Emergency Funds are for Liabilities

13 05 2014

The general advice for an emergency fund is that it should be enough to live for six months.  For me that’s 9000$ with my current budget. I recently started separating my money differently. I now put cash intended for investing in 10,000$ batches in a separate savings account and was wondering if I should create one for an emergency fund. After giving it some thought, I realized I didn’t want 9000$ sitting around earning almost nothing and that the general emergency fund advice is wrong so there really is no need for me to.

After thinking a bit I have determined that for me, an emergency fund really only needs to cover one thing: losing my job. To come to this conclusion I asked myself two questions:

  1. Are there any other emergencies that would require an emergency fund?
  2. If I lose my job, what in my budget do I really need and what do I not need?

Let’s start with number one. What about a non job loss emergency, for example car breaks down. The answer is simple for someone following the principles of Early Retirement Extreme, the money I save on every paycheck from my job to invest can go towards that emergency instead of toward investing.  Since I save more than 50% of every paycheck, this is quite a lot of money and can cover any emergency I can think of that wouldn’t be covered by insurance.

Now for number two, what do I really need in my budget if I lost my job? To stay alive, I would really only need food money. I already don’t have a cellphone bill, a car payment, a mortgage, etc. If I lost my job, I’d have no reason to stay where I am since I’m here for my job.  I could rent out my room and then move back in with my parents, or baby sit for relatives and mooch a guest room, or couch surf with friends, etc.

So, all I really need is food money!  Someone very frugal could live off of 100$/month, but I’m more in the 250$ to 300$ range. That means my emergency fund only needs to be 1800$. That’s less than I keep in my checking account to make sure I have enough for auto rent/credit card payments, so there’s really no need for me to maintain a separate emergency fund.

Put simply, if you save a large amount of your paychecks, your emergency fund only needs to be as large at 6 months of your emergency budget, which is your budget minus everything you can cancel quickly.  If you can’t cancel your cell phone bill, car payment, mortgage payment, etc, you’re going need to have a lot more. If you can live in a tent and hunt for food, you don’t need anything.

The true cost of a cellphone

8 05 2014

18000$invested. 24000$ to be safe.  I just looked up the price of an iPhone plan on ATT and the cheapest one was 60$ a month. Ignoring upgrades to new phones, taxes, and fees, you would need 18,000$ invested returning 4% after inflation to pay for that invested (using the rule of 300, 24,000 is more conservative using the rule of 400).  After capital gains tax, taxes/fees on the plan, you’re probably looking at closer to 25,000$ invested to pay for that minimal cell phone plan (unlimited talk/text, lowest data at 300 MB).  I don’t know about you, but to save that much money for me would take at least a year of working.  Speaking for myself, a cool cell phone is not worth one year of 2o’s.


Just as a note, I write dollar signs after numbers, because we say in English “five dollars”, not “dollar five”, so why not write 5$ instead of $5? Logically we should write dates 20140508, it self organizes on computers and makes the most sense for comparing dates (comparing May 5th, 1776 to May 5th, 2014 shows the same first two numbers despite a large difference in date which is is worlds apart from comparing May 6th 2014 to May 5th, 2014, showing a one day difference in the sameyear). However, in the US we say “May 8th, 2014” which is why I believe we tend to write it in this manner. As an interesting side bar, many other countries write “8-5-2014” to indicate the 8th of May, 2014.  When signing documents I now tend to write the month by name to avoid confusion.

Divide by Two

28 04 2014

That’s how much money you make for usage when comparing against a purchase. Assuming you’re not in a very low tax bracket, earning your income with a job, and contribute to a 401k.

Dividing by two is a simple trick to put the cost of something versus how much you make in perspective.  If you make 50k and think 25k is a good amount to pay for a car, at first glance it seems reasonable.  But divide by two and to account for federal taxes, state taxes, social security, medicare, 401k contribution, medical, and dental, you’re really only taking home about 25k per year.  So that 25k car is going to cost you all the money you earn in a year, assuming you don’t spend any money on  food, water, a place to live, gas/insurance for said car, some kind of entertainment, or anything else.

Assuming you live very cheaply on 12.5k per year (and I doubt you do, that’s 1041 a month, less than rent for many people), that means you’d have to work for 2 years just to feed yourself and buy the car, with no savings except your minimal 401k contribution. So really it should be divide by four, because after all the taxes and living expenses, that’s what you’re left with.

Oh and so far we haven’t accounted for the tax you pay on the car, or the interest accruing on the loan taken out on it.  Add another 6 months of work to account for those factors.  Now ask yourself, is it worth two and a half years of my life to buy this car?

So, when you want to compare your income to the cost of something remember, divide your income by two. Or better yet, four.

One More Year

18 03 2014

I wrote this poem today, enjoy.

One More Year

I have a secret, it’s quite the whopper,
I make good money, but live a pauper,
When it comes to saving I’m never lazy,
Those who know may think I’m crazy.

I do not need to seek their blessing
Their demands are not that pressing
But when bored I may ask them over a beer,
How much would you pay for one more year?

One more year to run or fly,
One more year to laugh and cry,
One more year to make the most,
One more year with your kids close,

One more year to seek the truth,
One more year to live your youth,
One more year, perhaps, without a clue,
One more year, what’s it worth to you?


To me a year is worth more than a lot,
I would live a pauper without much thought,
A year at sixty I would surely treasure,
But a year at thirty brings greater pleasure.

I plan to retire by age thirty five
That’s thirty more years in which to thrive
Thirty years more youthful than normal,
Thirty years with no need to be formal,

Thirty years without a cube made of glass,
Thirty years without having to kiss any ass.
Retire early, young, in your prime,
A bit of hard work can buy you this time.

More time to take a nap by the pool,
More time to return to graduate school,
More time to sit and read,
More time to help those in need,

More time to enjoy a good cry
More time to climb to the sky
More time to build and create
More time to become very great

And so I work and save my cash,
to retire young and live off my stash,
I may have to scrimp and save today,
For thirty more years, that’s not much to pay.

Life Lessons From Rock Climbing 1

9 03 2014

I’ve recently had more time to rock climb and have been getting pretty good (V2/V3 bouldering level).  The more I learn the more I see lessons in rock climbing that can be applied in other aspects of my life and I wanted to share those with you.  The first lesson I’ve taken from rock climbing:

Abuse You Advantages

Don’t feel guilty that you have an advantage; instead, really milk the most you can get out of it and use it to move up 2x or 3x faster if possible.  My climbing buddy, Crafty, and I are both relatively tall, and when we first started climbing we felt like it was cheating to use our height to avoid more technical solutions and just power through.  After climbing a while I realized: that’s idiotic.  Instead, we shouldn’t waste time thinking about how a shorter climber would solve a problem and we should use our height advantage.  The result was less time wasted thinking and more time tackling more difficult climbs.

As a climbing example, I recently solved a V1 (beginner level, but usually only accessible after a few weeks of climbing) in which I was on my tippy toes and barely snagged the last hold with the tips of my fingers. If I was one centimeter shorter I would have had to come up with a different solution. Since I’m 5’10”, which is the average height for a male American, that means 50% of men and a lot more than 50% of women would need to find a different solution.  But what do I care, I solved it, on to the next challenge!

So how can we apply this lesson outside of rock climbing? The best example I could think of was job hunting. I got my job through an interview secured by my friend. I had been looking on job sites and such for about a year with a high GPA, work experience, and no luck; a few facebook messages later and I had an interview.  Two weeks later I had a job paying above average with bonuses for travel.  Some people may think it’s cheating, but who cares what they think? Be smart and abuse your advantages!