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200k debt at 7%. 27 year old single male. NYC V20 corporate. 20k liquid in ING account at like 1%. 25k in ROTH401k/IRA from pre LS. Parents in West Coast so I could move in with them but I'd probably want to stay in NYC in the event of a layoff to job search where I have work connections (tri-state area). Single male with normal discretionary spending and 2k/mo shared apartment in lower Manhattan.

Is 20k enough of an emergency fund? Save more or pay down that 7%, which is costing me ~14k a year in interest?

Emergency fund should be whatever your essential cost of living is times 12. Beefing it up will be more costly than paying off your debt, but it's a smarter hedge in event you do lose your job.

Anonymous User wrote:200k debt at 7%. 27 year old single male. NYC V20 corporate. 20k liquid in ING account at like 1%. 25k in ROTH401k/IRA from pre LS. Parents in West Coast so I could move in with them but I'd probably want to stay in NYC in the event of a layoff to job search where I have work connections (tri-state area). Single male with normal discretionary spending and 2k/mo shared apartment in lower Manhattan.

Is 20k enough of an emergency fund? Save more or pay down that 7%, which is costing me ~14k a year in interest?

I think you should always be adding to your cash/cash equivs because of inflation and because if you have a portfolio you are adding to, you should want to keep the strategic allocation of that cash around the same percentage or even higher.

Your emergency fund should be in something stable and liquid, like savings or a short-term CD.

ING account is totally liquid. It's just online savings account that gives a better rate than traditional brick and mortar banks because of lower overhead. Tied to primary checking account; that 20k could be in primary checking account in ~3 days.

An emergency fund gives you enough to live on for 6 months without an income. Once you figure out how much that would be, then you talk about the best way to save/maintain it.

This may be a basic question, but does that 6 months rule include student loan payments? Loan payments are my biggest monthly fixed expense (moreso than 2k in rent). Since they are all federal, I think you can defer them if you are laid off, but for the purpose of calculating how much you should have in liquid cash reserve, should the loan payments (~2400 x 6 = $14400 or $22800 if you're in the 'save a year' camp) be included?

That's about 19,000 more than I have right now. Balls.

I just don't get it. The risk of being Lathamed/Dewey'd in years 1-2/3 (depending on risk tolerance) doesn't justify forgoing the certain "investment gain" of paying your loans more quickly.

I get having an emergency fund for unforeseen expenses, and I get the desire to start building a fund in year 3, when getting the boot (or wanting to get out) becomes a real consideration. But unemployment due to injury is covered by employer-provided insurance--the only thing you're hedging against in years 1 and 2 is being fired. You're paying 7-8% tax-free (in student loan interest) for that hedge. Just doesn't seem to make a lot of sense.

ToTransferOrNot wrote:I just don't get it. The risk of being Lathamed/Dewey'd in years 1-2/3 (depending on risk tolerance) doesn't justify forgoing the certain "investment gain" of paying your loans more quickly.

I get having an emergency fund for unforeseen expenses, and I get the desire to start building a fund in year 3, when getting the boot (or wanting to get out) becomes a real consideration. But unemployment due to injury is covered by employer-provided insurance--the only thing you're hedging against in years 1 and 2 is being fired. You're paying 7-8% tax-free (in student loan interest) for that hedge. Just doesn't seem to make a lot of sense.

Depends on his/her risk tolerance.

I could live comfortably off $20k for over a year.

So, sure sounds like enough for me.

Anonymous User wrote:This may be a basic question, but does that 6 months rule include student loan payments? Loan payments are my biggest monthly fixed expense (moreso than 2k in rent). Since they are all federal, I think you can defer them if you are laid off, but for the purpose of calculating how much you should have in liquid cash reserve, should the loan payments (~2400 x 6 = $14400 or $22800 if you're in the 'save a year' camp) be included?

It depends. Generally, the 6 month rule should include all financial obligations, including student loans in rent. However, if you hypothetically lose your job, your would likely change your loan repayment from 10/25 years to IBR (assuming you would pay nothing under IBR since you have no income). Thus, if you believe that if you lost your job that you switch to IBR and not pay anything until you get back on your feet, you would need 1-2 additional month of loan payments.

Also, I'm not sure $20,000 could cover six months of expenses, especially if an individual was working big law in a market with a high cost of living. The idea of the emergency fund is to meet all necessary financial obligations for six months. I doubt that $20,000 would enough to continue doing that is most of the largest legal markets.

200k debt sounds like an EMERGENCY to me.