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High income, high saving rate emergency fund recommendations

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  • #16
    Originally posted by nephron View Post
    I find it amazing in this covid environment that people are still asking about the utility of having an emergency fund. Even if you have a guaranteed salary from some entity, that guarantee is only going to be enforced if the entity guaranteeing it has funds to pay it out. With that salary and those fixed expenses, I don't see why you wouldn't want a 6 month cushion if the whoever is guaranteeing your income and royalties should flee the country or be arrested by the IRS on fraud or some other absurd scenario that you did not imagine. Maybe they get the coronovirus and forgot that they guaranteed your payments or something. You want to have enough to not have to liquidate your stock holdings for a few months.
    I agree. No contract is safe.


    • #17
      Holy cow. It blows my mind how much some of y’all make. Good for y’all. I love what I do, but I was under the false impression as a med student that the difference between middle of the road salaries and higher paying surgical subspecialties was the difference between 200-300 and 300-400. If we had better financial education in med school, I may have chosen otherwise. Again, don’t get me wrong, I like what I do, but I enjoyed surgery as well, definitely could have made it through the training and thinking that I could be making double or triple for an extra 1-2y of training is wild. Who knows, maybe I’d just adapt or it’s a grass is greener phenomenon.

      It does seem like you’re over thinking it. I make about a third of what you make and we just finished our EF. 30k in a HYSA with Marcus. Spend about 7k/m including mortgage as a baseline excluding one off expenses - could tighten 1-2k if needed, usually spend 8-9k including some luxuries. If I were in your shoes, I would put 50k in a hysa or mm and close that mental loop.


      • #18
        Originally posted by jayzsurgery View Post
        Great post which I’ve read with a lot of interest given my similar situation

        Mid-30s, employed, 100% RVU/productivity based (non-guarantee), average income past few years $1.1-1.2MM. Average $2k/month royalties/honoraria/IC work. Job very stable, lone surgical specialist within my hospital/group, large primary practice area.

        Due to cash surplus every paycheck I never felt the need to keep massive EF which was typically maintained around $25k. However, mid-March in light of uncertainty I increased EF to ~$75k (4-6 months of expenses). My volume dropped to 40-50% in April, however, climbing back to pre-COVID patterns, currently 80-90%.

        I’m currently considering moving excess $50k over to taxable and maintaining EF at $25k given that the imminent threat is over.
        How do you know that you will continue at the 80-90% rates? One of my big concerns is that physicians are working through a backlog of cases initially, so their volumes will rise. But after the backlog is worked through, the volumes will bottom out again as there are many patients scared or reluctant to have elective surgeries performed.

        Keep some extra cash around. You never know when you will need it.


        • #19
          What if liquidating part of your stock holdings occasionally is cheaper than holding cash? To me it seems a bit like lump sum investing, two thirds (or whatever ratio) of the time you're better off as long as you have enough sources of immediate cash to move things around as seems wisest.


          • #20
            Originally posted by Shant View Post
            What if liquidating part of your stock holdings occasionally is cheaper than holding cash? To me it seems a bit like lump sum investing, two thirds (or whatever ratio) of the time you're better off as long as you have enough sources of immediate cash to move things around as seems wisest.
            or, you consider your EF as a part of your fixed income portion of your overall allocation. Layers. A little cash for spending. Maybe you have some munis. Or high yield savings. Or I bonds. Which could be liquidated and accessed quickly if needed. Or if you need cash and you’re overweight equities at the moment you can look around for any TLH opportunities. And you can rebalance shuffle things around in deferred accounts to maintain goal asset allocation.


            • #21
              Thanks guys for all the responses. I probably am overthinking it (although I really haven't spent too much time on it - more of a "fun" mental exercise for me). FWIW, i have short term disability with my job that covers 100% of salary with a 14 day waiting period, running until LTD kicks in. The money that we save every month gets direct deposited into a Vanguard account where I currently have assets at around 80% stock index funds. I am in my early career with about $675k in investments.

              That being said, I'll probably keep about $30-50k in the money market fund in my Vanguard taxable account - can't have it sitting in the savings account or I might be tempted to go out and buy something unnecessary!


              • #22
                Originally posted by MD419 View Post
                Long time follower of WCI and related philosophy but would like to hear the collective wisdom about having an emergency fund.

                Current situation: Approximately $900k salary (guaranteed for 5 years). ~$1k per month in royalty income (very stable). ~$700k left in 15yr mortgage. We spend about $20k per month including $6k for mortgage, save $22k per month, $3k to 529s, and donate about $3k. Spouse who doesn't work. No debt except mortgage.

                We really don't have much of an emergency fund. I feel silly saving up 6 months of expenses (cutting out discretionary spending we could cut monthly expenses to about $13k/mo so 6 months would be about $78k). Job loss seems to be the only real risk as we can cash-flow any major unexpected expenses out of our savings rate. For me, it seems like the risk of unexpected job loss is small and the risk of unexpected job loss at the same time as a major stock market plunge is smaller - lets conservatively say this would happen once every 10 years. Assuming a ROI on $78k of 5% = $4k of income per year, compounded over 10 years = $50k. Assuming that job loss happened at a sustained 20% market drop, that would essentially mean that I have to withdraw $15600 per month in "pre-stock market drop money" (ie. $13k/mo + 20% market drop = $15.6k). That means that i would have to withdraw exclusively from investments for over 19 months at a sustained 20% market drop for the extra $2.6k per month "cost" to offset the $50k I would have made by having no emergency fund.

                I very well could be doing that math wrong but as the numbers currently come out, there doesn't seem to be any advantage to having an emergency fund at all. Do people see a problem with the above math and assumptions? Thanks for the help - feels uncomfortable going against the advice of so many smart financial types.


                • #23
                  It is interesting how often this question comes up. Welcome to the forum.

                  I used to be in the camp of "invest every penny, ASAP" with the plan to use future income/collections, credit card float, and then selling off stuff in taxable if I needed to cover an emergency. However, I have been slowly working on building up a cash reserve to FIRE with the goal (initially) of one year fat spending to mitigate SRR. I am about halfway there. Anyway, while this still technically isn't an E fund, I certainly do not feel "silly" having 6 months of cash right now.
                  And as has been pointed out over and over elsewhere on this forum--in addition to your hospital staying solvent--your contract is contingent upon you keeping your license and privileges...disability, frivolous harassment claim, overzealous CMO, etc, are all out of your control.


                  • #24
                    Mitigating a large risk for a short time is quite a different scenario, though...


                    • #25
                      You have a lot of human capital when younger.
                      It's very individual how people assess risk.
                      I never wanted to have liquidity problems.
                      I spent most of my 30's with 2M-3M in real estate debt, but I always had 100k in cash and 100k in accounts receivable, so enough to pay myself and other practice costs for 6 months. And a Heloc of at least 500k as another backup.
                      Despite that I found myself quite anxious in parts of 2008.

                      I was listening to a good interview from Howard Marks this weekend:

                      A question I ask myself is how aggressive do I want to be at this point in my life, at this point in what could be the economic cycle, knowing that I could be wrong and without knowing what will happen in the future.
                      I am currently 100% allocated to risk assets, have no debt, have EF 200k, no bonds.
                      Everyone has to make their own assessment of optimal asset allocation, weighing up risks and potential returns.

                      To me using EF would be the next level of offensiveness in the AA and then beyond that utilizing leverage/debt. I don't find valuations compelling enough to want to utilise the EF or be more aggressive with my AA here. But others have different strategies and it can work out well for them too. There's a case for using the EF and a case for having more cash. I've thought about it a lot this week and was tempted to use the EF. But I decided not to. It's tempting though.

                      NB: This is a type of market timing, which can have it's problems


                      • #26
                        I live in Tahoe with a 15 year old who skis 4-5 days a week... this top article hit me hard... skiing is amazing and also dangerous. Ugh!


                        • #27
                          I thought I was comfortable having our taxable account double as our EF but now that I've seen things get real, I want a cash EF. We'll be at a 6 month EF in July and I'll definitely sleep better knowing that money is there and easily accessible. So my vote is whatever will stress you out the least.


                          • #28
                            Originally posted by Dicast View Post
                            Emergency fund is about immediate flexibility to me. We do carry about 6 months of cash. There are plenty of scenarios that can occur where you may want cash on hand. I do think though that the more you have in taxable accounts the less important your emergency fund is, especially if your expenses are relatively low. If you are saving more than you are spending it won't take long to have a large account no matter what you decide.

                            Thinking points.
                            Do you want to access credit or stocks for immediate expenses?
                            If you lost your job how long would it take to get another job? Would you have to move states, get a new license?
                            How long before your disability kicks in?
                            Can you emotionally handle selling, paying taxes or selling at a loss while unemployed?
                            Your emergency may happen sooner than 10 years.
                            I have friends that lost jobs and lost months of income when their hospitals suddenly went bankrupt.

                            If you are saving 22k a month, at a 5% return you'll have about 3.4 million in 10 years starting from scratch. I don't know that I'd worry so much about 50k of lost interest. Sure it sounds like a lot but it would be a very small percentage of your portfolio.
                            Where you need 6 months of expenses of cash immediately? Seems unlikely


                            • #29
                              As long as you have liquid assets available for an emergency, they need not be in cash. You need enough cash to pay your regular bills. Beyond that, you could use credit cards or liquidate assets if needed.
                              Just remember that people who lend you money, like credit card companies, can cut you off if they become concerned about their exposure. You could suddenly fund yourself without access to that credit.

                              The COVID concern for me is long term drops in the number of people with health insurance. That could hit the health care industry hard.

                              This thing about emergency funds applies to people who do not have significant liquid investments.


                              • #30
                                We have a similar savings rate, income, net worth etc so I found this thread interesting.

                                The EF is for my wife, in case I die suddenly, honestly. I cannot imagine her dealing with the kids, work, my funeral, and trying to figure out how to access our vanguard account and get money out adeptly. 80k in our bank account at all times in case I'm killed driving to work. Simple man simple plan. The lost interest is a drop in the bucket, my family's well being if I die is completely worth it