Most personal finance bloggers and money “experts” write, speak and preach about the importance of having an emergency fund. Hardly anybody disagrees that having an emergency fund is wise. Many take Dave Ramsey’s advice and approach and start off with a beginner (baby) emergency fund. Something like $1,000 to get you by until all consumer debt is paid off. After this, the typical advice is that you should keep 3 to 6 months of your living expenses in something like a savings account where you can easily access the money if needed. This is separate from any retirement savings – which are typically not easy to access if needed in an “emergency.”
Confession: I’ve never had a fully funded emergency fund and don’t plan on having one anytime soon.
In my days of personal finance blogging, I’ve never really written how I feel about emergency funds. It’s not that I’m against them. It’s just that the importance of having one isn’t that significant to me. I almost thought I was alone in this line of thinking…until recently. As it turns out, John wrote about this very topic on his Married With Debt blog. In the second half of this article, he talks about why the emergency fund wasn’t that important to him while he was paying off debt.
Why John Never Talks About Emergency Funds
For some reason, I don’t write a lot (or at all) about emergency funds. This is partly because everybody else is doing it, and partly because I never needed one. Our cash flow situation was strong enough that we could weather any unplanned expense up to $2,000 by simply delaying debt freedom by one month. I also have a decent amount of silver bullion coins that I could sell if shit really hit the fan.
For those reasons, we chose just to forge ahead with our pseudo emergency fund and let life happen. In hindsight, there are a number of scenarios that could have happened to us that would have been beyond our cash resources, but I felt it was psychologically more important to forge ahead with paying off our debt.
Having an emergency fund never made it into our 10 Rules because it wasn’t a part of the plan we used to get out of debt. For me to include it would mean I’d be doing it because everyone else was doing it.
To be honest, an emergency fund seems more useful as a tool to stay out of debt rather than one to get you out of debt, which is why I’m focusing on it now, after our debt is paid off.
Read the rest of John’s article over at Married With Debt.
My Reasons For Not Having An Emergency Fund
I always make sure I have at least $1,000 available in savings, and it is usually a bit more than that. I do this not because Dave Ramsey told me to, and not even really as a baby emergency fund. I keep $1,000 in the bank because that is the amount I keep my deductibles at on my insurance policies (home and auto). Now that I think about it, maybe it is an “emergency” fund because it would probably be an emergency if I needed to pay one of these deductibles.
As far as having a fully funded emergency fund of 3 to 6 months of expenses, that isn’t happening anytime soon in my household. I just couldn’t fathom having $10,000 or more sitting around in a savings account that is paying next to nothing in interest while I have things I could be using the money for. Things like buying a different/better car, various home improvement projects, paying off the loan on my camper or investing the money in something that pays more than a lousy savings account.