Rainy day fund

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.

BiegeToyota wrote: ↑ I keep 250k cash in rainy day fund.

But I don't live in Canada and have the luxury of free Healthcare.

batcave wrote: ↑


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.

JoloLo wrote: ↑ ... have LOCs available for when you need it.

batcave wrote: ↑


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.

smartie wrote: ↑ But if you lost job, how do you pay for mortgage, credit card, loc and so?

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.

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.

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.

smartie wrote: ↑ But then how do you pay line of credit?

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.

BiegeToyota wrote: ↑ I keep 250k cash in rainy day fund.

But I don't live in Canada and have the luxury of free Healthcare.

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.

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.

batcave wrote: ↑ With my other line of credit. Can't just have one - you got to have backup.

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.

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.