the terms and conditions.


 ... of course it can happen when you got banks that do whatever they want - or in your case as read under the T&Cs. I admit have "never "read mine's as I was told "don't use it" so I ain't so I ain't wasting my time reading it either.



> That it DOES happen? I understand doubt.
> But when I lost my job I lost my margin account, but they let me keep my LOC
> That is why I don't "rely" on credit.


 ... of course, any fiscally prudent person wouldn't want to rely on credit. We were specifically talking about a LOC and now you're throwing in a margin account. Your brokerage must have either been really stupid, got too much business or just a nervous Nelly to close off your margin account just because you lost your job. Isn't basic 101 margin borrowing that they can sell your stocks to cover those margins? So what happens to all the retirees with margin accounts - they ain't got a job so do their margin accounts close too?



> A margin account is much more secure than an unsecured LOC.
> I'm not saying they're logical, I'm saying that they have the power to do so, and that I would not rely on something that can be withdrawn at any time.
> 
> If they feel there is a an increase in credit risk, they WILL "de-risk"


 ... of course, they will "de-risk" as the banks (and their brokerages) are thought of like Gods in this country. So in this example - do you see them any different than loan-sharks? Only the latter have much higher rates. And the former are gloried and worshipped ... by many, especially their shareholders.


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## MrMatt (Dec 21, 2011)

MrMatt said:


> If you lose your job, the bank can immediately shut down your LOC, then you're in trouble.





Beaver101 said:


> ... I find that VERY difficult to believe.





Beaver101 said:


> ... of course it can happen when you got banks that do whatever they want - or in your case as read under the T&Cs. I admit have "never "read mine's as I was told "don't use it" so I ain't so I ain't wasting my time reading it either.


Okay, you're directly contradicting yourself within minutes of each post.

Are you trolling again?
or just proud of your ignorance?


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## AlwaysMissingTheBoat (8 mo ago)

Thought this thread was about beer money. 

Noticed it was bumped from 2009 and many of the original posters are no longer active. Guess they made their millions and now they're gone. Wish they'd left a set of instructions for the rest of us!


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## Beaver101 (Nov 14, 2011)

MrMatt said:


> Okay, you're directly contradicting yourself within minutes of each post.


 ... how am I contradicting? You're the one who is doing that and I'm pointing it out to you. Only you can't see it and I remain as I DON'T BELIEVE YOU. You believe in it (obviously) because you're following the words by words on teh bank's T&C. I already admitted that I couldn't care to read the T&C as I think it's bogus on what you said. First, you claim the minute you lost your job, the bank can close your LOC and then sneakily switch the topic to a margin account. I then asked a simple question to counter (aka to get your head around of what you were trying to convey )(again, BOGUS), does a retiree gets his margin account closed as he's out of a job? Never mind about your LOC bogus. Well .... I'm still waiting for an answer. Or is that too difficult of a question? You claim I'm ignorant below so here's your chance to shine. 



> Are you trolling again?
> or just proud of your ignorance?


 ... how about you here? Do you need a mirror? Only I'm proud of my ignorance when you can't get beyond your own argument and go with the usual tactic of accusing someone of trolling. 

I hope you're aware you remain as the *2-sided-mouth expert member* here. That hasn't changed one bit. 

And now on top of that, you're not so proud of your woeful me stance with the mentioning of the margin account as only you know the banks need to "de-risk" like any idiotic lender don't.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> In previous discussions, many people talked about using a LOC as an emergency fund (instead of holding cash).
> 
> I'm curious if today's higher interest rates have changed anyone's view on this. Are people still relying on the LOC for emergency needs?
> 
> ...


I'm still relying on LoC in the occurrence of an emergency... But recently my cash balance has increased... Because I'm market timing... That's wrong, I know...

But is it?
Holding cash to buy the crash is market timing, bad idea.
Holding cash for emergency fund, good idea.

So... Depending on which way I look at the purpose of that cash... Hehehe


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## MrMatt (Dec 21, 2011)

Beaver101 said:


> ... how am I contradicting?


You literally said you don't believe it. then you said "of course they can".



> You're the one who is doing that and I'm pointing it out to you. Only you can't see it and I remain as I DON'T BELIEVE YOU.


How so?



> First, you claim the minute you lost your job, the bank can close your LOC and then sneakily switch the topic to a margin account.


Yes, and?
The reality is that pretty much any open credit can be re-evaluated at any time.



> I then asked a simple question to counter (aka to get your head around of what you were trying to convey )(again, BOGUS), does a retiree gets his margin account closed as he's out of a job? Never mind about your LOC bogus. Well .... I'm still waiting for an answer. Or is that too difficult of a question? You claim I'm ignorant below so here's your chance to shine.


I never said it happens 100% of the time, and even pointed out that the bank was inconsistent and illogical.
I'm simply pointing out that banks CAN and DO shut down credit with little to no warning, which is why I don't think credit is an acceptable "emergency fund".



> I hope you're aware you remain as the *2-sided-mouth expert member* here. That hasn't changed one bit.


That's laughable. You might not like my views, or agree, but I'm pretty consistent. 
Look at my position on Apple, it's been virtually unchanged for decades, even here on the forum I'm saying the same things I did a decade ago.



> And now on top of that, you're not so proud of your woeful me stance with the mentioning of the margin account as only you know the banks need to "de-risk" like any idiotic lender don't.


Again, not saying they have to. I'm saying that they can, and sometimes do, and it isn't necessarily logically apparent how they decide.
I wonder if cancelling the margin was due to different rules applied to investment loans vs unsecured retail LOC, but who knows, and THAT is my point. They have this power and we don't know what they're doing.

I chose my personal lived experience at that bank because both accounts were held at the same bank. I think it's a great example.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I'm still relying on LoC in the occurrence of an emergency


Curious what kind of interest rate you have on that? In my case I think it would feel painful to dip into my 7.5% LoC. That's going to become at least 8% next week!



cainvest said:


> I wouldn't rely on a LOC for an emergency fund.


I don't want to either. I'm continuing to hold cash.

Cash that I don't need immediately goes into my 5 year GIC ladder where it now earns 4.8%. Lots of liquidity in that ladder since something matures every 4 months or so.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> I don't want to either. I'm continuing to hold cash.


Yeah, I haven't changed my emergency fund much since I commented back in 2017 of this thread. 

I continue to keep about 2 years expenses in cash, but what has changed in the last year is that I don't keep half in my chequing account and half in my HISA. I have moved most of it into my HISA since interest rates started to rise and I'm not willing to accept the 0% the chequing account offers.

I find people make decisions about this type of thing when times are good. It's surprising how everything hits the fan when things are bad, so LOC's et-al might not be the best decision.

ltr


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## cainvest (May 1, 2013)

like_to_retire said:


> I have moved most of it into my HISA since interest rates started to rise and I'm not willing to accept the 0% the chequing account offers.


Now that HISAs are paying some interest they should be used over other accounts with little or no interest. Maybe even get some short term GICs for that matter.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Curious what kind of interest rate you have on that? In my case I think it would feel painful to dip into my 7.5% LoC. That's going to become at least 8% next week!


About the same rate as yours.

How often does someone have to use the full value of his emergency fund? Meanwhile, it barely generates any returns while sitting there waiting for something to happen. It's like an insurance but instead of seeing its monthly cost, you don't see how much you are loosing on the opportunity cost unless you calculate a few scenarios and that "insurance cost" is high in my opinion.

Say something happens and I have to use $48,000 of my LoC at 8%, it'll take me 5 years to pay it back at $1,000/month and I'll have lost $12,000 to interests in the process.

On the other side, how long does it take to make $12,000 profit with $48,000 invested at 8%? 3 years.
At 6%? 4 years.
At 4%? 6 years.

Even if my LoC is at 13%, it'll take me 6 years to pay it back at $1,000/month, loosing $24,000 to interests in the process.
It takes only 7 years to make $24,000 profit on $48,000 invested at 6%.

Do emergencies happen that often?


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## cainvest (May 1, 2013)

MrBlackhill said:


> About the same rate as yours.
> 
> How often does someone have to use the full value of his emergency fund? Meanwhile, it barely generates any returns while sitting there waiting for something to happen. It's like an insurance but instead of seeing its monthly cost, you don't see how much you are loosing on the opportunity cost unless you calculate a few scenarios and that "insurance cost" is high in my opinion.
> 
> ...


Typically they don't happen often or ever ... it is a risk assesment each of us has to make. High job security and/or ability to get another job quickly (you are in high demand and many other job offers are available) really lessen the need for emergency funds. Of course this doesn't rule out other risk factors like injury, health issue, etc.

Of course they might be those that think an emergency is "I have to buy a new Tesla model 3 now to save the planet!".


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## londoncalling (Sep 17, 2011)

londoncalling said:


> After we got back on our feet we decided a small emergency fund was necessary. We use our TFSAs for such a vehicle. What that e fund has allowed us recently was for my wife to leave her job to spend more time with our son. My work has gotten ridiculously busy the past few months with no end in sight. She will head back to work this fall after we take some holidays in late August. We will rely on the emergency fund/TFSA to supplement the loss in income but the holiday has already been paid for out of regular income. There will still be enough funds left should disaster strike. This is the freedom created by fiscal responsibility. I would rather use a credit line in case of emergency but my wife likes the security of such savings.
> 
> Cheers


My view has not changed on emergency funds since this post in 2017. The amount we keep in the emergency fund has grown as our income has grown. Now that there is a chance to get nominal returns we have put the cash into GICs to decrease the cost after inflation on a depleting return. An emergency fund is like an insurance policy and comes at a cost. In low rate environments that is mainly an opportunity cost. In normal rate environments like we have now an emergency fund in cash is throwing away money. I would estimate our emergency fund to be equivalent to 2 1/2 months of our combined net. A portion of that is immediately redeemable. The rest accessible in a few months without penalty. We also have about 2 months net of LOC we could access as well. Although not impossible, it is unlikely we would both lose our jobs at the same time without any compensation or ability to get EI. We would also be able to rein in spending to essentials to stretch that amount if needed. We definitely spend more when both gainfully employed. We haven't had to tap into it at any time so I would say we have lost out on investment opportunities as a result.


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## Beaver101 (Nov 14, 2011)

MrMatt said:


> You literally said you don't believe it. then you said "of course they can".
> 
> 
> How so?
> ...


 ... and I'm the one doing the contradictions, whoa. When you said it all above with the sometimes you (the banks) do, and sometimes they don't. Like btw, ain't I on your Ignore List?


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## MrMatt (Dec 21, 2011)

Beaver101 said:


> ... and I'm the one doing the contradictions, whoa.


Yes, you are. That's my point.



> When you said it all above with the sometimes you (the banks) do, and sometimes they don't.


that's literally my point, you can't depend on the banks continuing to extend credit when you need it, therefore you shouldn't rely on it.
That's not my "contradiction", that's my point.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> How often does someone have to use the full value of his emergency fund? Meanwhile, it barely generates any returns while sitting there waiting for something to happen. It's like an insurance but instead of seeing its monthly cost, you don't see how much you are loosing on the opportunity cost unless you calculate a few scenarios and that "insurance cost" is high in my opinion.


Well I suppose it depends on the individual person. Compared to me, you sound you like have a stable job. You mentioned your wife has a job too, so you're a dual-income household, which means you've even diversified the employment risk. I would agree that someone with a steady job can probably get away with keeping less cash on hand. As you say, how often does an emergency come up?

But I'm a single income earner and because I do high tech consulting, my pay is very volatile. I have now gone several months without net income. It's something I'm used to... happens pretty often.

So maybe your question is the right way to approach this: *how often does someone need to dip into the reserve?*

In my case the answer is: very often. But in your case the answer may be: very rarely.


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