# Rainy day fund?



## SkyFall (Jun 19, 2012)

How much or what percentage of my paycheck should I put in my rainy day fund?


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## slacker (Mar 8, 2010)

I like to have 6 months of non-discretionary expenses in cash.

I recently had a family emergency that drained all of the emergency fund and a little more. I was glad that I had the emergency fund. Now I'll have to slowly build it up again. Would probably take a year or so to save that much, in the meantime, I feel slightly vulnerable.


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## Jon_Snow (May 20, 2009)

I currently have about about 8 years in living expenses in cash, which is quite silly, so kindly disregard this post.


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## thebomb (Feb 3, 2012)

Jon_Snow said:


> I currently have about about 8 years in living expenses in cash, which is quite silly, so kindly disregard this post.


LOL. Nice. Show off


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## Jon_Snow (May 20, 2009)

Lol... Trouble is, I literally am paralyzed as to what to do with it all. Not the worst problem one can have, I'll grant you, but a problem nonetheless...


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## Sherlock (Apr 18, 2010)

0%. That's why God made LOCs.


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## P_I (Dec 2, 2011)

Sherlock said:


> 0%. That's why God made LOCs.


Don't you worry that on the stormiest day, the financial institution will exercise their right to demand full repayment on the LOC? See http://www.scotiabank.com/ca/common...credit_agreement_companion_booklet1151010.pdf and look under "Total balance due".


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## Sherlock (Apr 18, 2010)

When has a bank EVER demanded full repayment of a LOC? I've had a LOC most of my adult life and I've never experienced this. I think this is one of those things that theoretically could happen, but the likelihood of it is so remote that there's no reason to worry about it.


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## Young&Ambitious (Aug 11, 2010)

Jon_Snow said:


> I currently have about about 8 years in living expenses in cash, which is quite silly, so kindly disregard this post.




 Uhh... I hope this isn't literally your emergency funds but rather your cash balance. I am sure your actual cash amount marked as "emergency" is much lower, that number would probabley be more helpful for the OP, although your cash amount is very admirable. I suppose you are waiting to buy more stocks with this on the next downturn? Maybe after the next US election?...we shall see!


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## P_I (Dec 2, 2011)

Sherlock said:


> When has a bank EVER demanded full repayment of a LOC? I've had a LOC most of my adult life and I've never experienced this. I think this is one of those things that theoretically could happen, but the likelihood of it is so remote that there's no reason to worry about it.


I wouldn't know where to even find the stats, if they even exist. However, an emergency fund exists to protect you for unexpected events and therefore should be as risk free as possible. Because there is always the possibility that there would be a demand to be repaid in full on the LOC, this is a risk. 

I'd be worried that the circumstances that caused me to dip into my emergency fund, such as job loss, medical issue, etc, would be the exact same circumstances that might cause the financial institution to want to reduce their risk and call the LOC. I'm not saying that a LOC couldn't be part of your emergency funds, but I don't think I'd make it the complete emergency fund. Of course, like most things financial, YMMV.


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## jamesbe (May 8, 2010)

I've got 6 months to a year in cash. Currently $40k. Makes me feel like a hoarder though lol


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## Square Root (Jan 30, 2010)

Conventional wisdom says 6 months of expenses but this is just a rule of thumb. During the financial crises my cash balance went up but again as someone mentioned this includes all cash and for some the "emergency" portion might be a subset of the total. Most people would hold at least5-10% of their portfolio in cash equivalents. Seems to me that LOC's are not very risky especially if real estate secured. My current cash balance is about 5% of my portfolio and tnis represents about 9-12monthsof non discretionary expenses. Have HELOC's of another 2 years expenses on top of that. The cost of an undrawn HELOC is much less than actually holding cash.


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## Spudd (Oct 11, 2011)

Where I work, I know that if I were to get laid off I'd get severance equal to 1 month per year of service. I'll have been here 15 years in May, so 15 months of severance. So I only keep emergency funds in the amount I need to cover household emergencies (cat medical bills, new roof/furnace/etc, yada yada).


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## crazyjackcsa (Aug 8, 2010)

Spudd said:


> Where I work, I know that if I were to get laid off I'd get severance equal to 1 month per year of service. I'll have been here 15 years in May, so 15 months of severance. So I only keep emergency funds in the amount I need to cover household emergencies (cat medical bills, new roof/furnace/etc, yada yada).


Sure, unless the company just closed their doors one day. Then you would have exactly 0 months of severance.

In an emergency fund, I like to sit on 6 months to a year.


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## HaroldCrump (Jun 10, 2009)

Mine is 1 yr. of household expenses (fixed + variable).

Related note : rainy day fund should ideally be held in a chequing, savings, or HISA account (i.e. any type of deposit protected mechanism), not in a brokerage account, and certainly not invested in any non guaranteed, non protected investment, be it a money market mutual fund, bond fund, principal protected note, and so on.


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## Young&Ambitious (Aug 11, 2010)

Mine is about 2 months worth of expenses in a HISA. 

I have a secondary accessible stash though in my non-reg investment account and TFSA investment account. Plus LOC plus if ever needed a mommy loan


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## Spudd (Oct 11, 2011)

crazyjackcsa said:


> Sure, unless the company just closed their doors one day. Then you would have exactly 0 months of severance.


I think it's unlikely (my company is in the top 30 of the fortune 500) , but if it did happen, I could rustle up a year's living with a combination of the cash I have and by cashing in stocks from my TFSA. Plus, HELOC as a backstop.


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## Sherlock (Apr 18, 2010)

I realize there are risks associated with a LOC. But there are risks associated with a chequing account too, so where do we draw the line? If an emergency fund shoudl be risk free, then why keep it in a bank at all? Isn't even that too risky? What if the government freezes your assets for some reason, you've just lost your emergency fund. Maybe it should be kept in an offshore account? Or maybe it should be kept in cash in some secret fire-proof loot-proof location? Or maybe even cash is too risky, it should be kept in gold?

It just seems to me that saying that a LOC is too risky for an EF but a HISA is not is a very arbitrary place to draw the line.


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## marina628 (Dec 14, 2010)

Ideally you should try to save minimum 10% of your paycheck for rainy day fund until you build it up to 6-8 months.Everyone has different comfort levels depending on your lifestyle and expenses.


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## HaroldCrump (Jun 10, 2009)

Sherlock said:


> It just seems to me that saying that a LOC is too risky for an EF but a HISA is not is a very arbitrary place to draw the line.


Surely you are not serious.
Are you truly saying that there is no difference between an _Unsecured Line of Credit_ and a _CDIC secured savings account_?


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## MrMatt (Dec 21, 2011)

HaroldCrump said:


> Surely you are not serious.
> Are you truly saying that there is no difference between an _Unsecured Line of Credit_ and a _CDIC secured savings account_?


The scary part is many people don't understand the difference between having money and having credit.
I thought it would be doubtful to find one of them on this forum.

So Sherlock, do you really not see a difference between a CDIC insured savings account and a Line of credit?
Do you realize a line of credit is basically an open ended agreement that the bank can cancel or recall at ANY time for NO REASON. 
If you lost your job or ability to pay, they not only could immediately cancel it (ie not let you take any money) but they could also demand you pay off the outstanding balance in full, or change the interest rates or basically whatever they wanted.
With a CDIC insured savings account, you can get the money, they can't refuse you, take it back or start charging you interest,

Depending on savings is MUCH better than depending on the banks willingness to lend you money, particularly when you hit a financial rough patch.


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## Maybe Later (Feb 19, 2011)

MrMatt said:


> The scary part is many people don't understand the difference between having money and having credit.
> I thought it would be doubtful to find one of them on this forum


I think there are more that don't understand opportunity cost, or don't distinguish between secured & unsecured LOCs, or put too much credence in rules of thumb rather than individual situations.


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## MoneyGal (Apr 24, 2009)

Maybe Later said:


> I think there are more that don't understand opportunity cost, or don't distinguish between secured & unsecured LOCs, or put too much credence in rules of thumb rather than individual situations.


Quoted for truthiness.


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## peterk (May 16, 2010)

Well said Maybe Later.

I'm just starting my career so I don't have these "funds" setup yet, but it seem like the term "emergency fund" is lumping too much into one. I'm all for having ~5K sitting in cash for semi-likely to happen emergencies. i.e. home/appliance repair, fender benders, unusually large bills etc.

For things more likely (car maintenance, kid's expenses) I think should be accounted for in your weekly finances and you should be able to "handle" this by redirecting the savings portion of that week's income if need be.

For highly unlikely emergencies, ie. job loss, family crisis, expensive injury, divorce, bail, etc. You should keep your funds within the "investing" portion of your monies, which can be easily draw upon during the highly unlikely emergency.


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## MoneyGal (Apr 24, 2009)

peterk said:


> For highly unlikely emergencies, ie. job loss, family crisis, expensive injury, divorce, *bail*, etc. You should keep your funds within the "investing" portion of your monies, which can be easily draw upon during the highly unlikely emergency.


lol.


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## Four Pillars (Apr 5, 2009)

Maybe Later said:


> I think there are more that don't understand opportunity cost, or don't distinguish between secured & unsecured LOCs, or put too much credence in rules of thumb rather than individual situations.


+1. Especially in here...


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## Seth (Aug 16, 2010)

Sherlock said:


> 0%. That's why God made LOCs.


Sounds like you need to read "Total Money Makeover" by Dave Ramsey...

Interesting story in there about a couple who thought the along the same lines as you... that is until the next fiscal year came along and according to their LOC terms and conditions they had to "re-qualify" for their LOC smackdab in the middle of financial hardship.

You should save up an emergency fund of ATLEAST $1000-2000 before you do anything else... then pay off your debt (if you have any) and then ante up on that emergency fund of at least 3 to 6 months of living expenses.

The CLOSE that LOC. 

Ramsey calls them baby steps, you might say: Elementary my dear Watson, elementary...


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## Four Pillars (Apr 5, 2009)

Seth said:


> Sounds like you need to read "Total Money Makeover" by Dave Ramsey...
> 
> Interesting story in there about a couple who thought the along the same lines as you... that is until the next fiscal year came along and according to their LOC terms and conditions they had to "re-qualify" for their LOC smackdab in the middle of financial hardship.
> 
> ...


The problem with Ramsey is that he just makes up **** as he goes along. Did that couple actually exist? Did they really have to requalify for their LOC each year?

I've had LOCs for decades and NEVER ever had to requalify for anything. I've never heard of this happening to anyone else either.

Does that mean I have to save up an emergency fund because of the lesson learned from one (likely fictional) couple?


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## MoneyGal (Apr 24, 2009)

How the effing eff would my bank know about a change in my personal situation? I have LOCs at three different institutions, and I've used them on and off for more than 20 years, and have NEVER not EVER been asked to show proof of ANYTHING to qualify, requalify, etc. And the one time I did have money uncertainty - because I was getting divorced and needed to assume the mortgage for my house, converting it from joint to mine alone - my bank at the time offered me MORE credit. 

Can we please stop importing the Dave Ramsey hoo-ha in here holus bolus? At best, the guy is uninformed. For example, he says a lot of outright false things such as, "I recommend mutual funds because they *always beat the S&P*. *You can own several funds that beat the S&P whether in an up-market or a down-market*. It’s alright to own some S&P, but *none of your retirement savings should be in that*." 

Ridiculous.


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## Seth (Aug 16, 2010)

I believe the story was actually about the couple's HELOC...

They had some hardship, job loss, illness something like that.

They were BEHIND on a bunch of payments on a bunch of accounts. And their credit score was suffering because of it.

The bank knew this and according to their loan stipulations, they were able to essentially call the loan by enacting the "re qualify" clause.

They knew the couple were about to default and essentially forced them to sell their home to protect their interest.

Maybe that only happens in the states?


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## MoneyGal (Apr 24, 2009)

Seth said:


> I believe the story was actually about the couple's HELOC...
> 
> They had some hardship, job loss, illness something like that.
> 
> ...


Sure that could happen. But there is an enormous leap between "your bank can call your LOC at any time" and "if you experience financial difficulty, and then miss a bunch of payments, and then your credit score goes down, your bank might call your LOC." 

Of course your bank can call your LOC at any time; it's in the terms of the agreement. But the question is, when does this actually happen? It certainly does NOT "automatically" happen upon "experiencing financial difficulty" i.e., job loss. 

Also: lots of people manage their money poorly (i.e., miss payments) without experiencing a precipitating event such as job loss. Those people probably shouldn't have open-ended LOCs, and banks in that situation may be perfectly appropriately managing their risk. 

But I'm really, really clear that my bank is not going to pull my LOC. They're not even checking my credit. Why would they? I'm not going to protect myself a risk that doesn't exist for me by keeping large amounts of money in cash.


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## Sampson (Apr 3, 2009)

MoneyGal said:


> How the effing eff would my bank know about a change in my personal situation?


But they know everything, unless you have your tinfoil hat on.


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## newfoundlander61 (Feb 6, 2011)

Sherlock said:


> 0%. That's why God made LOCs.


Totally agree. Most people do not need to access an "emergency fund" very often so put any extra money to have to pay off any interest debt first, then the next interest level etc etc until your debt free.


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## Square Root (Jan 30, 2010)

In many cases relying totall on a LOC, esp unsecured, may not be the most prudent approach. Probably a mix of actual cash with a LOC backup would by OK. Really does depend on your personal position and whether you might be able to raise cash other ways. Banks certainly don't make a habit of calling LOC's. Even a few cases would be all over the G&M. Liquidity has a cost and having excessive cash sitting around doesn't make much sense , IMHO.


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## Robillard (Apr 11, 2009)

I've got a rainy day fund tied up in bond index fund units. I prefer to think of it as "reserves" rather than a rainy day fund. By that, I mean that the funds are like fresh military reserves awaiting an opportunity (or emrgency) for deployment.


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## Sherlock (Apr 18, 2010)

MrMatt said:


> With a CDIC insured savings account, you can get the money, they can't refuse you, take it back or start charging you interest


This is just not true, there are a number of scenarios in which the bank can refuse to let you take your money out of your CDIC insured savings account, or even take your money away right out of your account: if you owe child or spousal support and refuse to pay it, if you are suspected of terrorism, weapons smuggling, certain drug related offences, and in some cases a creditor can garnish your bank account to recover a loan. That's my whole point, a HISA is absolutely not risk free.


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## MoneyGal (Apr 24, 2009)

Don't forget: unpaid income taxes.


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## PharmD (Dec 21, 2011)

I think that this whole discussion comes down to how much safety a person needs to sleep well at night. Personally I feel most comfortable having at least a $10,000 emergency fund as well as $5000-10000 in very liquid saving for things that are not an emergency, but are major unexpected expenses. As well I have a LOC if needed and am well insured. A lot of people may think that this is excessive, but for me it works well. Sure, I might end up with slightly more money if I didn't set aside these savings, but the couple times I have had to draw on them in my life I sure felt thankful they were there and didn't have to come out of those situations in a hole of debt.

I think too that it's important to consider what debt you do have. If you have credit card debt there is no point in having an emergency fund. The only type of debt I would carry while having an emergency fund is mortgage debt if it is at a reasonable rate.


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## HaroldCrump (Jun 10, 2009)

Sherlock said:


> child or spousal support and refuse to pay it, if you are suspected of terrorism, weapons smuggling, certain drug related offences


We are talking about the vast majority of ordinary regular folks.
Not the kind you seem to hang out with, Sherlock


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## CanadianCapitalist (Mar 31, 2009)

Robillard said:


> I've got a rainy day fund tied up in bond index fund units.


I'm curious about this because traditionally the best place to keep bond funds is RRSPs. And it is hard to tap funds kept in a RRSP account. One could sell stocks held in taxable accounts and buy them within the RRSP account but this involves tax considerations.


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## Robillard (Apr 11, 2009)

CanadianCapitalist said:


> I'm curious about this because traditionally the best place to keep bond funds is RRSPs. And it is hard to tap funds kept in a RRSP account. One could sell stocks held in taxable accounts and buy them within the RRSP account but this involves tax considerations.


I realise that from a tax perspective, holding debt securities in a non-registered account doesn't make much sense. My main rationale for holding my reserves in a non-registered account is that I can liquidate these investments without affecting my TFSA or RRSP contribution limits. Withholding tax on RRSP deregistrations is a consideration, but a lesser one. In my opinion, the RRSP is primarily a retirement savings vehicle, not a place for general savings.


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## HaroldCrump (Jun 10, 2009)

But why does it have to be a bond fund?
YTMs for most maturities (at least up to 10 yrs. duration) is pathetic.
On top of that, you are paying fees for the fund (however small it may be).

So not only are you losing money in real terms, you are _paying_ someone to help you lose money.

Just take the cash and put it in a bank deposit box.


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## Robillard (Apr 11, 2009)

HaroldCrump said:


> But why does it have to be a bond fund?
> YTMs for most maturities (at least up to 10 yrs. duration) is pathetic.
> On top of that, you are paying fees for the fund (however small it may be).
> 
> ...


Given that the purpose of setting aside reserves is to tap them in the event of an emergency (or opportunity), I'm not going to invest the funds in equities, in which I face a much higher risk of loss of principal. 

At least holding a bond index fund, I'm doing better than putting my reserves in a high interest savings account or under my mattress. The index fund tracks the DEX Universe Bond index. Looking at a quote for a similar ETF (namely XBB), the index is yielding about 3.32% after the 0.30% management fees. 

The index fund I'm holding has a 0.51% MER, so let's assume that knocks the yield down to 3.11%. After tax (assuming a 40% marginal tax rate), the nominal yield is 1.87%. Projected inflation for 2012 is about 1.8%. So the real yield is basically flat. All things considered, I admit I would be better off holding XBB units. 

This is still better than the even less risky alternatives of holding t-bills, money market fund units or stashing money under my mattress, all of which offer negative real yields.


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## DanFo (Apr 9, 2011)

I keep a solid 4 months of expenses in my rainy day fund!..this gives me a stress free comfort level. i'm sure the exact number wll be different for everyone. I currently save about 1/3 of each paycheck to investments...when i do dip into the emerge funds i just divert a bit back to top them up.


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## HaroldCrump (Jun 10, 2009)

Robillard said:


> The index fund tracks the DEX Universe Bond index. Looking at a quote for a similar ETF (namely XBB), the index is yielding about 3.32% after the 0.30% management fees.


No, that is not the yield.
The yield you are getting is 2.34% (before MER).
Here:
http://ca.ishares.com/product_info/fund/overview/XBB.htm?fundSearch=true&qt=XBB

What you are mistakenly looking at is the trailing yield.

You are losing money on this deal, esp. after MER and taxes.


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## Sampson (Apr 3, 2009)

I often feel opportunity cost is overstated. Somehow, we've been bombarded with 'let your money do something for you' when realizing a negative real return by holding cash over 1,2,3 year period, is probably insignificant.

I suppose it depends on objectives, amounts, timing etc, but I am very comfortable holding lots of cash, I wish I had more of it. It could be used for emergency, or sit waiting for opportunity but it allows for flexibility in uncertain conditions, and it really doesn't lose that much value.

Heck, one bad decision in the equity markets would wipe out more worth than inflation does to my cash.


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## Robillard (Apr 11, 2009)

HaroldCrump said:


> No, that is not the yield.
> The yield you are getting is 2.34% (before MER).
> Here:
> http://ca.ishares.com/product_info/fund/overview/XBB.htm?fundSearch=true&qt=XBB
> ...


Point taken. However, wouldn't a better criticism of my choice of investment be that I'm exposing myself to the risk of loss of principle if and when interest rates rise? Implicitly, I'm trading the safety and negative real yield of a high interest savings account for a somewhat less negative real yield on the bond index?


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## My Own Advisor (Sep 24, 2012)

We only have $6K in our EF right now. I'd like $10K in a HISA. That is enough for us, for now.

Impressive to read some folks keep $40K in their rainy day fund.


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## Sherlock (Apr 18, 2010)

HaroldCrump said:


> We are talking about the vast majority of ordinary regular folks.
> Not the kind you seem to hang out with, Sherlock


Heh! ok, suppose a 100% law-abiding model citizen such as yourself ends up on some creditor's list through no fault of your own. Maybe someone stole your identity and took out a loan in your name, or maybe some kind of error was made that attributed this loan to you. It's happened to people before. And of course you decide not to pay this loan, as it's not yours, you go to court, but the court decides that it IS your loan and gives your creditor the right to garnish your account. A very far-fetched scenario, but not impossible.


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## the-royal-mail (Dec 11, 2009)

Emergency funds should be kept in cash. Some of you are making this far more complicated than it needs to be. If you choose the right HISA, TFSA or GIC cash balances you can have access to your cash anytime and be guaranteed the going interest rate without equity risk. The whole point of an efund is so that it's ready to access on a moment's notice, less the whole internal conflict and negotiation process when you have to withdraw investments at a low point.

And yes, keeping some in a mattress is also a good idea in case the banks run out of money as happened in the 1930s. Don't believe all the rhetoric. Look after your own affairs and make sure you have some cash on hand at all times.

And please knock it off with the quoting, guys. It looks like you're attacking and picking at each other. Simply use the reply button and address each other by name, if you must.


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## Sampson (Apr 3, 2009)

the-royal-mail said:


> And please knock it off with the quoting, guys. It looks like you're attacking and picking at each other. Simply use the reply button and address each other by name, if you must.


Blame CC for this one, Ram is the one who started the quoting.


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## Sherlock (Apr 18, 2010)

the-royal-mail said:


> And please knock it off with the quoting, guys. It looks like you're attacking and picking at each other. Simply use the reply button and address each other by name, if you must.


While I agree with you that quoting is overused on this forum, I find that quoting is necessary when you want to reply to a specific part of someone's post, but not their whole post. Your reply can get misinterpreted unless you quote the specific sentence or paragraph you're replying to, so that is what I do. That's how quotes were meant to be used. What I don't get is when someone quotes an entire large post, quoting doesn't add in value in that case. Also addressing someone by name can be kinda awkward for example yours starts with a lower case letter, so am I supposed to capitalize it in which case I'd be changing your user name, which you might not like, or am I supposed to leave it as is, in which case I'd be starting a sentence with a lower case letter, which would make my post look like I don't understand capitalization.


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## Maybe Later (Feb 19, 2011)

I also prefer the use of quotes. I will often skip to the newest post in a thread and quotes often keep the comments in context.

Getting back on track, I'd be interested in the proportion of individuals advocating emergency funds that do/don't have disability coverage. I've heard it quoted as high as 1 in 3 Canadian workers will sustain an injury or illness that will impact their ability to work. My greatest asset at my stage in life is my earning power. In my individual situation the any decisions around whether to have an EF, and how large, are impacted by knowing certain possibilities, such as illness or injury, would not constitute a financial emergency for my family.

That's where I think individuals need to critically examine their own situation rather than rely on rules of thumb.


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## cjk2 (Sep 19, 2012)

Maybe Later said:


> Getting back on track, I'd be interested in the proportion of individuals advocating emergency funds that do/don't have disability coverage. I've heard it quoted as high as 1 in 3 Canadian workers will sustain an injury or illness that will impact their ability to work. My greatest asset at my stage in life is my earning power. In my individual situation the any decisions around whether to have an EF, and how large, are impacted by knowing certain possibilities, such as illness or injury, would not constitute a financial emergency for my family.


Good point. I remember when I first started working I was debating whether or not to get disability insurance, since it was relatively costly. But now I'm definitely glad I did--the peace of mind is worth every penny. And it definitely means I'm not worrying as much about my emergency fund.

Anyways, right now I have a pretty small emergency fund--just 2 months worth of my current spending levels. However, if I lose my job I would likely budget accordingly and only spend half of what I do now, so really I see it as 4 months worth (of my "minimum/mandatory" spending). And if it's an emergency unrelated to losing my job, I'd just direct my monthly savings towards the emergency instead of my investments. Since I don't have a mortgage or kids etc. yet I don't really think I need a huge EF at this point.

So, not really much of a cushion right now, but I figure as my savings grow I'll also increase my emergency fund accordingly. I mean, right now some of you guys have "emergency funds" greater than my total assets!


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## MoneyGal (Apr 24, 2009)

Sherlock said:


> *While I agree with you that quoting is overused on this forum*, I find that quoting is necessary when you want to reply to a specific part of someone's post, but not their whole post.


The reality is that there is no agreement about the use of the quote function. There's just opinions, and people do what they do. 

Just like the reality that there is no agreement about how an emergency fund is to be established, what forms of fund are acceptable, how many months, etc. There are just opinions, and varying practices. 

Finger-wagging at posters about how they have apparently broken a rule or agreement that doesn't exist is annoying.


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## MoneyGal (Apr 24, 2009)

Maybe Later said:


> Getting back on track, I'd be interested in the proportion of individuals advocating emergency funds that do/don't have disability coverage. .


This. I have wracked my brain to figure out how I could possibly need six months' worth of liquid funds. Both my husband and I have disability insurance through work and privately purchased. Both of us have substantial life insurance policies. Divorce isn't going to happen (I've BTDT) and even if it did, would not constitute a financial emergency. It would knock financial plans off track, but we wouldn't be on the same track anyways. Job loss, if it happens to either one of us, is an easily solved problem and is already insured through EI. 

The most substantial risk I can think of is a major child illness. One or both of us would take leaves of absence from work until it was resolved, but we would get direct and immediate family support. Also, this is a pretty small risk - not non-existent, but rare and I've never even heard anyone on this forum discussing it as a risk for which their emergency fund is established. 

The main thing we do to serve as an "emergency fund" is live below our means. We have more cash than we need coming in every month. However, I don't think this is a viable proposition for many, and it certainly has not always been the case for us. If you can do it; great, and it might even be a thing to strive towards. But it's just what's possible for us in our situation - we are at the stage in our lives and careers at which our earning power is probably the greatest it's going to be; from now on statistics suggest we are going to see increases that keep pace with inflation but not a lot more, and that means more money is coming in now relative to our fixed expenses than ever. 

But I'm not going to wag my finger at other people and suggest that's what they should do. It's what we are able to do, and we do some really outlier frugal things that other people wouldn't consider workable, but which work well for us. 

Do people in general need emergency funds? Yes, of course; I hear every day about the amount of debt people have relative to their income and living expenses. But does that mean that EVERY PERSON, at every time, needs some amount of liquid funds under a mattress or in a HISA or in a bond fund or whatever? No. It means if you have genuinely set up your life so that risks are minimized, having no "emergency fund" as it is defined on this forum is perfectly rational.


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## Spidey (May 11, 2009)

I agree with Moneygal. I've always found the best rainy day fund is to not incur needless debt (credit cards current), pay down your mortgage and invest sensibly. I've never seen the need to have 6 months income in cash for a rainy day fund (although I might have it because of market or other conditions - such as saving for something). If a couple's mortgage is well under control and financial situation is sound, emergency money is always available in the unlikely scenario that it is ever needed.


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## Maybe Later (Feb 19, 2011)

Our situation is not that different than MG's, but there is one possibility that I have difficulty estimating the financial implications for - a continuing illness or injury that would require ongoing professional care for me. I'm thinking long term adjustment, not one-time emergency, but it's difficult to determine if our excess monthly cash flow (even on disability), plus existing assets, would be sufficient since there are so many possibilities. Depending on the situation, one option would be moving provinces to be closer to a family support system. 

My wife and I discussed this on a long drive to visit family and I think it is the one thing we "think" we are OK with, but not sure. I think it did contribute (albeit a tiny amount) to our short term plan to move into the city from an acreage property, which we are moving slowly towards.

Edit: Forgot to add that we did discuss child illness and for us it would be heartbreaking, but not a monetary emergency. Also shows how much of the individual situation, including family support, plays into it. If we could pick up our lives and change cities it would have a HUGE impact on how any health related issues could be dealt with.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> how I could possibly need six months' worth of liquid funds


@MG - You need six months of liquid funds because that's the rule. The rule is the rule is the rule.

BTW - I counted well over 100 characters in your last quote. Studies have shown that over-quoting is a leading indicator of imminent bankruptcy.


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## Plugging Along (Jan 3, 2011)

Lol re quoting.... 

I am a huge proponent of a EF hat is some what liquid, bu hats just because I was hit a few years back with a job lost and a mat leave with a pending job lost. Essentially only one ei. Our EF saved us, but I also changed my views.

I don't have differents earmarked, but rathe just short, mid and long to savings. Between my short and mid term savings there is enough in there that I can change my priorities and move hem rond and cut spending. 

As MG said, we spend below our means. We also have a lot of discretionary spending that would be cut in terms of an emergency.

For all those things that could be longer term such as illness of a child, etc, I having the ability to have one person stay at home could mitigate many of them. Our last emergency, I realized how a flexible mortgage payment and low amounts could really be helpful. Paying off our mortgage was important prior to this, but we weren't as aggressive as we could be. As soon as we both returned to normal financials, we paid it off in less than 3 more years. We are doing the same thing with our rec property. 

Instead of building our EF any further, we are looking at changing our cash flow, so in our case the mortgage. The intent is that if we ever have or want one of us can not work and not impact our financial plans very much. Right now I can stay home, but it would be a stretch. 

This is actually what I am thinking about that if they is an 'emergency' with my kids, then I could stay home. We are trying to get in this position for when our kids hit the turbulent years (teenagers) and be there if needed. Hopefully it's not more serious like an illness.


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## donald (Apr 18, 2011)

I would just use some of my postions in my non reg acct(and i might be able to just take the profits from my winning stocks/holdings and leave the base/book value amt alone(i could even redirect my divs(not a huge amt,maybe 300/350 a mth)I have several thousands in profits(excl my underwieght stocks)

Im single and youngish and don't have a lot of expenses-just the regular-rent/food/entertainment ect.

I could also tap my business/un-used credit-line/un-used cc ect ect(i have all these for the very reason of a emergency).....i believe in having most of my money always working
If its a life and death thing(ie:cancer or something to me and or a loved one,for example)I don't think id be thinking about $$ when/if that struck.....actually it would prob polarize how unimportant it is in the grand scheme of things.(not to state the obvious)


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

I don't see the need for any emergency fund as such. You should have savings and investments. Your savings may amount to a few hundred, or a few thousand dollars in a chequing account for day to day expenses. The balance should be invested in something that pays a better return.

In an emergency your investments can be turned into cash within a few days. If you need cash immediately, there are credit cards and LOCs. For a larger emergency you should have insurance. But to keep 6 months' wages stuffed in your mattress earning no interest "in case of an emergency" is silly.


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