Comments on: Cash Management: How Much For Your Emergency Cash Fund

By: FIRE Finance

FIRE Finance — Tue, 07 Nov 2006 01:38:30 +0000

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By: Frugal

Frugal — Sat, 04 Nov 2006 00:25:40 +0000

Agreed, Doug.

Cash is definitely a position. But one should pay attention to average cash balance. Unless you are a very good market timer or good trader, maybe you don’t want your average cash balance to be too high. It’s important to get a good return on the money you invested, AND ALSO a good return on all the money that you have, invested or “invested” in cash. After all, cash is a position that one chooses to hold, and so the total return must be averaged with the cash that is not invested in other things.

By: Doug

Doug — Fri, 03 Nov 2006 22:57:31 +0000

Buffett always says that it is difficult to get cash when you most need it (since lenders don’t like to lend to people with cashflow problems) so always set up your borrowing lines when you can get the cash.

I also think that cash is seen as a bad thing (in other words that you should be “fully invested” most of the time). But cash should be seen as a position – having ready cash to take advantage of opportunities and not just emergencies, is a key to successful investing.

By: Frugal

Frugal — Wed, 01 Nov 2006 15:54:28 +0000

By the way, just to clarity, my comment on HELOC was assuming that you have not opened it yet. Hmm… I guess one should open such credit line always?

I usually have too much cash than I can dare to invest. So I never gave too much thought of HELOC in general.

By: Frugal

Frugal — Wed, 01 Nov 2006 15:43:30 +0000

LM&M,
Yes, HELOC is also a source of emergency fund. I will discuss that further in the future. It really depends on how your overall portfolio looks like.

One danger with HELOC is that the amount available tends to decrease during a recession due to housing price going down. And you must have good cashflow to support the additional monthly payment caused by HELOC.

By: Frugal

Frugal — Wed, 01 Nov 2006 15:40:10 +0000

Thanks your input Manny.

By: Larry Nusbaum

Larry Nusbaum — Wed, 01 Nov 2006 13:11:34 +0000

Many heavily invested real estate investors seem to have less household cash than those who aren’t. For me, I include the cash in the bank, my Schwab account and my two HELOCs of $250,000 each. I have only used the HELOC twice. Once to buy a condo from BofA that I sold in 30 days (April 2005) and to help pay for a commercial strip center in Phoenix. Both are 1 over prime (9.25%) and have zero balances.

By: Lazy Man and Money

Lazy Man and Money — Tue, 31 Oct 2006 23:40:13 +0000

I prefer to use my HELOC as an emergency fund. I want my cash working for me most of the time.

By: Manny

Manny — Tue, 31 Oct 2006 23:13:02 +0000

Great post. The brilliant Thomas Schweich has done some wide-ranging thinking about emergency funds as well as a host of similar items in his magnificent book “Crashproof Your Life”. I review it here:

http://successbooks.blogspot.com/2006/10/success-book-review-crashproof-your.html