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You wrote, For those of you who are employed, how many months savings do you have in your emergency account? And do you equal the total to X amount of gross or net monthly wages?

I actually have almost 12 month's worth of expenses in "cash" in taxable accounts. But I'm approaching retirement and I now view my cash position as part of my bond position and try to place it in money market funds and CDs that yield a decent rate. If intermediate or long-term bonds were paying more, I'd probably shift more into a fund like that. Right now my overall bond position is a mixture of relatively short-term or "stable value" instruments, an intermediate bond fund and a couple of high yield positions. My bond position makes up about 15% of my total investable assets and I intend to move it closer to 20% by the time I retire late next year.

From what I can tell there are two or three times in your life when you don't really want to carry too much cash just for an emergency fund. When you're young; when you're trying to pay off high-rate debt and when you are retired (or about to be or are otherwise financially independent). The first two cases the cost of accumulating the cash may be worse than the alternatives. Either you miss out on things like schooling that might increase your income, or you wind up paying 20+% interest rates. In the last case your entire portfolio evolves into your emergency fund … which you rebalance every time you do a major draw-down.

In between while you are trying to pay down lower-rate debt and/or accumulating funds for retirement or just financial independence, the cost of not having the cash on-hand might be worse than setting aside some for a rainy day. But as your accumulated assets become significant, you have resources you can draw on if you need them in an emergency so maintain a large cash pool seems to become increasingly less important again … assuming those assets aren't locked up somewhere and inaccessible.

At least that's the way it seems to me...

- Joel
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