How much money do you reserve for emergency expenses?

[Greywolf2375]

2 hours ago, Tears of Lys said:

ThinkerX has the right of it.  I'm not surprised at all by how much (or how little) people have squirreled away.  I don't believe that in the majority of cases it's due to uncontrolled spending, but rather that it takes every cent to just pay for the basic necessities of life. 

I **am** shocked, however, at the "advice" that's been quoted that you need so many months of savings.  Think in terms of years rather than months.  Is everyone confident that they could pay their rent/mortgage, food, gas, utilities, etc., etc., if for some unforeseen event you were out of work longer than three months?  If so, things are better out there than I thought.

My SO and I practiced the "one year of expenses" plan - IOW, we could pay the basics if one of us (whoever was earning the most at the time) was out of A COMPARABLE INCOME TO WHAT WE HAD BEFORE for a year or more.  We've since adjusted it to two years.  Experience and the ability to do so have changed our attitudes.

I thank the old gods and new that we decided back when we were in our late 20's, early 30's to start aggressively saving. 

I think some of it depends on what people consider available.  If I was laid off from work I would get 44 weeks of severance and then we have the money in the bank and then we also have retirement plans we could touch if needed.  If for some reason I was just fired with no severance, yeah, it would be the 10k in the bank which would be there to cover the time to get back to a job.  To what you said above, that is also the reason why we also want to have multiple blocks of 3 months available.

[Iskaral Pust]

3 hours ago, NestorMakhnosLovechild said:

Isn't the answer obvious?

FDIC deposit insurance only covers the first $250,000 in cash being held per depositor, per bank. So really there's no reason to keep a penny more than $250,000 in my checking account to cover any emergencies, like a medical emergency or emergency repairs on my BMW. 

You joke but I held a lot of cash from mid 2007 to early 2009 from selling a lot of investments and from selling a house, and in 2008 I was spreading it around multiple bank accounts to ensure it was all FDIC insured because even money market funds were risky.  I was reading the fine print pretty closely then.  One of those accounts was at Wachovia, but their forced sale to Wells Fargo meant I didn't get to find out how exactly the FDIC would have repaid my account balance.

[Howdyphillip]

 I spend Fall, Winter, and Spring every year saving up for the Summer because my work grinds to a dead halt both then, and for almost a full month over the holidays. I usually have enough saved up to last for that time, but I am always stretching finances in August. When I was younger, I used to travel for work during the Summer months, but I am tired of being away from home so much. For the last three years, I have just stayed at home and worked on my writing, which pays absolutely nothing and gives no one else any pleasure but me so far. (I am not published.)

 Every year, there are times that I would struggle to come up with an additional $400, but it is getting better. I always have things that I could sell, and in case of a real emergency I could tap into my pension.

[Altherion]

5 hours ago, Iskaral Pust said:

People living beyond their means is not generally because they spend too much on TVs, lattes, shoes, etc  -- although that happens to some.  For most people it's because they over-commit to the big "fixed" costs in life: rent/mortgage + property tax, tuition, health insurance, car payment + insurance.  These are like the infrastructure costs in our lives and they have generally experienced very high debt-fueled inflation compared to almost everything else consumed and compared to wages, but it becomes very difficult for people to lower their expectations or take a step back in these aspects of lifestyle.  Plus it can be very expensive to unwind any of these due to high frictional costs (depreciation on cars, costs of selling a home and moving, unwilling to switch doctors) or high sunk costs (2 years into a degree, you just remodeled your house, etc).

Wages have stagnated for a large swathe of moderately educated Americans but debt has allowed continual inflation in the largest costs.  Social competition makes people reluctant to step back and live within their means while their neighbors use debt to keep chasing their expectations (and chasing up the prices).  And this is how people get squeezed: their wages have a ceiling so long as their job can be done in the third world but their big ticket costs keep going up.  The most precarious get squeezed first but it doesn't stop there.  Over time, more and more feel squeezed.

I agree with you in that the infrastructure costs are the main problem, but I'm not so sure that social competition is the primary cause. It's certainly one of the causes, but part of the issue is also that many of the remaining well-paying jobs are concentrated in relatively small geographical areas (New York City, San Francisco, etc.) which drives up the largest of the infrastructure costs (i.e. housing). For the people who work in such places, it is not a choice between keeping up with the neighbors or not, it is a choice between high costs and sacrificing a non-trivial fraction of one's life to a long commute.

Another cause (and possibly the most important of the lot) is that people simply aren't making much money. Looking at the full report (where they divide people up into groups making less than $40K, $40-100K and more than $100K per year), the people having the hardest time coming up with $400 are predictably those who make less than $40K. Only 34% of them can do it compared to 62% of the middle group and 81% of the high earners. If you think of the archetypal four person household and one of the parents works full time making one to two times minimum wage (the other stays home with the kids because at those salaries, a second job would never break even given the child care costs), it's hard to see how they'd ever save much money even if they're really thrifty.

[peterbound]

10 hours ago, Dr. Pepper said:

It's the effects of having grown up dirt poor and just not having any desire whatsoever to be a spendthrift.  Being extremely frugal is just my nature.  I don't care about the "little things" like a frappuccino every day or a new outfit every week or the latest in tech gadgets or going to theme parks.  I have the privilege of being able to choose where I live and I prefer lower-cost areas so only a small portion of my monthly service-connected disability payment goes towards housing which greatly lowers the amount of money I could be spending if I'd chosen to live elsewhere.  Plus, being a veteran, I can and do utilize the VA for nearly all of my healthcare, which is free, if a bit subpar.  

I'm sure it could be better if I took more of an interest.  But so far in my life, I have found living by the general knowledge of "don't spend a lot, save a chunk, give the rest away" to be a good enough motto to live by.  Things would obviously be very different if I didn't have a service connected disability and/or weren't able bodied enough to also work.  Like I said, I recognize my privilege.  

 

Good enough for me.  

 

I'd say take a bigger interest though.  They way they are fucking with our bennies, you shouldn't count on that shit forever. 

[Iskaral Pust]

4 hours ago, Altherion said:

I agree with you in that the infrastructure costs are the main problem, but I'm not so sure that social competition is the primary cause. It's certainly one of the causes, but part of the issue is also that many of the remaining well-paying jobs are concentrated in relatively small geographical areas (New York City, San Francisco, etc.) which drives up the largest of the infrastructure costs (i.e. housing). For the people who work in such places, it is not a choice between keeping up with the neighbors or not, it is a choice between high costs and sacrificing a non-trivial fraction of one's life to a long commute.

Another cause (and possibly the most important of the lot) is that people simply aren't making much money. Looking at the full report (where they divide people up into groups making less than $40K, $40-100K and more than $100K per year), the people having the hardest time coming up with $400 are predictably those who make less than $40K. Only 34% of them can do it compared to 62% of the middle group and 81% of the high earners. If you think of the archetypal four person household and one of the parents works full time making one to two times minimum wage (the other stays home with the kids because at those salaries, a second job would never break even given the child care costs), it's hard to see how they'd ever save much money even if they're really thrifty.

I agree with both points.

On housing, the irony is that liberal/progressive blue-state citizens demanding nimby policies are restricting affordable access to the major job centers.  SF is willing to be a haven city for homeless but not allow higher density construction.  Economic growth in the next decades will be concentrated in urban clusters of well educated people, including the jobs for services and and manufacturing. 

And it is true that people making sub $40k will always struggle to save.  That's the below-median group who will benefit most from higher minimum wages, but if they can't build an emergency fund of 1-2% of their income now, I don't see them doing it if their income jumps to $40-50k. If that group all gets a bit wealthier, a lot will get soaked up by higher rents (that's the major competition part), paying down some debt, catching up with deferred high priority spending (health, stuff for kids, etc) and so on.  Global competition puts a ceiling on their wages so I cannot see them improving their income enough to get to a point where they'll be really financially secure. 

Maybe I've just become too pessimistic but the global equalization is hard to offset.  Even if you tax all the billionaires there are just too many desperately poor people in the world and it is harder and harder to fence them out of the global economy even if you are a staunch nativist.  The irony is there is an excess of labor in the world and an excess of capital (savings glut for the baby boom) -- so wages and investment returns will both be depressed for the next couple of decades.  The obvious answer is to combine them in an orgy of productive investment that helps both sides but the areas that can use that investment - the third world - are crippled by corruption that steals a big chunk of the capital every time, killing the opportunity.  The developed world could definitely use some investment in infrastructure but that's relatively small and only increases the pull of cheap foreign labor either directly through migration or indirectly through off-shores production.  Until the governance institutions in the third world are completely overhauled - which requires a massive change in local cultures - we're stuck in this rut.  Hence my pessimism.  

[ThinkerX]

I have said here and elsewhere for a very long time now there was no true recovery from the 2007-2008 crash, especially for the middle class.  Middle class spending drives much of the economy.  With the middle class being decimated, this will, in turn decimate the ranks of those now considered 'rich,' including many in the so called 'one percent.' (though it may take a while).

 

Didn't I see a blurb somewhere about a billionaire with a current net value of zero? 

[ThinkerX]

Case in point:

http://qz.com/690881/the-number-of-new-businesses-in-the-us-is-falling-off-a-cliff/

 

 

Quote

              

Written by

Michael J. Coren

May 24, 2016

We’re supposedly living in the age of startups when people can create new businesses, enrich themselves, and employ their fellow Americans. That narrative, like much economic optimism these days, is now mostly a tale for coastal cities, and a tenuous one at best.

 

 

Fewer new businesses were created in the last five years in the US than any period since at least 1980, according to a new analysis (pdf) by the Economic Innovation Group (EIG), a bipartisan advocacy group founded by the Silicon Valley entrepreneur Sean Parker and others. Businesses that did form are also far more concentrated than ever before: just 20 counties accounted for half of the country’s total new businesses. All of them were in large metro areas.

 

.

The graph is downright scary.  This situation continues, even those who appear prosperous now lose big time

[sologdin]

as a reserve, best to merge one's assets in something completely portable & insurable, such as aesthetic investments in one's personal presentation, which assets might then be reconverted to currency via judicious rendezvous with credulous haute bourgeois in need of skilled escort services, say.

[all swedes are racist]

1 hour ago, sologdin said:

as a reserve, best to merge one's assets in something completely portable & insurable, such as aesthetic investments in one's personal presentation, which assets might then be reconverted to currency via judicious rendezvous with credulous haute bourgeois in need of skilled escort services, say.

Tried that, but the beard covers the décolletage and depressed advances

[sologdin]

have you considered depilation of the breast-beard?

[BigFatCoward]

having grown up piss poor i save a shed load, even though i have a job for life, and a pension.  i am terrified of having no money.

[Altherion]

On 6/2/2016 at 6:55 AM, Iskaral Pust said:

And it is true that people making sub $40k will always struggle to save.  That's the below-median group who will benefit most from higher minimum wages, but if they can't build an emergency fund of 1-2% of their income now, I don't see them doing it if their income jumps to $40-50k. If that group all gets a bit wealthier, a lot will get soaked up by higher rents (that's the major competition part), paying down some debt, catching up with deferred high priority spending (health, stuff for kids, etc) and so on.  Global competition puts a ceiling on their wages so I cannot see them improving their income enough to get to a point where they'll be really financially secure.

Indeed, the $400 issue is separate from the low wages. I'm trying to remember back to when I was a grad student (in the Boston area) and I think I made something like $1800 per month (after taxes) and saved around $500 of that. Saving at that rate would never amount to much, but $400 was never a problem.

Quote

Maybe I've just become too pessimistic but the global equalization is hard to offset.  Even if you tax all the billionaires there are just too many desperately poor people in the world and it is harder and harder to fence them out of the global economy even if you are a staunch nativist.  The irony is there is an excess of labor in the world and an excess of capital (savings glut for the baby boom) -- so wages and investment returns will both be depressed for the next couple of decades.  The obvious answer is to combine them in an orgy of productive investment that helps both sides but the areas that can use that investment - the third world - are crippled by corruption that steals a big chunk of the capital every time, killing the opportunity.  The developed world could definitely use some investment in infrastructure but that's relatively small and only increases the pull of cheap foreign labor either directly through migration or indirectly through off-shores production.  Until the governance institutions in the third world are completely overhauled - which requires a massive change in local cultures - we're stuck in this rut.  Hence my pessimism.

Significantly reducing corruption in the third world is most definitely the work of at least several decades (if we're honest, we haven't fully tamed it even here). I'm not sure we need to do it though. If the political will was there, we might be able to get by for a while by simply improving our own infrastructure. For example, completely moving away from fossil fuels would be a fairly large and labor intensive project. There are plenty of other things we could do, it's just that all of them require the government to act and the government has become both inert and inefficient. I've always found it so bizarre that our grandparents built these huge cities using nothing but paper and pencil or ink for both engineering and finances and primitive machinery for construction whereas we, with all of our technology, take a quarter century (!) and some absurd amount of money to build a 4 mile tunnel through a city.

[Tears of Lys]

1 hour ago, Altherion said:

Indeed, the $400 issue is separate from the low wages. I'm trying to remember back to when I was a grad student (in the Boston area) and I think I made something like $1800 per month (after taxes) and saved around $500 of that. Saving at that rate would never amount to much, but $400 was never a problem.

 

Don't turn your nose up at $400 savings a month.  (From this article: http://www.interest.com/retirement-planning/news/how-to-save-1-million-for-retirement/  This assumes an interest return of 7%)

The best way to live well when you're old is to save when you're young.

If you can start saving $405 per month by age 25, an average annual return of 7% means you'll have $1 million by age 65.

But wait until you're 30 to start saving, and you'll have to put away $585 per month to reach that goal.

 Of course, it'll probably cost $1 million for a cheeseburger, but at least you'll eat!  

[all swedes are racist]

3 hours ago, sologdin said:

have you considered depilation of the breast-beard?

Ew, no

[Weeping Sore]

My family has come to the realization that the fastest way out of financial insecurity would be for Mrs. Sore to become a stripper. So that's our little "break glass in case of emergency" move.

[Altherion]

9 hours ago, Tears of Lys said:

Don't turn your nose up at $400 savings a month.  (From this article: http://www.interest.com/retirement-planning/news/how-to-save-1-million-for-retirement/  This assumes an interest return of 7%)

I liked these articles when I was younger, but then it occurred to me that getting a 7% return (the articles from 10-15 years ago used to say 9%) is really optimistic. They get that number by simply following the S&P 500, but this is actually a fairly uncommon result. I put a fairly small amount of money in a money market account several years ago and, so far, it has beaten the official rate of inflation by maybe 1%. The funds which I get at work as part of the retirement plan are not much better.

It's not impossible to get the advertised return, but you need to know what you are doing (or at least deal with people who do) and a bit of luck. People investing more or less blindly (as I did several years ago) aren't going to get much out of it unless they're really lucky. Also, you need to start with a decent amount of money, otherwise in most cases the fees will eat up the return and even if not, 7% compounded over 30 years is only about a factor of 7.6.

[Tears of Lys]

Yeah, Mr. Tears (and I to a lesser extent) have been lucky/prudent with where we stash our $$, so it's worked out decently for us.  YMMV and all that, of course.

 

[BigFatCoward]

12 hours ago, Mandy said:

Same.  It doesn't mean it's easy to save though.  When it's between feeding and clothing your kids and saving $50, it's a tough choice.

i remember my mam having absolutely nothing growing up, but i never felt neglected.  she sacrificed everything for us.  and now i can, i spoil her rotten.  they know, and appreciate it.  

 

[sagewich]

When we first married, we lived on one salary and banked the other. In no time. we had $10,000,  I never thought an emergency would cost us as much as it did.  You absolutely have to start saving when you are young,

Now I collect all the change I find and put it in a small coffee can. When it if full, I know I have between 83 and 100 dollars. That goes into the new emergency fund.