Smart Reasons to Save, Use and Invest Money

My Stealth Emergency Fund?

Do I have a Stealth Emergency Fund?

I use to believe that I didn’t have an emergency fund, and I’ve commented on other blog sites stating that I don’t.  But really I do, but it’s not formally called such a thing in my portfolio!

I estimate that I have over $15,000 that can serve as an emergency fund if the need arises!  These funds wouldn’t include my primary brokerage account!

So what is my Emergency Fund comprised of?

  1. “Checking Account Buffer” – I keep $6,000 in my checking account as a buffer just in case I have a bad month that I need to use more money than normal.  Usually in December, my credit card bill is higher than normal and I dip a bit into this buffer the help pay off my credit card balance in full.  This amount would be used as my first line of defense against an emergency.
  2. Contributions to my Roth IRA – I my previous post called: Roth IRA Contributions versus Roth Investment Gains, and in the article I explain how you can withdraw your contributions at any time, up to the total that you deposited in your Roth IRA.  So while not a desirable action to take, if a true emergency is experienced, that money is available.

Of course, there is money in my brokerage account too that can server as a fallback to the emergency money that is identified above.  In fact, any amount that I have in cash in my brokerage account would be used before both my Checking Account Buffer and my Roth IRA.

So in conclusion, I don’t have a traditional Emergency Fund, but I have enough in other money pools that they can serve as a sort of “Stealth Emergency” Fund.

I’m very happy with my current financial portfolio, but do you think I should still create a formal Emergency Fund, and why?  After all, I’m willing to bet that my stealth emergency fund is more than 70% of the population’s normal emergency fund…

-MR

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27 Responses to My Stealth Emergency Fund?

  1. If it works for you, then I say stick with it. I don’t think it really matters what you call your E-fund or keep your E-fund as long as you have access to liquidity when you need it (which you obviously do). Some people might find it more helpful to have money in “separate” accounts if they are tempted to use that cash for other purposes, but I doubt that’s your situation!

    • Thanks Well Heeled Blog, I’m pretty happy with my system.

      Have an emergency fund would be nice when I first started out, but I’m pretty content with what I have now…

  2. I am the last person to offer advice because we are very similar. I have 10k sitting in my Etrade banking account (not stock), but I want to move that somewhere else as the interest rate there just tanked. (Not that it is very great anywhere else.)

    I too have other investments that are easily accessible, along with an open HELOC that I can use if I am totally desperate. I have a feeling I will be dipping into that Etrade account come tax season…

    In synopsis, I do not have 3-6 months of living expenses sitting in cash at my disposal, and do not plan to.

    • Your HELOC is one advantage that I don’t have. My wife and I talked about getting one for years, but we never pushed forward with it. I think this is a very intelligent move on your part though! Kudos to you, for a very deep emergency, Emergency Fund 🙂

  3. IMO, you still should create a bit bigger cash fund.
    Personally, I wouldn’t touch my Roth IRA unless I have no choice. It’s a great tax advantaged account and it’s for the future. If you take it out from Roth IRA, can you put it back in? I don’t plan to so I never investigated.

    Cash is king and a bit more liquidity would do you good when an unforeseen opportunity arise! (note the when, it’s not an if)

    • Great point about not being able to put up the money back in. It’s trick, if you put the money back within a certain amount time you are able to do it. But after a certain amount of time it’s a no go. I can’t remember the exact amount of days, but it’s possible.

      Roth IRA are pretty sweet really…

  4. We keep one month expenses in savings… 1-5 months over the summer (more on this in our Feb 1st mortgage update).

    Then we’ve got about another month hidden in other savings and checking accounts that I could close if necessary (etrade, wells fargo).

    Then 10 months in taxable stocks in my main account. Then 4 months in another stock account. Then another 10 months in our Roth IRAs. Then an unknown amount of money in other stocks that I only look at once a year at tax time. (Our estate is not yet worth anywhere near a million dollars … we just spent a long time with no other tax deferred vehicle but the Roth. If we could have tax-advantaged more of that, we would have.)

    Apparently I like to hide money from myself in case of emergency. I think we could actually pay off our mortgage at this point if we sold all our stocks, but since after we paid the mortgage the additional money would just go back into stocks, I don’t see much point in paying capital gains. And then I wouldn’t have all this hidden emergency money.

    • We felt the same way about the money in our brokerage account too. We could have paid our mortgage off a year or 2 earlier if we did do that, but like you said, we’d just sock the extra money into the brokerage account later…

  5. I have funds that are allocated for other purposes that would definitely work as an emergency fund (over and beyond our existing emergency fund). However, I try not to keep too much “cush” money, just for the sake of having it around (I’m not suggesting this is what you are doing).

  6. This is okay for high expense months like December, but what if there is a job-loss or medical emergency situation?

    Touching Roth is very bad idea. Once you take it out, you can’t put it back. You are basically borrowing from your retirement.

    But again, if it works for you stick with it but do consider worst case scenarios.

    Hope for the best, prepare for the worst.

  7. Whatever works! The emergency fund is intended to make us feel comfortable and provide access to funds when you need them in an emergency. That is what it is all about.

    • That’s exactly what I’m thinking. I guess it depends on what an emergency is to people. For me, and emergency would be job loss or worse…

  8. Just the other day I was commenting on the Ultimate Money Blog about my own “stealth” fund, as you so aptly put it. I have both a formal emergency fund (this one is happily sitting in a money market account, so it builds up a little extra cushy of interest) and a checkbook buffer. My buffer isn’t quite as high as yours, but that’s probably because I have most of my emergency fund in the money market account. The reason I have two is to add piece of mind regarding my checking account withdrawals, but I also want the easy-access emergency funds to fluff up a little while they sit there waiting for an emergency.

    • Sounds like a good idea to me. 🙂

      After all, if you have enough built up in other buffers, and investments; and you expenses are under control, The Emergency fund loses some of it’s merit. And of course if you’re rich to begin with, an emergency fund doesn’t really make sense… in their case all of their money is their emergency money (lol)

  9. I have lots of secret places. Savings bonds that I pretend are for college (but I’d cash them in a heartbeat if I had to). I don’t have any roth, but I do have a brokerage account with some stuff.

    If poop hit the fan, I could also cash out my 401K..there would be penalties, but it still would be cash.

    I don’t think I’ve ever had more than $5K sitting in cash, ever and usually it’s more like $2K.

  10. It looks like you have an indirect emergency fund with your current setup. I am glad you are not tying up a lot of cash in your checking account as inflation is eating away at it and at the same time you wouldn’t need to borrow if you need some cash!

    I have a similar setup like yourself, keep the cash to a minimum in the checqing and have liquid investments to call on in case of emergency without having to borrow!

    • I think an true Emergency Fund may make more sense for those that aren’t financially oriented. I wonder how many pf blogger have true Emergency Funds… I bet not many have over a few thousand. Most probably have the money working harder in investments.

      • I have 5000 E fund in an online savings sub-account, 5000 in my regular bank’s savings account that’s only for emergencies, and 3 grand in cash- 500 in a safe at home and another 2500 in safety deposit. I keep another 1000 in checking buffer. This ready cash is to be used in a true emergency, like your car gets impounded and only takes cash on a friday night, an emergency dr’s bill, sudden death in the family, or other emergency that can’t wait days or weeks to liquidate a brokerage account. That’s what an emergency is: something that happens and needs to be fixed fast. Of course should I lose my job then that emergency cash could be used to hold me over for several months of living expenses which would give me time to liquidate and adjust brokerage accounts or roths.

  11. LOL! I thought at first you wrote “Health” Emergency Fund. I guess if you were without insurance the Health emergency fund would be good! But, a stealth one might be better. I suppose if the funds are too ‘stealth’ it may lead to you forgetting where it is.