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  • Nov 12th, 2020 5:59 pm
[OP]
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May 23, 2011
82 posts
107 upvotes

Rainy day fund

Does anyone else keep a rainy day fund in cash? And how much?

I had always been taught to keep some cash in case of emergencies but I think the math doesn’t agree. I’m not talking about have an extra $5k in your chequing account to keep your account above a min balance. Im talking about the maybe 20k you keep in cash in case you lose your job or total your car.

Any cash that’s just sitting there is basically lost opportunity right? Interest is taxable so it’s pretty much laughable. Meanwhile if you hold any kind of debt including mortgage, you’re essentially paying interest on that cash sitting there.

That’s why the Manulife one account and similar products boast sooner financial freedom.

The most optimum thing to do is to put all your spare cash against debt and mortgage and have LOCs available for when you need it.

Anyways, I’m just wondering if anyone else keeps a large sum of money as a rainy day fund and why.

Edit:
Ive float anywhere between 20k to 50k cash but that’s a pool for 2.5 families. I still think it’s a bit high. 20k makes me a little nervous at times.
Last edited by JoloLo on Nov 7th, 2020 10:31 pm, edited 1 time in total.
78 replies
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Dec 13, 2016
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I keep 250k cash in rainy day fund.

But I don't live in Canada and have the luxury of free Healthcare.
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Feb 4, 2010
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JoloLo wrote: Does anyone else keep a rainy day fund in cash? And how much?

I had always been taught to keep some cash in case of emergencies but I think the math doesn’t agree. I’m not talking about have an extra $5k in your chequing account to keep your account above a min balance. Im talking about the maybe 20k you keep in cash in case you lose your job or total your car.

Any cash that’s just sitting there is basically lost opportunity right? Interest is taxable so it’s pretty much laughable. Meanwhile if you hold any kind of debt including mortgage, you’re essentially paying interest on that cash sitting there.

That’s why the Manulife one account and similar products boast sooner financial freedom.

The most optimum thing to do is to put all your spare cash against debt and mortgage and have LOCs available for when you need it.

Anyways, I’m just wondering if anyone else keeps a large sum of money as a rainy day fund and why.
I have a few different options depending on what the situation is. I have equivalent of 3months salary savings. I also have LOC, MF and RRSP but that would be last resort. I'll be looking into getting a HELOC instead of mortgage when it comes time for renewal (which I think is the same as the one account )...still trying to figure out what scenario it makes sense to get a HELOC vs mortgage.
BiegeToyota wrote: I keep 250k cash in rainy day fund.

But I don't live in Canada and have the luxury of free Healthcare.
How's this remotely helpful? :rolleyes:
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LaLaLand
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You're doing it right if you put any excess cash into your mortgage.

When I had a mortgage, I would use a line of credit as my chequing account and put any excess into my mortgage. I also never had any cash on hand. I would used use credit cards for all of my expenses.

Money sitting in a chequing or savings account is a lost opportunity to reduce interest costs or make money in other investments.
Deal Guru
Dec 5, 2006
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Markham
batcave wrote: Image
Face With Tears Of Joy

You're doing it right if you put any excess cash into your mortgage.

When I had a mortgage, I would use a line of credit as my chequing account and put any excess into my mortgage. I also never had any cash on hand. I would used use credit cards for all of my expenses.

Money sitting in a chequing or savings account is a lost opportunity to reduce interest costs or make money in other investments.
But if you lost job, how do you pay for mortgage, credit card, loc and so?
Sr. Member
Nov 6, 2015
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JoloLo wrote: ... have LOCs available for when you need it.
Many people got their credit cards and LOCs reduced or taken away completely when Covid hit. You can't count on your credit being available when you need it.
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batcave wrote: Image
Face With Tears Of Joy

You're doing it right if you put any excess cash into your mortgage.

When I had a mortgage, I would use a line of credit as my chequing account and put any excess into my mortgage. I also never had any cash on hand. I would used use credit cards for all of my expenses.

Money sitting in a chequing or savings account is a lost opportunity to reduce interest costs or make money in other investments.
You can strategize this.
See your mtg terms and conditions...
Many have a mtg cash account. Meaning any extra payments you make can be taken out. Its added to your mtg at whatever your current rate/term is.
I forgot what the amount was.. but you had to stay within 80 or was it 65% LTV.

Other option is just investing all your excess cash and have access to lines of credit in case things get crazy.
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smartie wrote: But if you lost job, how do you pay for mortgage, credit card, loc and so?
It is more cost effective to pay down debt now than leave those funds in an account for a potential event that may never happen. And if it did I would have drawn on a line of credit that had low borrowing costs. I also had investments that I could tap into if I needed.

Having large sums of cash in a bank account is an antiquated way of thinking because cheap credit is so easily obtained these days.
UrbanPoet wrote: You can strategize this.
See your mtg terms and conditions...
Many have a mtg cash account. Meaning any extra payments you make can be taken out. Its added to your mtg at whatever your current rate/term is.
I forgot what the amount was.. but you had to stay within 80 or was it 65% LTV.

Other option is just investing all your excess cash and have access to lines of credit in case things get crazy.
I had a pretty unique mortgage without a prepayment limit and could contribute extra payments at anytime. I did this several times per month sometimes. This was a while ago - mortgage cash accounts and dynamic HELOC type arrangements were not really available. My banker set this up for me and it worked for me.

I micro managed my line of credit to keep the balance at zero to minimize interest costs.
Last edited by batcave on Nov 7th, 2020 9:30 pm, edited 1 time in total.
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JoeBlack23 wrote: Many people got their credit cards and LOCs reduced or taken away completely when Covid hit. You can't count on your credit being available when you need it.
Definitely

Everyone gives you credit when you don't need and take it away when you do
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batcave wrote: It is more cost effective to pay down debt now than leave those funds in an account for a potential event that may never happen. And if it did I would have drawn on a line of credit that had low borrowing costs. I also had investments that I could tap into if I needed.

Having large sums of cash in a bank account is an antiquated way of thinking because cheap credit is so easily obtained these days.
But then how do you pay line of credit?

Regardless where you take credit, you have to have funds to pay for. That's OP's question. From what you said, the answer seems sell investment? But then again, you might sell at lose.
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Jun 14, 2018
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I have 10k as an emergency fund, plus I set aside $100 every month into a car fund and into a fund to help pay for any strata special levy fees that might happen in the future.

Yes there is some lost opportunity with all this money I let sit around doing nothing, but I'm also taking risks in other areas (for instance, I'll be taking out a HELOC to invest) that I don't feel the need to use this money for something with more potential. I don't mind being safe with this money. It's money that I will eventually need and I want to be prepared for it when it happens instead of it becoming a "surprise" expense and needing a HELOC for it.
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smartie wrote: But then how do you pay line of credit?
With my other line of credit. Can't just have one - you got to have backup. Face With Tears Of Joy

Also lines of credit are typically interest-only as minimum payment which makes carrying costs low and doesn't cut into cash flow as much as interest plus principal loans.

I worked for a pretty big company and I liked my job so I would not have quit. However, if they were to let me go, I would have received a severance package and that would have been income. This is basically free money because they are paying you to go away.

Also, I'm sure I could have received EI if I lost my job and did not receive severance. It would be a very sad state of affairs to have zero income in this day and age. This is not the 1930s.
smartie wrote: Regardless where you take credit, you have to have funds to pay for. That's OP's question. From what you said, the answer seems sell investment? But then again, you might sell at lose.
Maybe, maybe not. I was making close to 20% on my investments back then.

I could have paid my mortgage off sooner, but it wasn't necessary because at one point it was less than than 1% interest. It was like borrowing money for free.
Last edited by batcave on Nov 7th, 2020 10:06 pm, edited 2 times in total.
Member
Dec 5, 2017
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Lost opportunity on 20K or whatever your emergency fund is, shouldn't be a big deal. Just think of it as part of your cash position of your portfolio.
[OP]
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May 23, 2011
82 posts
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BiegeToyota wrote: I keep 250k cash in rainy day fund.

But I don't live in Canada and have the luxury of free Healthcare.
Well this is actually interesting.

People complain about having to socialize healthcare but on the flip side we don’t have to set aside a small fortune for just in case we get sick!
[OP]
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May 23, 2011
82 posts
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Spiritwalker2222 wrote: Lost opportunity on 20K or whatever your emergency fund is, shouldn't be a big deal. Just think of it as part of your cash position of your portfolio.
Yea I’ve typically taken the approach that I’ve just cut that money out of my net worth.
[OP]
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May 23, 2011
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JoeBlack23 wrote: Many people got their credit cards and LOCs reduced or taken away completely when Covid hit. You can't count on your credit being available when you need it.
I HAVE NOT HEARD ABOUT THIS!

I have two large unsecured LOCs but I’ve always had about whether they’d be there for me when times got tough.
[OP]
Newbie
May 23, 2011
82 posts
107 upvotes
batcave wrote: With my other line of credit. Can't just have one - you got to have backup. Face With Tears Of Joy

Also lines of credit are typically interest-only as minimum payment which makes carrying costs low and doesn't cut into cash flow as much as interest plus principal loans.

I worked for a pretty big company and I liked my job so I would not have quit. However, if they were to let me go, I would have received a severance package and that would have been income. This is basically free money because they are paying you to go away.

Also, I'm sure I could have received EI if I lost my job and did not receive severance. It would be a very sad state of affairs to have zero income in this day and age. This is not the 1930s.

Maybe, maybe not. I was making close to 20% on my investments back then.

I could have paid my mortgage off sooner, but it wasn't necessary because at one point it was less than than 1% interest. It was like borrowing money for free.
I think this is the optimistic scenario that I’m cautious against. All those things SHOULD happen. And therefore the optimum thing is to place all cash against debt and have the banks credit become your safety net.

But what if they pull that safety net away from you? What if you quit your job for some reason and now there’s no severance? Things do happen, and the consequences of the low risk is more damaging than the small gains to be had.

Just a discussion. Not saying one way is better than other.
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My cash rainy day fund is about 50% of my annual after-tax income.

This is separate from my monthly savings for:
- Christmas
- Vacation
- Property Taxes
- Future Home Maintenance
- casual gastronomist -
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Jun 14, 2018
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JoloLo wrote: I think this is the optimistic scenario that I’m cautious against. All those things SHOULD happen. And therefore the optimum thing is to place all cash against debt and have the banks credit become your safety net.

But what if they pull that safety net away from you? What if you quit your job for some reason and now there’s no severance? Things do happen, and the consequences of the low risk is more damaging than the small gains to be had.

Just a discussion. Not saying one way is better than other.
That's the way I see it too. I have rainy day funds because it gives me a lot more cost certainty. Any unforeseen expenses shouldn't affect my life much. Like if my car breaks down and I have to take out a 25k HELOC to buy a new car, all of a sudden I have to account for these monthly payments somewhere when I didn't really have a plan to do so in the first place. It's not like I would have made room in my financial plan to prepare to make these monthly payments. It would put me in a tough position to have to make some cutbacks on my spending and/or investing.

If you can afford to, I think it makes sense to have a rainy day fund instead of solely relying on HELOC.

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