Giving the Middle-Finger to My Emergency Fund

I am a big proponent of having an emergency fund. In fact, one of my medium term goals is to have a $10,000 emergency fund (about 4.5 months of living expenses). So you may be surprised to hear that I recently took $4,000 out of my emergency fund (balance was at $6,200 at the time) and used it in a way that I feel is much more productive.

Where did it go?

That $4,000 went right into my Roth IRA. With my goal of maxing my 401(k) for the year, I knew it was going to be tough to max the Roth in 2010. However, I know that these early years are the most important for the growth of my Roth. Somehow, someway, I was determined to make sure I was able to contribute the full $5,000 for the year.

With both retirement accounts getting maxed for the year, I know my investment accounts are going to grow at a faster pace than I could have ever hoped. A little bit of sacrifice now (and it really is only a little bit) will set me up for that boat and house on the beach that J. Money and I always talk about for our early 40s.

What happens if an emergency occurs?

Well I am glad you asked. I still have an emergency fund of about $2500. So, I am covered for at least a little bit. I also have additional cash savings (set up for specifics savings goals) that I can spend if I am really in a tight spot. There is also a $1500 cash buffer that I keep in my checking account. All in all, I am at about the same place I was cash wise prior to the $4K being yanked out.

You then ask, what happens if I burn through all of that cash?  Well I am glad you asked, because that was a legit concern of mine as well. I consulted with a financial advisor (someone who is 30 years my senior and specializes in retirement accounts including the Roth IRA) and found out an interesting aspect to Roth’s. Now, we already know you can take out your principle investments at any time without penalty. We also know you can’t put that money back in until the next tax year if you have already maxed your contribution for the year. BUT, you CAN take out principle funds from your Roth for a maximum of 60 days and return them in full without penalty once over the course of a year. If you return the funds within those 60 days, it’s like it never happened.

This was all the reasoning I needed to make that jump.  If I can have a 60 day loan from my Roth with no stipulations, I know all my financial bases are covered.

Why did I do it?

Well, I explained what I would do if an emergency occurred above, but that doesn’t get to the fundamental logic for me making this bold move. While I embrace an emergency fund, I do so begrudgingly.

Cash is cash, and having ample cash reserves is important. Does it matter if it’s in an ING sub account labeled as “emergency fund”?

While having that $10,000 e-fund is important to me, it is only a mid-level priority. Maxing out my investments in mutual funds (especially my Roth in my mid 20s) takes priority over almost all other financial decisions I make.

It certainly also helps that I have diversified my income over the past two years and that I have a position with my employer that I feel is extremely secure.

What do you think?  Have I made another personal finance sin?  Have I gone absolutely mad because I feel the emergency fund isn’t the holy grail of my personal finance life?  Let me know your thoughts below.

2,728 Responses to Giving the Middle-Finger to My Emergency Fund
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Giving the Middle-Finger to My Emergency Fund

I am a big proponent of having an emergency fund. In fact, one of my medium term goals is to have a $10,000 emergency fund (about 4.5 months of living expenses). So you may be surprised to hear that I recently took $4,000 out of my emergency fund (balance was at $6,200 at the time) and used it in a way that I feel is much more productive.

Where did it go?

That $4,000 went right into my Roth IRA. With my goal of maxing my 401(k) for the year, I knew it was going to be tough to max the Roth in 2010. However, I know that these early years are the most important for the growth of my Roth. Somehow, someway, I was determined to make sure I was able to contribute the full $5,000 for the year.

With both retirement accounts getting maxed for the year, I know my investment accounts are going to grow at a faster pace than I could have ever hoped. A little bit of sacrifice now (and it really is only a little bit) will set me up for that boat and house on the beach that J. Money and I always talk about for our early 40s.

What happens if an emergency occurs?

Well I am glad you asked. I still have an emergency fund of about $2500. So, I am covered for at least a little bit. I also have additional cash savings (set up for specifics savings goals) that I can spend if I am really in a tight spot. There is also a $1500 cash buffer that I keep in my checking account. All in all, I am at about the same place I was cash wise prior to the $4K being yanked out.

You then ask, what happens if I burn through all of that cash?  Well I am glad you asked, because that was a legit concern of mine as well. I consulted with a financial advisor (someone who is 30 years my senior and specializes in retirement accounts including the Roth IRA) and found out an interesting aspect to Roth’s. Now, we already know you can take out your principle investments at any time without penalty. We also know you can’t put that money back in until the next tax year if you have already maxed your contribution for the year. BUT, you CAN take out principle funds from your Roth for a maximum of 60 days and return them in full without penalty once over the course of a year. If you return the funds within those 60 days, it’s like it never happened.

This was all the reasoning I needed to make that jump.  If I can have a 60 day loan from my Roth with no stipulations, I know all my financial bases are covered.

Why did I do it?

Well, I explained what I would do if an emergency occurred above, but that doesn’t get to the fundamental logic for me making this bold move. While I embrace an emergency fund, I do so begrudgingly.

Cash is cash, and having ample cash reserves is important. Does it matter if it’s in an ING sub account labeled as “emergency fund”?

While having that $10,000 e-fund is important to me, it is only a mid-level priority. Maxing out my investments in mutual funds (especially my Roth in my mid 20s) takes priority over almost all other financial decisions I make.

It certainly also helps that I have diversified my income over the past two years and that I have a position with my employer that I feel is extremely secure.

What do you think?  Have I made another personal finance sin?  Have I gone absolutely mad because I feel the emergency fund isn’t the holy grail of my personal finance life?  Let me know your thoughts below.

2,728 Responses to Giving the Middle-Finger to My Emergency Fund
  1. psychologist near me
    July 17, 2018 | 8:18 pm

    Many thanks for sharing this first-class post. Very interesting ideas! (as always, btw)

  2. australia trip
    July 17, 2018 | 8:36 pm

    Hello There. I found your blog using msn. This is an extremely well written article. I will be sure to bookmark it and return to read more of your useful information. Thanks for the post. I will certainly return.

  3. teeth whitening
    July 17, 2018 | 8:49 pm

    I have read several good stuff here. Definitely worth bookmarking for revisiting. I wonder how much attempt you place to create one of these fantastic informative site.

  4. pet needs
    July 17, 2018 | 8:54 pm

    This is very interesting, You are a very skilled blogger. I’ve joined your feed and look forward to seeking more of your excellent post. Also, I’ve shared your web site in my social networks!

  5. yoyomedia
    July 17, 2018 | 10:24 pm

    very few web sites that happen to become comprehensive below, from our point of view are undoubtedly well really worth checking out

  6. Google
    July 17, 2018 | 11:28 pm

    Here are some of the websites we advocate for our visitors.

  7. Travis Osucha
    July 18, 2018 | 12:09 am

    I lovereally like your blog.. very nice colors & theme. Did you createdesignmake this website yourself or did you hire someone to do it for you? Plz replyanswer backrespond as I’m looking to createdesignconstruct my own blog and would like to knowfind out where u got this from. thanksthanks a lotkudosappreciate itcheersthank youmany thanks

  8. Stack
    July 18, 2018 | 3:51 am

    one of our guests just lately encouraged the following website

  9. for more information
    July 18, 2018 | 8:10 am

    Very neat post.Much thanks again. Want more.

  10. EZ Battery Reconditioning Review
    July 18, 2018 | 10:44 am

    Way cool! Some extremely valid points! I appreciate you penning this article and also the rest of the site is extremely good.

  11. www.contimusic.com
    July 18, 2018 | 1:21 pm

    You have made some good points there. I looked on the net to find out more about the issue and found most people will go along with your views on this website.

  12. Douglas Marlowe
    July 18, 2018 | 5:25 pm

    Keep on workingthis going pleaseon writing, great job!

  13. home inspection
    July 18, 2018 | 8:03 pm

    Really enjoyed this blog article.Really looking forward to read more. Fantastic.

  14. Google
    July 19, 2018 | 12:20 am

    Here are a number of the web-sites we suggest for our visitors.

  15. Prosper Noah
    July 19, 2018 | 12:26 am

    If some one needs to be updated with most up-to-date technologies after that he must be visit

  16. RodneyThamb
    July 19, 2018 | 12:35 am

    For example, it will often make sense for someone earning $50,000 a year without a large portfolio meilleure plateforme bitcoin to forgo an investment advisor altogether,

Trackbacks/Pingbacks
  1. replacement parts for clocks
  2. china sourcing company
  3. china supply chain
  4. clock synchronization software
  5. clock synchronization software
  6. china manufacturers
  7. china suppliers
  8. sync clocks for hospitals
  9. china outsourcing company
  10. metal building construction
  11. clock building videos
  12. get more info here
Leave a Reply


Wanting to leave an <em>phasis on your comment?

Trackback URL http://mynextbuck.com/giving-the-middle-finger-to-my-emergency-fund/trackback/