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<How fat would you make an emergency fund?.....and does it matter where you keep it....i keep mine in my high school track baton in case the cars quit and i can't get to the bank!>

It's a good idea to keep a small amount of emergency cash, in the house. Perhaps a few hundred dollars. This is enough to rent a car, if your cars quit.

The emergency fund (e-fund) that I talk about is much larger than that. It is for terrible life emergencies, which can bankrupt a family.

As a young man, with a wife and 3 children, and a life which is going well, it may be hard for you to imagine that a terrible emergency might happen to you.

Let me share an incident, from my own life.

The date was April, 1970. Things were going well, in our family. My father was working hard, in his engineering business. He had just bought himself a small outboard motor boat, for the weekends. Mom was working at a job she loved (art teacher, in a NYC high school). My older brother was in his first year of college. Younger sister was doing well.

I was 16, a high school senior. I was one of the top students, in my large Brooklyn high school, and had just won a NY State Regent's Scholarship, with the highest score in the school. I had just won 4th place in an all-NYC drawing contest. The previous summer, I had held my first full-time job. I got along well with everyone, especially my parents.

One day, I noticed some little red dots, on the inside of my forearm. To make a long story short, I had suddenly, and inexplicably, been stricken with an autoimmune disease, in which my spleen destroyed virtually all my blood platelets (idiopathic thrombocytopenic purpura). The little red dots were blood, leaking out of the capillaries, under the skin.

The doctor immediately put me into the hospital, for a week.

To rule out the possibility of leukemia, the hospital did a bone tap. With only superficial (skin-deep) anesthesia, a resident hammered a large hypodermic needle, into the top of my hip bone, pounding the hypodermic with a large mallet, until the tip of the needle went through the bone, and into the marrow. Then, he pulled out the hypodermic plunger, to suction out bone marrow cells. The agony was indescribable. It was a horrible experience.

An hour later, the resident returned. The sample was inadequate. They repeated the test, using the mallet to pound a hypodermic into the opposite hip bone. It was the worst day of my life, literally torture.

That was when I realized that bad things really could happen to good people.

The good news was that I didn't have leukemia. After months of heavy-duty prednisone, the autoimmune response was controlled well enough that the platelets returned. My spleen was removed, using the old-style abdominal cut, which was so large that they took out my appendix, too, while they were "in the neighborhood." The splenectomy cost $2,000; the surgeons had the nerve to add $400 to the bill, for the appendectomy. (Remember, everything cost about 1/10 as much, in 1970, as it does, today -- a slice of pizza was 15 cents, at the time.)

After a week, in the hospital, I returned home. I have been OK, ever since.

Now, look at this, from the point of view of my parents. Everything was going so well. Suddenly, one of the children is in mortal danger. She needs hospital stays, expensive tests, a major operation. The NYC Board of Education provided excellent family health insurance. However, it only covered 80% of the costs.

Fortunately, my parents had the intelligence to find the best available hematologist...and the foresight to have saved enough money to be able to afford the treatments.

A sudden illness or injury is an emergency situation, that can't be covered by the amount of money that you would keep in a baton. Current studies show that many people who fall into bankruptcy, because of medical emergencies, actually have health insurance. However, the copays and uncovered expenses push them over the edge.

Another story, from a colleague (a very nice fellow chemist).

Both of his parents were killed, at age 30 or so, in an auto accident. My friend and his brother, who were under age 10, were put into the Boys' Town orphanage, where he grew up.

Have you provided for your kids, should you and/or your wife be killed (or, perhaps worse, severely injured) in an auto accident?

What if your house or apartment had a fire? I was completely burned out of my apartment, by an electrical fire, in 1984. I had insurance, but it didn't pay out for 6 months. I had to restart and refurnish, using my e-fund. Is your e-fund big enough to resettle your family?

What if you and/or your wife lost your job(s)? Would you be able to cover all your household expenses, PLUS paying for COBRA (health insurance that used to be paid by your company)? The health insurance for a family is may be $1,000 per month. My husband and I both lost our jobs, in 1987. Our COBRA was over $600 per month. I was unemployed for 6 months. DH never went back to work. Is your e-fund large enough to cover all your expenses, for 6 months?

What if the market tanked, by 25%, and stayed down, for a year or more? What would happen to your investments? A market drop often happens during a recession, when many lose their jobs, and unemployment is high. Would you be forced to sell, if you and/or your wife lost your job? Are you treating stock investments as an emergency fund?

You can see that my terrible experiences, of pain, disease, fire, and unemployment have made me very aware of the dangers in life. Sorry if that makes me a somber, not-fun person!

When I talk about e-funds, I am talking about very serious problems, not a car problem. I am talking about protecting your family. In a dangerous world, truly threatening crises can strike, without warning.

A husband's most fundamental job is to protect his family. A wife's most funamental job is to protect and care for her family. A family is a team. Everyone is safer, than they would be alone.

When things are going well, people tend to ignore potential problems. It is the mark of an intelligent person to think ahead, to plan for contingencies.

If you are blissfully ignoring potential problems, GROW UP!! You are the Dad! It is YOUR responsibility to take care of these things (of course, with your wife)! My parents did...and they earned the deep respect that came with overcoming difficulties.

<How fat would you make an emergency fund?.....>

As I have told you, previously, an e-fund should be a minimum of 3 months' living expenses (including COBRA health insurance), if you are willing to relocate, to find a job. If you are not willing to relocate, an e-fund should be a minimum of 6 months' living expenses. Personally, I never felt comfortable, until I had a year's salary, in my e-fund...which was more than a year's living expenses, since I LBYM.

Specifically, how much would I put there? It depends upon your expenses. However, I would consider $25,000 to be the minimum for a guy with a wife, 3 kids, a house, and a couple of cars. This assumes that you already have health insurance.

Where is a safe place for the e-fund?

It won't fit into a baton. It must be in an absolutely safe investment: NOT STOCKS!!!

Keep 3 months' expenses, in a high-paying savings account, such as www.emigrantdirect.com. At the same time, ladder 3 to 6 month Treasury Bills, which you can buy, commission-free, at www.treasurydirect.com.

<saying that the plan and strategy is without flaws but if it is efficient and super safe...>

If you already have a really good e-fund, like the one I have been describing, then you are super safe. In that case, I have just wasted some time ;-).

If you don't, then you are not super-safe. Your family is at risk, until you do.

I hope none of this bad stuff ever happens to you or your family. However, if it does, it is much better to have problems with lots of cash, than to have problems without cash. Take it from me.

Once you have this covered, we can talk about playing games...with stocks.

Wendy


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