EF and amounts

[LivingAlmostLarge]

Why do people inherently it appears have a bigger EF as they get older? Are we more conservative? What changes? What changed for you? I don't find myself any more conservative than I used to be when we were younger. But what I"ve found is that I have more money to invest favorably and right now things are in a strange place. I've never really felt like I had the money to really get into rentals or the stock market in a big way and now we do. But the question is what do you do? I may not invest in a rental and dump it all in the stock market if we have another dip, but then will I regret not buying property.

I have been investing in our taxable accounts during this time but the equally our cash has been building because we have been interested in acquiring a rental. So I don't feel like it's clear cut. What have others experienced or determined?

I find it also interesting that because of our large cash savings we have a lot of flexibility. We can build a shed, extension, or move without thinking because all choices are possible.

[kork13]

Great questions! I haven't really considered it, but I think you're right -- our EF has definitely grown over time, and much of it is that we're less tolerant of life-induced, uncontrollable risk (in my head, that's slightly different than "more conservative"). Less risk = Less EF ... More risk = more EF. And as you said, holding plenty of cash provides greater control over our circumstances. When I was young, single, and unencumbered, I think my EF was around $12k (3 months' expenses). Once I bought a house, I think I bumped it up to $20k (4 mo). Getting married & having kids, we've floated around $25k-$30k (6-ish mo). We've also had more non-EF cash & taxable investments besides.

Yes, part of those changes could simply be that all of those events have increased our daily living expenses....but they've also each increased the relative degree of risk faced by life's uncertainties, and/or reduced our tolerance for that risk. And now with us buying our next house in cash, we're actually reducing our EF, because by owning it outright, we don't face the same level of risk to get pinched by monthly payments if something goes sideways.

[Jluke]

My cash EF is 40k. My total cash pile (w EF) is 60k

extra 20 is for possible HVAC and other kinds of expenses.

life is more expensive now (2 kids, bigger house) thus more cash

plus getting older, higher salary, higher chance to be laid off.

Cash can also be used to bridge retirement so that safe money helps as well.

just a few random thoughts to a great question.

[disneysteve]

To some extent, I think it's just a function of having more money overall. If you keep 10% in cash and you've got 500K total, that's 50K cash. If you have $1.5 million total, that's 150K cash. So that's part of it.

Some of it is getting a little more conservative as we get older. Some of it is having aging cars and an aging house and wanting to be prepared for replacing the cars without debt and repairing the house without debt. For example, we just hired a tree company yesterday to do a $2,400 job for us. And I'm currently car shopping and will likely spend 25-30K cash. And you're totally right about flexibility. When something comes up, I want to be able to do it easily without having to juggle things around or figure out where I'm going to get the money.

[scfr]

"Why do people inherently it appears have a bigger EF as they get older?"

Higher probability of high medical expenses. Higher probability of not being able to find a new job, or needing to take a major pay cut, if laid off ... or less time/energy to start over if business fails. Much higher self-insured medical insurance cost due to older age if laid off.

[bjl584]

Natural course of life as people start to pay down debts and earn more money.
At least, those with some financial diligence and intelligence

[riverwed070707]

I'm certain it won't be a popular opinion on this board but I don't really find my EF has grown dramatically over where it was 10 years ago and I don't keep it separate from my daily checking/savings accounts or my savings for annual expenses like property taxes. I also don't keep my personal EF separate from my rental EF, whereas i know plenty of landlords who keep a separate EF for each property which I find to be overkill. At any given time I might have between $10k and $20k cash in my accounts. Anything above and beyond that either gets saved for something specific if I know I have an expense coming up or invested. I'm still relatively young (34), have a secure w2 job and multiple income streams. The likelihood of all of my rentals going vacant and several major expenses occurring at once is extremely low and my backup on the off chance that were to happen is a decent sized HELOC at a low interest rate I can access very quickly in a pinch. It's enough for me. If my cash drops below $10k I start to get a little anxious and go into a spending freeze until its built back up.

[disneysteve]

I'm certain it won't be a popular opinion on this board but I don't really find my EF has grown dramatically over where it was 10 years ago and I don't keep it separate from my daily checking/savings accounts or my savings for annual expenses like property taxes.

We don't have an actual "Emergency Fund". There is no single isolated account that is designated for emergencies only. What we have is cash in a variety of accounts that all adds up to more than enough to cover any potential emergency. We keep at least a few thousand in our checking account. We have an Ally account plus 2 CDs with them. We have about $1,500 sitting in our brokerage account. There's a decent amount of cash right at the moment in my Roth because of some investment changes I had made and I haven't reinvested all of the proceeds yet. We own about 45K of I bonds. There's a few hundred in my PayPal account.

Our main EF would be the Ally account, as that's where the biggest chunk of our cash is, but even that account is fluid. I don't only access it for emergencies. When I buy a car, the funds will come from there, for example.

[kork13]

I'm certain it won't be a popular opinion on this board but I don't really find my EF has grown dramatically over where it was 10 years ago and I don't keep it separate from my daily checking/savings accounts or my savings for annual expenses like property taxes. I also don't keep my personal EF separate from my rental EF, whereas i know plenty of landlords who keep a separate EF for each property which I find to be overkill.

There's really nothing wrong at all with what you're doing. The beauty of personal finances is that it's personal -- do what works best for you. At its core, the EF is basically a "sleep well at night" fund. Whatever it takes for you to feel comfortable, that's what you need to keep on hand. Likewise, you manage that money the way that works best for you. Especially if your cash position is very fluid or variable, it probably makes alot of sense to keep your operating funds and EF all in one account together. As long as you have a good grasp on what you need and what would be necessary to bring you through a storm.... you do you.

[LivingAlmostLarge]

Interesting. I have a friend who switched to a new financial advisor who is suggesting he wipe out his cash stockpile right now and start investing aggressively into the market. I'm not sure that's the risk I want to take right now but I guess it's for the long term does it really matter. He also had been saving cash to buy a rental or two. He thought it might happen but is now ready to go all in with the stock market instead.

[disneysteve]

Interesting. I have a friend who switched to a new financial advisor who is suggesting he wipe out his cash stockpile right now and start investing aggressively into the market. I'm not sure that's the risk I want to take right now but I guess it's for the long term does it really matter. He also had been saving cash to buy a rental or two. He thought it might happen but is now ready to go all in with the stock market instead.

OMG. I hear endless stories of insane advice from so called advisers. It’s so sad that people pay for irresponsible guidance.

[Jluke]

^^^^
AUM is Probably why that advisors wants to invest aggressively

[disneysteve]

^^^^
AUM is Probably why that advisors wants to invest aggressively

Also sales commissions if he's charging to buy individual stocks or selling load mutual funds.