The BHEF — Bonus Hunting / Emergency Fund

The Wednesday Morning Weekly.

Most of us agree how important it is to have an emergency fund — it’s often one of the first recommendations from financial planners along with tracking all of your spending each month. A three to six month emergency fund recommendation is common. Some of us, including myself prefer a one to two year emergency fund. It depends on a lot of factors: risk level, type of employment, number of dependents, personal preference, etc.

In the recent past, many of us who prefer a larger emergency fund have been concerned because that money was not getting much interest — just sitting there eroding. Just a couple years ago it was hardly getting anything as interest rates were near zero. Today, at this time of writing 5%+ APY is fairly common. So things have changed quite a bit.

Well even better, is that if you are in the bonus hunting game, that emergency fund can also serve as a bankroll for the bonus hunting. It then becomes dual purpose: both a bonus hunting bankroll as well as an emergency fund. I call this the BHEF — the Bonus Hunting / Emergency Fund.

Beating the Market. Personally, I am finding that I am beating the average market returns with the money in my BHEF — by quite a bit actually — often at 10-15% APY. I have enough of a BHEF right now that it in addition to it functioning as a bonus hunting bankroll it also functions as a 22 month emergency fund; my goal BHEF will end up also functioning as a 36 month emergency fund. My expenses are fairly low. I can make a 3 year BHEF work for me getting 10%+ APY on it via bonus hunting. My BHEF is also not too large, but large enough to simultaneously take advantage of the larger juicy bank account sign up deals — e.g. invest $30,000 for 60-90 days and get $1,000.

So for me there is no penalty to have this large of an emergency fund, since I am beating the average market returns. It’s very satisfying that no matter how the market performs or if I lose my income, I am good for a full three years.

BHEF Formula. I don’t count 0% APR credit card float as part of my BHEF — although I do take advantage of the float gaining interest on the money borrowed for free from the bank. For me my BHEF is the following simple formula: Current Assets – Credit Card Debt = BHEF.

Current Assets for the most part are very liquid and spans dozens of accounts. My Current Assets include Accounts Receivable, Certificates of Deposit, Checking accounts, Gift & Store Card Balances, Investments (Brokerage Accounts etc.), Money Market accounts, Online Payment Systems balances, Rebate App balances, Rewards Points, Savings accounts and Wallet Cash.

The following is a screenshot of my Gnucash bookkeeping tree. It shows the breakdown of Current Assets and Credit Cards. The credit card debt is divided into two sub-trees: business and personal. It’s handy to separate the credit cards into these two sub-categories since only the personal credit cards show up on the personal credit report allowing me to quickly observe my total personal credit utilization (PCU).

Accounts Receivable is never more than say $1500 (in short term loans only) and Accounts Payable is never really more than say $100 which I pay off each month — e.g. reimbursing boyfriend for buying something for me with his cash like at a grocer which only takes cash (Winco).

Push comes to shove I can liquidate the Discretionary Assets account selling off the items, and use as part of an extended emergency fund — which is only around $10k (I don’t own a lot of unnecessary things).

Security. This bonus hunting game for me has been a blessing. Not only do I beat the market, I have multiple years of security. I am good if I need to replace the roof or do some other major home repair. I am good if I have to replace a vehicle, etc. — paying for them in full, no financing.

Low Risk. In my opinion, there is virtually no chance for me to lose money with the BHEF unlike with investing in the stock market, which could have gigantic losses / corrections at any moment.

Too large of BHEF. At some point though the BHEF gets large enough to where it makes sense to perhaps use the excess to say fast pay a mortgage or perhaps invest in something like an S&P 500 ETF. It all depends on one’s financial goals. For me I’ll be fast paying my mortgage after I have reached my BHEF goal; then once the home is paid off, I’ll be investing the excess into S&P 500 ETF.

Plans. I plan on never having to touch the money I put in the S&P 500, having my BHEF to fall back on. My personal plan is to keep my BHEF topped off, continue bonus hunting for the rest of my life, and put all the excess blindly into the S&P 500 — after my home mortgage is paid off — completely ignoring the market news and never selling it unless I need to harvest capital gains (or losses) to reduce tax liability.

Summary. A large emergency fund perhaps isn’t a bad idea at all if you can make it work for you, for example with the bonus hunting game. (I also plan to max out my 401k/IRA as well each year.)

Disclaimer: I am not a financial advisor and this is not financial advice whatsoever. These are just my own opinions and personal preferences I am sharing. Also tax implications vary by individual — I am low income so the tax implications aren’t as severe for me with respect to state and federal income taxes on my non-tax sheltered bonus hunting income.