Speaker 2 (00:01.038)
you
Welcome to the Physician Family Financial Advisors Podcast, where physician moms and doctor dads turn today's worries about taxes, investing, and extra money into a comfortable feeling of financial security. I'm Ben Utley.
and I'm Nate Renneke. Today we are talking about safe money. That's S-A-F-E money. Your physician family emergency fund. So Ben, we talk about emergency funds pretty much every time a family is getting started. They're getting their feet under them with their personal finances. And kind of one of the questions we talk a lot about is, is the why, like why have one? So when you think about bad things,
that might call for cash, what comes to mind?
bad things, skied into a tree and had to pay for a hell of a back off the mountain. Um, uh, house, house burned down in a firestorm. let's see what else. Oh, uh, uh, global plague hit and temporarily lost ability to earn income. Um, yeah, those, those are some of the things that come to mind.
Speaker 1 (01:13.986)
And the reason they kind of mind is I've actually seen all three of those things.
Mm-hmm. Yeah, the fires were really close to us and we actually saw someone who built their house with their emergency fund and then that house burned down. That was really scary.
Yeah, we didn't tell them to do that. We told them to keep their emergency fund and build a down payment. They didn't. And then they told us later. So it was kind of sad to see, but yeah, there's no substitute for an emergency fund. When you ask that question, I always think about like, okay, what's an emergency? to me, emergency is something like you just, cannot see it coming. You cannot imagine what it would be. I mean, maybe beyond like,
perspective job loss, right? you know, maybe we should talk about things that are not emergencies.
Right.
Speaker 1 (02:09.675)
Yeah, I think about that seems emergency like that's that's non-emergency
The big one that I think of is a lot of house related stuff. Sometimes you can kind of get away with, have a leak in the roof or something to tap into your emergency fund, but really a lot of those things, like you know your house is gonna deteriorate. So you should probably be saving something for upkeep on your house.
Yeah, you know, it's, you're going to need that roof and you know, you're going to need a paint job on the outside. And, know, if you're in the country, you know, you're going to need a well. And, you know, if you're in the city, you know, you might have a condo association fee levied against you, you know.
Yeah, kind of, that's a really good reason for why you shouldn't just have like emergency cash and that's it and run your accounts dry completely other than your emergency fund. But also, you you don't want to get into the dangerous territory of having far, far too much cash. But I think the rule of thumb was have some reserves for things you know are coming, like save a little bit every month for your house upkeep.
but also have that emergency fund completely on the side. What are some other things you've seen people spend their emergency fund where they honestly thought it was an emergency?
Speaker 1 (03:31.744)
surprise tax bill.
yeah.
Yeah. Surprise tax bill, which, we all know we're going to pay taxes. if you do tax projections with a CPA or somebody like that, then, you can kind of see that coming. A lot of surprise tax bills for physicians that are paying their first, attending tax bill. maybe they start practicing, you know, July, August of, of this year. And then April comes next year and they're just like blown away, almost every time.
we get a new client who's in that boat. I always tell them, but almost every time they're still surprised by how much taxes they owe. so that's not an emergency. Now now that everybody on the, on the call knows that it's not an emergency because you've seen it. I've benetly told you about it. So, yeah, that's one of the, one of the ones that I see, you know, cars, cars going down, you know, you, you know, your car's going to die at some point or so.
Yeah, makes sense. The main question that everyone jumps right to is kind of how much and I think the reason they they ask how much is they really it's not really fun to save for this goal. I mean thinking about catastrophic things and and building up cash that doesn't you know earn much money and all that really but it's not exciting. It's great to have and once once I see people have it and accomplish the goal they feel at peace.
Speaker 2 (05:00.706)
but it's not fun to build it up. So they kind of will make bad analysis on exactly how much they need, usually on the lighter end. So what do you think about how much you should have in your emergency fund?
Well, I think what you hear is three to six months worth of living expenses. You know, we have a process where we're actually calculate how much a person needs in an emergency fund. but yeah, I mean, at least three months worth of living expenses to six months worth of living expenses. mean, you know, if you're, if you're both physicians and you're both earning six figures, then maybe you can get away with less. But if you both work for the same employer, then maybe a little bit more. you know, if you're, particularly if you have a, if you have a
a single breadwinner in the household, maybe somebody who has earnings that kind of come and go, like maybe a surgeon would, then maybe a little bit more than that. But ultimately, you you have to kind of sit down and figure out like, how long can I be without a job? And you know, what, what I, what I do with that, you could look at how many months worth of elimination period you have on your disability insurance policy as a, as a clue for that. Yeah.
The job loss one or changing jobs to a different state, let's say, that tends to be something that kind of drives how much physicians should have in their emergency fund in my experience. And that's another one where people wanna plan for best case scenario. They say, I could get locums tomorrow. And I'm thinking, do you wanna work locums? Would you rather just build it up now so that you could look for a great job if you ever had to?
Normally when they think it through they're like, yeah, that's true. I'd like to look for my next dream job rather than have a bunch of jobs in between trying to pay the bills.
Speaker 1 (06:51.298)
I think, you know, you've, really hit on something about the emergency fund. was sitting here thinking like, how can I make emergency funds sexy? And, wah, wah, you know, not coming up with any ideas about that. So like, what's the payoff in having an emergency fund? Cause clearly it's not a financial payoff, right? I mean, your banks pay very little. they've always paid little relative to inflation, you know, so like there's, there's nothing exciting about it.
Yeah.
Speaker 1 (07:20.056)
But what's really cool is knowing that you have that there, I think ultimately what it does is it gives you options. So if somehow you lost your job as a physician, then you have options about, am I gonna hunt for another job in this area? Am I gonna transfer? Am I gonna move? Am I gonna go locums? Then you have options rather than being forced to take the very next job.
If something bad happens, then you could use your emergency fund. might be able to use other resources. So it buys you some time. And I think really the, peace of mind is knowing that you're not going to be forced into doing anything that you really have choices about what happens. You know, when an emergency comes on. So I think that's kind of a big piece of the, of the why. So Nate, I'm going to come right out here and say it. Did you know that there was a time that I.
I as a financial advisor did not have an emergency fund.
No.
I love that response. It's awesome. It's awesome. Yeah. Um, so there was a time it's, it was back in, if I recall, I believe it was like 2006, 2007. I did not have an emergency fund. I was going to be a smarty pants and I had a home equity line of credit instead. That was back when you could get a home equity line of credit, right? And you could deduct the interest. So I had a HELOC and, uh,
Speaker 1 (08:48.718)
I'll admit that I took a Dave Ramsey class. went to the financial peace university. My wife and I both did. And one of the first things Dave talks about is having an emergency fund. And that's really where I learned the, you know, I took the baby steps, I built an emergency fund, you know, that kind of thing. And so I put it together. Well, now I have a fat emergency fund and I can tell you that it's,
Maybe for physicians that are in practice today, there's a feeling that you had when you were a resident and now there's a feeling that you have when you're an attending five years in. It's like a difference in stance and perspective on the world. You know, you just see things differently. Well, you know, it's, there's a time, but like if you don't have kids, you see the world one way. And then after you've had children, you see the world an entirely different way. And, you know, from one vantage point, you can't imagine another. Well, emergency funds are the same story.
Right. So there was a time I didn't have an emergency fund. Now I have an adequate emergency fund and the way that I feel about my daily existence is different knowing that emergency fund is there. And there's probably not two or three days that go by that I don't like think about having the emergency fund, just knowing that it's available and ready to go makes me feel more comfortable. It, uh, I feel more relaxed and
I've actually heard the same sentiments echoed by clients who have an emergency fund and then went through something that was emergency-like, including the onset of coronavirus.
Mm-hmm. Yeah, so this is what I just heard you say and I want to make it This is for the people who can't stand looking at their emergency fund not making any money Okay, because for the analytical people out there and there's two of them on this podcast It's tough to not think why shouldn't I use this low-interest T lock or what and invest my emergency fund? Why why why and? You have to sort of think of it from
Speaker 2 (10:50.25)
a new lens where, this is kind of what I come up with over the years of thinking about the emergency fund. Money buys you things, but it's not always material things and it's not always opportunity, let's say. So, and it's not always buying stuff and it's not always investing. Sometimes money buys you a feeling. And in this case, it does buy you peace. Emergency fund buys you peace. Now it's hard to get that unless you have one, unless you kind of buy into it. But here's the other one.
that the other feeling that this buys you, and I have seen this time and time again, it buys you confidence. It buys you confidence to make the decisions you know you need to make in order to achieve your long-term goals. during coronavirus or fill in the blank for anything that happens, you get one spouse that might be a worrier and they say, look, I don't wanna invest all this money for college because it's gonna run us too thin.
I don't want to invest all this money for retirement because it's going to bleed our account. If they're looking at a very healthy emergency fund, they get to say, but if that happens, we have the emergency fund. And surprise, surprise, it doesn't usually ever happen for doctors. They don't actually run their accounts very thin because they'll just adjust, but it gives them that extra oomph to just start doing what they need to be doing. And
because they always have that backstop. That's what it really gets you. Because when you have a really healthy emergency fund, like a six months of expenses type of emergency fund, you may actually only tap into that a couple times. But it's those couple times that scar people for life if they don't have it, and then now they're making poor decisions to get to their long-term goals.
Mm-hmm.
Speaker 1 (12:46.062)
I've heard it said that once you have an emergency fund, stop having emergencies. And that was exactly what I experienced. You begin to realize, what's not an emergency. like the fridge going out, not an emergency, you know, that's going to happen. You know, you can get a fridge for somewhere between 1000 and gosh, $10,000. If you're going to get a crazy fridge. Um, but once you have the discipline to be able to build and maintain an emergency fund, then you have that skill that allows you to build like.
A home maintenance fund or a car fund or a vacation fund, you know that that kind of thing. Yeah. And I think that's why the emergencies go away is because, you know, fridge going out is not an emergency, you know, buying a new car and not an emergency. It's like you, you master the skill of building that emergency fund. can just transfer that skill to other, to other personal finance habits.
Yeah, similar skill that I see physicians and I've even experienced myself getting out of debt, like tightening up so that you can get what you want faster or accepting that, you the speed at which you get things, know, cutting yourself short of that experience by just using some debt or just not having it at all. It's cutting out building.
building something within you that allows you to achieve all the other goals. It's a good process to go through, even though it's kind of painful in the beginning, because in the beginning, you've already gone, as a physician, you've already gone years without. It's always delayed gratification. That's all we ask people to do. But this one will teach you not how to live on nothing when you're making nothing, it's how to live on less when you're making a lot.
Yeah, that's right. And that's key skill to building financial security, which is living a lesson in what you make. So we've talked a little bit about why an emergency fund. I want to turn our attention for a little bit to how the how of building the emergency fund. And I want to talk specifically about a question that we get a lot from clients, which is, know, I've got student loans. I've got an employer who matches them on my 401k. And of course I've got tax bills.
Speaker 1 (15:01.422)
So I want to max out my 401k. I want to buy a house. And now you're telling me I need to save, you know, 50, 75, a hundred thousand dollars into an emergency fund. shouldn't I pay off all my debts first? Shouldn't I buy a house first? Shouldn't I, you know, save for retirement first before I build my emergency fund? So that's a genuine conundrum that I've, I've seen people go through and I went through it myself, uh, cause I had debt at the time that I did not have an emergency fund.
was kind of living with that culture of debt. And so what do you tell people who are kind of in that quandary about like, do do with my next dollar knowing that I need an emergency fund?
Yeah, it's a really tough question because it's it feels like you're leaving money on the table, which is just really feels foolish. Yeah. But there's a couple things. First, first of all, emergencies in life doesn't care if you have debt. Doesn't care if you are missing out on a 3 % match at work. So, I mean, they're not going to just stop for you. Right. But second of all.
It's one of those things that with the average person, maybe they are so short on cash that they can't build up an emergency fund unless they rid themselves of debt. But I don't see that with physicians. I see that.
It's a power band. You can have all this stuff.
Speaker 2 (16:25.962)
you can't, you can honestly have all those things with physicians. It's not as fast as you want and what you have to give up is lifestyle. But if you want all those things, you can get them. If you aren't willing to give up lifestyle, then what I end up seeing people give up is their emergency fund. So this conversation honestly makes me feel a little, I don't love it because I hate asking physicians to give up lifestyle.
It just doesn't feel, it feels like they could have a reasonable lifestyle and still get where they need to go. But I've seen some loans that will blow your hair back. So that's not always the case. Sometimes in the beginning, if you have a lot of loans, you wanna get the free money at work, you don't have an emergency fund, you do have to give up lifestyle for a short time.
Yeah, that's true. And you know, I think that there's a kind of a middle, a middle path. Like let's say the target is, I don't know, let's say it's a hundred thousand dollars emergency fund, which is a lot, right? Um, there's nothing to say that a person couldn't save maybe five or $10,000 to as the, like the seed of their emergency funds and then go like buy a newer used car and then save another 10 or $20,000. And then, you know, kind of
go at onesie twosie. know, my, my wife tells me, tells me that when she was a kid, there's food that she didn't want to eat and her parents called it one bite, one bite. You take one bite of the good stuff, one bite of the bad stuff. You know, so you can, can, you can work it that way. So I think it can, it could be built that way. So, so Nate, tell me what, what do I do with this, this money now that I've got it kind of sitting there staring at me and what do I, what do I not do with this money?
Where I plug?
Speaker 2 (18:11.422)
I'll start with a not. What you don't want to do is invest the money. We use this, we kind of use this framework every time we talk about when you should invest or what you should invest for, but it applies to emergency fund too. If you're going to need money within, let's say the next five years, you don't have an investable timeframe.
to be investing that money because from on average from the peak of the market to the trough to the next peak is five years. You don't want to be buying investments and selling them at the trough, right? So you don't know when emergency is going to happen. It could happen tomorrow. Therefore you don't have an investable timeframe to be investing the money. So that's where not what not to do with it. But it is really painful to watch inflation eat away at a big pile of cash.
Right. So generally you should attempt, your goal should be to not make money, but do your best to keep up with inflation. And sometimes you just can't. Right. But in my experience, what I've seen people able to do is get pretty close in quote unquote normal times. We haven't had those in a while, but normal times they can get pretty close by buying CDs at the bank. So that's a certificate of deposit. You know, essentially they
they pay a small interest rate that is guaranteed by the bank. So not 100 % guaranteed, but pretty much because it's FDIC insured, which is the government insuring your CD. And you will get a specific interest rate that if you buy maybe three to five year CD should get pretty close to the average interest rate.
Which right now at the time that we're recording this podcast seems very unpalatable, but in the past it's been a good strategy and in the future it may be a good strategy again because those rates tend to mirror inflation.
Speaker 2 (20:15.726)
Yep. And so for now, in times where that's not an option, the unfortunate fact is there isn't much options to have this money extremely liquid and what liquid meaning you can get to it, which you need to be able to get to your money if you have an emergency.
and your spouse needs to able to get to the money as well.
Yes, and a lot of times non-financial spouses aren't going to be able to sell something, sell an investment in order to get the cash. So you want to let it keep up with inflation if you kind of stuck with one of two options at this point, which is what most people choose is a savings account. And it feels really boring. That's because it doesn't really keep up with inflation either.
I've heard some people want to invest in like a short-term bond fund or something like that. And it seems like a good idea, but I can remember a time when Lehman Brothers imploded, you know, back during the housing crash that the bond market was practically frozen. And, know, if the mutual fund can't sell the bonds that are in the mutual fund, then a person would not be able to tap that mutual fund to get the cash out that they need. So.
You know, that's not good. Stocks clearly are too risky for this kind of thing. So what about inflation linked securities like, like series I US savings bonds?
Speaker 2 (21:42.446)
Mm-hmm. Yeah, I bonds are getting a lot of getting a lot of traction nowadays because inflation is high right and so yeah maybe you could go into the details because I know you recently purchased them and it's kind of a Tough process to buy I bonds from the government, but yeah, I was like, yeah, they do keep up with inflation
Yeah. Imagine, imagine like if the IRS were a bank, that's, that's treasury direct dot gov, which is where a person can go buy series I U S savings bonds. And you know, there's some constraints, like you can't sell them within the first year. And if you hold them less than five years, there's a little penalty. But the thing that's great about them is they're guaranteed by the United States government. They're backed by the full faith and credit. They pay an interest rate that floats with inflation. So that's a great thing.
The interest on them is free of state income tax because it's federally paid interests. There's some other perks that go with them. The downside is that trying to buy series I US savings bonds is very Byzantine. It's just, it's just really hard. just imagine like one of the worst websites you've ever seen. And then that's the place that's going to hold your emergency fund. So I think if you have a non-financial spouse, it would be difficult for them to.
go in and tap your, your I bond reserves if something happened to you. So that's the only hesitancy I have about recommending those. It's just the difficulty of the process of buying those bonds. it's, took me two hours to open my first account. Took me an hour to open my wife's account. And then when I went back to change the registration of the bonds, you know, put her name on mine and my name on hers, then that also took another hour. And then there's one more little gotcha.
You can only buy $10,000 worth of these a year. So, you know, if you're a couple, that's $20,000 for your household. So if you have a hundred thousand dollar emergency fund, you're looking at buying I bonds for five years to be able to get, build that fund. Yeah. So they're, they're not great in terms of the administrative aspects of it, but, you know, if you're, if you have a layered emergency fund, which is to say maybe you've got.
Speaker 1 (23:52.968)
20 % of it in the bank and a little bit of in CDs or something like that. This is a good place for your long-term emergency fund money that you're very unlikely to get to. So, it's a, it's a pretty decent place for those.
Yeah, yeah, and I like the layered approach mainly because I really I really have seen most people don't tap into their let's say you have a hundred thousand dollar emergency fund You have to have a really intense emergency to spend it all Yeah, maybe it's a decent idea to keep some of it in a place That's harder to get to but keeping up with inflation and some of it truly, you know Really easy to get to really liquid like savings account. Yeah Yeah, so
We should tell them the acronym.
Yeah, safe money. so lay it out.
Yeah, so it's safe as S is for separate from your other money. And this is you see this all the time. One savings account for the whole household that represents, you know, house money, vacation money, emergency fund. And what ends up happening is you you steal from each goal, you know, all the time and you don't really know what's for what. So we want this to be completely separate, whether or not that's in your budgeting software or.
Speaker 2 (25:09.302)
in a separate savings account altogether that's labeled Emergency Fund.
I've even seen them in a whole separate bank and that just makes it just one more layer. I, one of the things I like about CDs and I bonds for this is that there's a little, a little sting if you go to get the money out of those accounts because there's an interest penalty and the fact that there's a penalty, regardless of, even if it's tiny, that tends to keep people out of their emergency finalists. It's a real honest to goodness emergency. So I have also seen that there's a lot of peace of mind and having that money be separate such that
You know, if you have a kind of a more aggressive family member and a more conservative family member and the aggressive one wants to say, Hey, you know, we need to, we need to own stocks for retirement. And then I was like, wow, maybe I'm not super comfortable with that. The more aggressive one can say, yes, but you know, we have this emergency fund and you can actually point your finger to it because it is a whole separate account. It's it's separate unto itself.
Mm-hmm. Yes, so s good. Yeah Yeah, is for available so available to everyone who may need access to it, Which is you know really think about your non-financial You know spouse who doesn't even know the the login to your bank account how they gonna get to Yeah, the random bank account that you never told them about so give them a login Let them know exactly. What is the emergency fund all that?
for separate
Speaker 1 (26:31.948)
Joint account is best because then you have equal access to it. A fail is, you know, she opens up an emergency fund in her own name, he opens up an emergency fund in his own name and the other spouse can't get to it. You know, that's a recipe for disaster. That would be an unavailable or inaccessible emergency fund. So you want to make it so that everybody can get access to it if they need it.
F is for FDIC insured, that's at a bank. Credit unions okay. NCUA insured is similar.
Those are the same. They have the same standing, And other thing to know is that banks and credit unions, you you're protected up to a quarter million dollars now.
per registration so Joint account is one kind of registration solo account is another registration an account that you have with your children is another registration so I mean you could you can literally have you million dollars at a bank and still have FDIC or NC UA protection for the whole the whole thing so sky's the limit but basically There should be plenty of protection for an emergency fund and if you tend to hold a lot of cash in your bank Then you can open that up somewhere else
Yeah. And then E, so S-A-F-E, E is for earning enough to keep up with inflation, and this is the hardest one. Sometimes it's pretty straightforward, and other times for reasons we discuss, it's difficult, but you do your best, can on this. You don't have to keep feeding this monster that is the emergency fund that eats up your cash. Yeah.
Speaker 1 (28:07.986)
SAFE. Yeah, you want to keep it safe. Fantastic. Well, is that pretty much everything we have for today, Nate? Awesome. Well, if you have questions about emergency funds or if you have a terrible story that you want to tell us about emergency funds, you know, we're, all ears. We respond to everything that we get. so you can reach out to us at podcast at physicianfamily.com. You can visit us on the web at physicianfamily.com slash podcast.
think that's it.
Speaker 1 (28:37.678)
or can call the physician family answer line at 503-308-8733. Again, physician family answer line 503-308-8733.
Thank you for listening to the Physician Family, the advisors podcast. Is there a question you would like answered? Go to physicianfamily.com to record your question. While you're there, sign up for our newsletter and gain access to tools you can use to turn worries about taxes, feeling a financial security that's. .com.
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