Emergency Fund and PP Allocation to Cash

[buddtholomew]

I currently have 12 months worth of Cash in a Savings account at Ally that I would withdraw to cover expenses in the event of a job loss. An additional 24 months of reserves is invested in the HB 4x25 PP. These assets are held in taxable accounts and are not considered part of the retirement portfolio. I do however count them in net worth calculations.

Lets assume for discussion purposes that the investments total 180K and Cash comprises 50% of that amount.

Ally Savings - 60K
SPY, GLD, CASH and TLT - 30K each

If I combine Savings and the PP, the breakdown is as follows. Ally Savings - 0K
SPY, GLD, CASH and TLT - 45K each

What are the pros and cons of this approach. One con that comes to mind is the Cash component now only has 9 mónths worth of living expenses. If I need to rebalance at some point, this figure could be reduced. What others am I missing? Do other PP investors have a separate emergency fund in CASH as well? 

[SteveGo]

I don't have a separate emergency cash fund, but I am mostly retired, having made all of the money I ever will. The cash in my PP would last for multiple years.

If I were still in my working years, I would probably feel a little more comfortable with at least 6 months of cash segregated out.

[Tyler]

Everyone's situation is different.  I personally like to segregate my "cash" from my "investments" mentally, so I keep 6 months of cash buffer in an FDIC bank and the rest invested in the PP.  Many here argue that you should keep a full years worth of cash in an easily accessible form (whether counted in or out of the PP for accounting purposes), but in my personal situation both my wife and I work so a long-term period with no income is less of a risk for us. 

In the end, you should probably err on the side of safety and do what makes you most comfortable. Base your "emergency cash" vs "PP cash" percentage based on your own personal risk that you'll need it soon.

[clacy]

You might be a little overweight in cash.  I've decided anything over 6 months worth of living expenses, is thrown into my PP. 

With that said, it's not the worst thing in the world to have a little extra safety net of cash.  If it helps you sleep well at night, keeping a little extra cash is not a bad choice.

[TripleB]

Off topic, but you might want to figure out how to live on less than $60k/year in the event of job loss.

[buddtholomew]

Off topic, but you might want to figure out how to live on less than $60k/year in the event of job loss.

The 60K figure is to cover mortgage expenses and property taxes only. The balance required to sustain a family of 4 in CA is easily double that amount. The spouse works and will contribute to these costs in the event of a job loss.

[BearBones]

Off topic, but you might want to figure out how to live on less than $60k/year in the event of job loss.

Just calculated my cost of living, and it is similar. Interesting to think that I spend more than the typical American family makes in a year. And, because I work long hours, I am frequently exhausted. Not all that happy, really. Hmm... This takes me back to several threads, most notably those about early retirement, money saving "hacks," and the "Kahneman boundry."

Options:
Work HARDER (or safely and easily move up the career salary ladder)
Work LONGER (or a lot more efficiently)
Just invest BETTER (assurance of higher return while not compromising safety)
Or... reduce expenses

Several related questions: If I did lose my job, is it prudent for me to count on another equally lucrative career within 1 year? Is 12 months of current living expenses set aside in cash prudent? What if I lose my job because the economy tanks to a degree not seen before? And if it might be possible for me reduce expenses in the future, particularly if I can do this without significantly compromising my happiness, why not do it now?

All comes back to one direction for me. Although it is unlikely that I can reduce expenses to 7K/person/yr, I am going to start looking at the website Doodle and others have quoted elsewhere on this forum:

As an example, in the period of two years I have gone from an average consumptive American lifestyle to one where I practically consume less resources than Ghandi. For example, my YEARLY power bill for my apartment is about 250 dollars...about half of which is taxes and fees...despite this, I have a TV, computers, a fridge, I cook at home...etc. This is only one example of many ways in which I have changed...see Early Retirement Extreme.com for a more detailed idea of what I live like from the master of frugality Jacob Lund Fisker.

My lifestyle transformation (although drastic) has had little to no impact on my overall health or happiness...in fact I feel freer and less preoccupied with insignificant crap than ever before.

[stone]

If you want to be frugal, I think the key thing is to cut down on essentials but keep the extravagances. Buying expensive everyday stuff seems pure money down the drain to me. But everyone likes different things I guess.