Great point. I hope Trent brings up the topic again soon.

Sometimes we spend so much time worrying and planning that we forget to spending time enjoying (mea culpa!).

So if it makes you feel good to do it then do it – but don’t sacrifice enjoying the 100% guarantee for how wonderful life is now compared to some possibility of a future problem.

I’m guilty of the same thought patterns and fortunately my wife who is more spontaneous and less of a planner/worrier helps balance things out.

-Frank

Then along with my 3 month cash EF, I have a lot of short term cash savings for stuff I know I’m buying like car maintenance/replacement. I also have cash for home maintanence which might equal another 2-3 months.

So do I need more? Not really. Why? Because if it’s a real emergency I’ll be pulling from my invested taxable accounts. So why bother? Because in an emergency are you really going to sit there and say “oh I can only touch my 6 month ef?” Or are you going to use all your assets?

And leaving that much cash sitting uninvested is stupid. You have a 6 month cash EF, gives you time to liquidate your other assets slowly! So you don’t have the “risk” of investing in “stocks” Mutual funds because you can pull out as needed because you have a 3-6 month cash EF.

So you aren’t needing cash in a moment’s notice. That’s the point of the EF. Emergencies. Plus if you are saving the extra money you can draw on it as you need.

It’s worse than that. Many HELOCs allow the bank to call your loan if there is a change in your credit rating. So, just when you need it most you may not be use your *existing* HELOC!

Check your agreement. You might be in for a nasty surprise.

Back during the tech depression I had a long period of unemployment in 2002 and 2003 where I only worked 4 months in those two years. Towards the end of that period, I was getting a bit worried as the bank account kept going lower each month with no income in sight. One day I want over to my credit union and asked about a HELOC. I sat down with one of their loan officers and she started the interview:
LO: “How much equity do you think you have in your home?”
ME: “100% We own it mortgage-free. It’s worth at least $175K”
LO: “What’s your monthly income?”
ME: “uhh… nothing. I’m currently not working.”
LO: “Oh, well, we can’t do a HELOC unless you’ve got income. Sorry.”

So don’t depend on being able to get to your home equity if you’re not working.

Also as others have already pointed out, a large emergency fund need be all cash. Some of it can be invested, but one has to look out for correlations. Meaning that for example a stock broker should not place his emergency fund in stocks, as he will probably need the money if he gets fired, but he has a high probably of getting fired if there is a stock marked crash.

But lastly I want to point out that your reason for 18 moths of emergency fund was that you might be planing to blog full time. Then some part of the emergency fund is maybe not an emergency fund, but rather, money sett aside in case you want to start working for yourself.

i agree that you can stagger asset maturity dates for emergency funds since you probably will not need everything at once.

i’m not a fan of counting on borrowing money as a form of emergency fund. the last thing you want to do is go into debt when you have no source of income. that will compound the problem. so despite being able to take out a HELOC, you are still faced with mortgage plus loan with no income. when you do restart income, then you are in a hole again. remember equity in a house doesn’t necessarily appreciate and doesn’t guarantee that you will be able to actually realize the equity in practical terms or quickly do so.

the same thing with credit cards. i’m not a fan of having a credit card “only for emergencies”. again, cc have high interest rates and going into debt without being able to mitigate the debt is counter productive.

rhbee, do you have children?

Single person with a high risk job (say sales) would need a larger cushion to deal with a complete loss of income.

Risk is measure by both frequency and severity. Any solution for the risk must factor both and respond to both.

But with your plans to soon have 3 small children, I thought more of life and disability insurance given your worst case scenario (what if you die or become permanently disabled when the truck hits the house?)

I’d think minium $500,000, and more likely $1,000,000 in 20+ year term life (coverage split based on the relative income between you and your spouse)

Disability insurance is a trickier subject – much more expensive, since it has a far higher likelihood of occurring than death at your age, much harder to get (especially own occupation coverage)