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Since the forum always talks about the importance of emergency funds, I am curious to see if anybody here will leave only $10K on balance (less than 2 months of expenses) to make a 20% downpayment and some closing costs for a house? Assuming it takes a family of four 2 yrs to build up the fund again.
We are in the process of budgeting how much of a house we can afford
No, no dipping into the emergency fund unless you're buying the house due to an emergency (e.g. previous home destroyed).
I did exactly that. We moved from a turn-key house that was worth $400M to one that was worth $1MM, but it was a mess and totally under-valued, so we picked it up for $700K. Our EF got down to about $10K because of all the repairs, which has caused a lot of teeth-gnashing for me.
To us, the trade-off was worth it, but I WOULD NOT recommend that anyone else do it. While we kept re-building he emergency fund, inevitably something else would happen that would cause us to use it. In a one year period, the following emergences occurred: 2 ER visits ($23K), HVAC broke ($2K), rodent infestation ($500), (Audi) alternator went out ($1,400), (Audi) engine blew ($14K) (didn't fix that one,--bye-bye car)...all of this to say, that if you choose to do this, please tread lightly.
Fortunately for us, the house repairs are pretty much under control, so we're going to spend the next several months rebuilding the EF. We live below our means and my husband receives bonus comp., so I'm not terribly worried; but no discretionary spending for us until we beef up the EF.
It's just a matter of how risk-tolerant you are. If something happens to your job, will those 4 months make a difference, assuming you had 6 months before? How likely is it that something happens to your job? Same for other unexpected expenses; if your medical insurance is good you're likely OK there. You're probably OK on a car; the risk there is you might have to finance one if yours died. And what condition is the house? If you're going to need a new roof, for instance, that's something you can't put off so you'd need the money in hand.
Personally I'd do it, but I'm a lot more tolerant of that sort of risk than some.
Thanks so much for all your inputs. About ourselves:
2 income earners @36 with two toddlers; one job secure, another one ok but in good demand
Combined income: high 200K
401K:140K (now doing 54K/yr+4K co. match)+a government pension
Savings: 130K
2 houses paid off (one mid 500k, another 200k oversea)
2 cars paid off
Monthly expenses: 7000-8000
We are on track to save another 30-40K per year
I am looking for a house at 600K. We will rent out our current house (duplex, set for rental). If working out, we prob. will have additional 1k/month cost.
Thanks so much for all your inputs. About ourselves:
2 income earners @36 with two toddlers; one job secure, another one ok but in good demand
Combined income: high 200K
401K:140K (now doing 54K/yr+4K co. match)+a government pension
Savings: 130K
2 houses paid off (one mid 500k, another 200k oversea)
2 cars paid off
Monthly expenses: 7000-8000
We are on track to save another 30-40K per year
I am looking for a house at 600K. We will rent out our current house (duplex, set for rental). If working out, we prob. will have additional 1k/month cost.
Do you think it is doable?
How are your expenses 7-8k a month with both houses paid off? And gross income mid to high 20ks a month? You could simply back your 401k contributions down and increase your safety net
You could simply back your 401k contributions down and increase your safety net
Why would you do that? If your monthly income is around $20k a month and you expenses are $7k a month, you don't need to adjust anything to budget for emergencies. What kind of expense are you going to have that causes you to drop close to $13k in one month? Mob breaking your thumbs? Kidnapper ransom?
And the investments are way underfunded - ie too much in real estate.
Quote:
following emergences occurred: 2 ER visits ($23K),
Just for comparision, the most expensive one here (necessitating need for an emergency fund) is way overstated if you have insurance - you'd max total out of pocket for a family around $8k - $9k, and you'd be paying it 3-6 months after it occurred. You can budget for that if it occurs. The rest of these example emergencies in total are less than that theoretical one month of un-accounted for income.
Why would you do that? If your monthly income is around $20k a month and you expenses are $7k a month, you don't need to adjust anything to budget for emergencies. What kind of expense are you going to have that causes you to drop close to $13k in one month? Mob breaking your thumbs? Kidnapper ransom?
Just for comparision, the most expensive one here (necessitating need for an emergency fund) is way overstated if you have insurance - you'd max total out of pocket for a family around $8k - $9k, and you'd be paying it 3-6 months after it occurred. The rest of these example emergencies in total are less than that theoretical one month of un-accounted for income.
For the 20k+ in grossthe money is going somewhere and the 401k isn't being calculated in the expenses I wouldn't think. 54k a year in 401k contributions comes out to 4500 a month. I did ask where the rest of the money went she just has to responded. I know my wife and I are north of 200k but or normal cashflow is based on a much lower number due to 5 bonus periods annually between us
Not to mention cutting back the 401k for 3-4 months would still leave plenty of time to rebuild a ef to 3 months and still leave plenty of time to meet the annual goal for the 401k
Not to mention cutting back the 401k for 3-4 months would still leave plenty of time to rebuild a ef to 3 months and still leave plenty of time to meet the annual goal for the 401k
Still think rebuilding an EF is mostly irrelvant if your income is that high, but if you want to forego several months of potential 401k gains to put in a .01% savings fund for emergencies that could easily be funded by straight cash or by adjusting your 401k later when they occur if need be, or via other financing means, but whatever floats your boat.
How are your expenses 7-8k a month with both houses paid off? And gross income mid to high 20ks a month? You could simply back your 401k contributions down and increase your safety net
We do not budget everything so many are just bulk park:
2 kiddos' daycare 3300
Utilities and fixed costs (cables, phones, lawn services, pest controls, alarm etc):1000. Our house is 60 yr old and we outsource a lot for the peace of marriage
Grocery: 1000
Dinning out: 500
Others: 1500
Insurance (Term life,car, home), property tax, parents allowance, etc are lump sum and covered by one-offs such as tax refund, bonus, extra 2 paychecks, etc.
Still think rebuilding an EF is mostly irrelvant if your income is that high, but if you want to forego several months of potential 401k gains to put in a .01% savings fund for emergencies that could easily be funded by straight cash or by adjusting your 401k later when they occur if need be, or via other financing means, but whatever floats your boat.
I'm not sure if you understand what an emergency fund is for. My cashflow is pretty high unless I lose my job then my cashflow would be crushed, hence the need for the emergency fund.
Don't be dramatic on the growth lost in the 401k, it actually works both directions as the market could be going down during the time you stopped. Also if you only wanted growth and no cash cushion you could invest your emergency fund into equities.
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