Our emergency fund is exactly $0.00

In our financial plan, you will never find the one staple item that every so-called financial planner calls the cornerstone of a responsible financial plan: the emergency fund. We have none. Zilch. Nada. 

With the exception of about $100, maybe $200 in small bills in a safe place in our home, and about $1,000 in cash in our checking account we have zero cash sitting around. Not that we are so cash-strapped that we couldn’t afford an emergency fund. Our net worth is solidly in the seven figures and north of 30-35 times our projected retirement spending budget. We never had an emergency fund and never plan to have one. That doesn’t mean that we never have unexpected spending shocks. If we do need cash we will get it from our vast supply of “emergency cash,” which is, in exactly that order:

  1. Credit card float (=interest free loan from the credit card company between the transaction and the credit card payment due date)
  2. Papa ERN’s paychecks
  3. The $100,000 HELOC (home equity line of credit) on our condo
  4. Finally, a large sum in several brokerage accounts, more than half our liquid asset net worth

If the so-called financial planner guild didn’t already have high blood pressure before, they probably keeled over with a cardiac arrest just about now when they see that we use a line of credit as our emergency fund. Let me explain where we come from:

The main reason against having an emergency fund: Opportunity Cost

The concept of opportunity cost is as old as economics itself. In fact, I still remember my first economics class in college. Econ 101 (or whatever the number was at that time), first lecture, first few minutes of the lecture after the intro, the professor explained the most basic concept in economics that everyone has to understand: opportunity cost. It seems that the bozos in the back of the classroom who later failed that final all became financial planners because this whole emergency fund business is one big hogwash and completely irrational from an economic/financial point of view. Don’t believe that cash holdings are a large, unnecessary cash drag? Check out this blog post on Personal Capital: In the last 30 years a 70% Stock, 30% Bond 0% Cash portfolio grew from $1.00 to $18.36 (nominal). A 60% Stock, 20% Bond, 20% Cash portfolio grew to only $14.11, almost a quarter less. That’s a steep price to pay for the luxury of having cash sitting around.

Back in the old days, financial planners recommended 3 months of expenditures, but that was when money market accounts actually paid interest. Suze Orman now recommends having 8 months worth of cash earning 0.50% interest per year (before taxes). By the time we need that emergency cash, an equity portfolio would have already doubled to 16 months of expenses. So, if you have substantial amounts of savings, who needs an emergency fund?

Another example that shows the total utter irrationality of the so-called financial adviser community is the recommendation to start an emergency fund even before paying your credit card debt (here and here and here), which is the pinnacle of financial illiteracy. The “logic” is that, and I quote from the last of three sources above: “having an emergency fund in place is going to keep you from taking on more debt when an emergency hits.” An analogy of this idiocy would be this: a fire truck arrives at a burning house. The truck carries enough water to extinguish this fire. But instead of fighting the burning fire (the equivalent of 15% interest eating your future) the truck waits for a second fire truck to show up (saving in the emergency fund) for fear of running out of water, just in case there is a second fire somewhere else in the neighborhood. How dumb is that?

But what if something does go wrong and we need cash?

  • If we can pay the bill by credit card we pick the card that currently offers the longest float, that is, the card that will give us the longest interest-free loan. By the time the credit card bill is due, we have likely gotten income to pay the credit card bill. If the bill was still too large we pay it from the HELOC and then use future paychecks to pay down the HELOC. True we might pay a few dollars in HELOC mortgage interest but that cost is only very occasional and still significantly smaller than the opportunity cost of tens of thousands of dollars lying around at essentially zero percent interest.
  • So far we never even needed to go to step 4 as described above, i.e., sell investments to cover costs. But if we have to we will. We made very good money with our investments, thanks in part to never falling for Suze Orman’s emergency fund fallacy. We might as well spend some of that money in an emergency. Or better: The money that we didn’t hold as cash but invested in equities has already grown so much over the decades we can use the dividends from that account to pay for the bill!
  • Our health insurance has a manageable annual out of pocket maximum. Large medical bills we got in the past were always small enough to cover with our regular paycheck. What’s more, we normally receive the bills with huge delays, usually 3 months after the services were rendered, thanks to our hopelessly bureaucratic health care system, so we have ample time to prepare. After receiving the bill we again have probably at least a few months to delay the payment and then we use, you guessed it, the credit card with the longest float. By the time the credit card bill is due we had probably at least six months of time to prepare for that “emergency” expense.
  • If Papa ERN were to lose his job, we currently have enough net worth to completely retire. Besides, his employer would be contractually required to pay a pretty substantial severance package (unless Papa ERN does something really, really reckless and stupid and gets himself fired with cause), including large sums of deferred bonuses that would definitely sweeten the transition. Health coverage would also continue under COBRA, though we’d have to pay for it.
  • Papa ERN has a very generous package at work that covers long-term disability. His company would pay 70% of his salary if he were to become permanently disabled
  • Papa and Mama ERN have life insurance, just in case
  • Other emergencies, like car repairs or appliances breaking down are so small relative to the monthly paychecks rolling in that we don’t really worry about them. We live in a condo where big ticket repairs are covered through the homeowners association fees. There is not a single item inside our home that couldn’t be replaced for less than $1,000. Why do we need 8 months worth of salary sitting around idle for that?

A behavioral reason

Money that’s just lying around looks very tempting. Before you know it that emergency fund might be used to buy an “emergency flat screen TV” or an “emergency vacation.” We think frugality is a lot easier if you are not literally but effectively cash-strapped like we are, and before you buy any big ticket item you have to weigh the actual cost.

An emergency fund is easily raided for all sorts of wasteful spending. Especially since the current interest rate is so low, it would be all too tempting to get a 0.50% interest “loan” from your emergency fund, for that shiny new thing waving at you; a boat, a down-payment for a new car, you name it. On the other hand, it’s a lot harder for us to sell our investments or dedicate future investments from bonus payments and paychecks for some wasteful spending.

Funny Accounting

If the reasons above weren’t enough, the entire idea of an emergency fund has one additional fatal flaw. If you are really serious about your emergency fund, right after spending on an emergency event you’d have to replenish that fund back to 8 months of expenses, right? Unless you believe there will be only one single emergency in your entire life. So right after that first big emergency, you’ll soon have to start scrambling to save to replenish your emergency fund. Just like we scramble to pay down our HELOC with future paychecks. The cash flow strain for us is the same as or at least similar to people with an emergency fund. The only difference is that we never had the drain of opportunity cost because we invested our life savings in high return assets, not in a 0.50% money market account.

Update: Make sure you also, check out our follow-up posts here:

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101 thoughts on “Our emergency fund is exactly $0.00

  1. Very good article. I agree with this reasoning and refuse to have more than a couple hundred dollars earning nothing in a checking account or next to nothing in a money market account. I have been using several 5% savings accounts which I consider to be a good intermediate. 5% is nothing to scoff at and although it may take me a few days to access the money (ACH pull from the account to my checking account), I’m not worried about that amount of time due to the factors that you mentioned.

    Liked by 1 person

  2. I so agree with you!! I really cannot understand how people don’t get an ulcer with all that cash in bank accounts earning hardly any interest at all (unfortunately there are no banks offering the rates FWPT is talking about where I come from). The little green people need to go out and earn their keep, not sit around waiting in case they are needed. If I need them I will call them back home to mama 🙂

    Liked by 1 person

  3. Interesting thought process, I think you have a good idea there. There isn’t one way to do it, and by the sounds of it, you have a lot of cash on hand at any one time. A dollar is a dollar, no matter what label what you put on the dollar.

    Opportunity cost is a bad thing. At the moment in Australia we can get 3% on savings still, so it’s not that bad yet.

    Tristan

    Liked by 1 person

    • Thanks for stopping by! Yes, Australia’s interest rates are much more saver-friendly. I would concede that with higher rates we could be enticed to hold a little bit more cash, but still not several months worth of expenses because of high marginal taxes on interest income.

      Liked by 1 person

      • The high taxes would be a sore point, at the moment we have 0% tax rate as Jasmin’s taxable income for this year will be under $18,200 (tax free amount in Australia). She have it that way because we’re doing IVF so didn’t think it was a good idea to be messing around an employer during that time.

        Tristan

        Liked by 1 person

  4. Interesting. I’d imagine that depending on what potential big ticket items someone might purchase in the near future, they could also adjust their amount available cash on hand. Purchasing a home would be one example. I’ve been sitting around with about 9 months of expenses as a means for a down payment, but haven’t found the right one yet!

    Liked by 1 person

    • Thanks for stopping by. Agree, a down payment for a house would be one example where a large cash stash makes sense. True there is the opportunity cost, but it should be only temporary and the cost might be outweighed by the liquidity and option value of cash. But don’t sit on the cash for too long! 🙂

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  5. dear ERN, I absolutely agree. credit cards have helped with negative to zero % interest money for the longest time. helped me paid off my student loans as intern, bought 2 houses so far, and on my way to be able to retire by 2023 (3 years after fellowship). love not having an emergency fund (to me it’s equal to wasted money, wasted time value of money.) thanks for spreading this awesome, rational, and not fear-based philosophy! glad to find someone finally agrees with my take on emergency fund!

    would love to get a guest post from you for my blog
    drwisemoney.com

    Liked by 1 person

    • Hi DWM, thanks for stopping by and thanks for the encouragement. We’re glad we’re not the only ones running a tight ship with the cash management. You also bring up another good point about using the 0% interest offers to pay down other debt – an even more more efficient use credit cards and card float.
      Sure, let’s discuss some time about a guest post on your site. We are thinking about several future topics. But if you have anything specific in mind, we’re open to suggestions!
      Our email is: ernretirenow (at) gmail (dot) com
      Cheers!

      Like

  6. I too agree with your thinking in most areas. We too have never had an emergency fund, preferring instead to use a Line of Credit (which over the last 50 years have – fortunately – never had to make use of) for big emergencies but rather used just for car cash purchases. We treat it like a free “insurance policy”. That said, however, we still keep a modest cash balance to have available for spending / investing opportunities. We do use cash reward credit cards (which we pay off the balances in full each month), as well as receive regular investment dividend monthly income. So with proper budgeting and spending management we make out ok – no debts, 7-figure retirement nest egg, house fully paid off and increasing in value like crazy in this current insane hot Toronto housing market. And last but not least we both still have our good health, which trumps everything else.

    Liked by 1 person

  7. Great article and it totally makes sense. I think the crux of the Emergency Fund is accessibility. It makes sense where your money is working for you, but when you need it, you should be able to get hold of it. Unfortunately, there is also no incentive to save with everyday checking accounts.

    Liked by 1 person

  8. Why have life insurance at all? That’s opportunity cost going out the window.

    Or are you willing to pay some opportunity cost in order to have some security? In which case that’s exactly what an emergency fund is for… you are “paying” to have the added security. Which isn’t a bad thing.

    If the economy tanks your investment accounts may go down, lose your job, and get your HELOC pulled. The three are not diversified and thus they are risky to depend on. Storing cash is a hedge and many are willing to pay the opportunity cost to diversify.

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    • Hi tamalw! Thanks for stopping by!
      We do have life insurance and homeowners insurance. We may forgo the life insurance eventually (or partially) once our nest egg is even larger. Insurance against catastrophic events with tiny probabilities is very different from saving in a cash account as “insurance” against the stove breaking down.

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  9. Yes!!! I’m so glad I’m not the only one that doesn’t believe in the emergency fund. I too would resort to my credit card (before interest kicks in) and my HELOC. For those without access to a HELOC though, I would see the need for some sort of emergency fund but I think 8 months is a little insane.

    I actually wrote a post a while back on why I think the “Emergency Fund” concept is a bit of a scam from financial institutions… not everyone agreed but I still stand by it!

    http://www.unchained55.com/why-i-think-the-emergency-fund-is-a-scam/

    Liked by 1 person

  10. Thanks, I too have not had an emergency fund for about 25 years based on your logic. Occasionally when money was needed credit card checks have been used at 1 to 3% of the total and the remainder (or far majority) paid off within the 12 to 16 month or so 0% pay back period. Over the years, I’m sure the overall gain on invested funds have trounced such costs. Some may argue but a growing nest egg is hard to argue. I do like the line of credit idea however.

    Liked by 1 person

    • Hi, thanks for stopping by and your comment! Glad we’re not alone and there are other responsible personal finance folks who do the same. Indeed, sometimes the convenience checks from CC companies offer killer deals on low interest liquidity. That’s a good point!

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  11. Interesting concept. We have had an emergency fund for years. Opportunity costs? Yes, absolutely. But – FOR US – it also brings a sense of comfort. I can’t quantify a “feeling”, but it is still of value. We don’t want to go into debt (credit cards, HELOC) if/when an emergency hits. Cash is king in those situations!

    This is why personal finance is more “personal” than “finance.” Find what works for you!

    John

    Liked by 1 person

    • Very valid point! My grandpa keeps upwards of $10,000 in his checkings account, just in case. My dad and I have both discussed this with him but he just can’t sleep at night without knowing he has that emergency buffer! In his case, it’s very much worth it to him.

      Liked by 1 person

      • Can’t argue with a good night’s sleep! $10,000 for someone with potentially a lot of other assets is not a big deal. I am worried about the poor people who delay their retirement savings while saving for that elusive goal of 3, 6 or even 8 months worth of spending, saved in a money market account.

        Liked by 1 person

  12. Great concept, we do something very similar as you guys. I, too, see having a large sum of “emergency fund” as carrying a huge amount of opportunity cost. You’re better off investing the amount and sell the investments if you really need it. 🙂

    Liked by 1 person

  13. I think the acceptable generic advice would be “Have an Emergency Plan” instead of “Have an Emergency Fund”. For many who have no HELOC opportunity, no substantial liquid investments, and minimal income (thinking about my older teens and young adult children here), a separate liquid emergency fund in cash has saved their bacon many times. As people’s finances evolve, their emergency financial plan can evolve too – perhaps to something like you have crafted. The key is: if you suddenly take it in the shorts from life, have a firm game-plan already in place for how you’ll deal with it financially that fits your situation and won’t dig a deeper hole. Kudos to you for thinking it through thoroughly for your specific circumstances and challenging the default assumptions.

    Liked by 2 people

  14. TL;DR version – what’s good for Donald Trump isn’t good for average Americans…..

    Credit isn’t an adequate enough reason to forego an emergency fund since it’s not in your control. In the event of a job loss or similar cash flow crunch, it’s quite possible for your lines of credit to be closed quickly – credit is based on your ability to pay, which paradoxically means you’re only offered credit if you don’t actually need the money.

    Similarly, I’d be concerned with counting on contractual obligations of an employer as part of my emergency planning – there’s too many loopholes, and you’re putting too many eggs in one basket (a job loss can likely occur at the same time as an employer bankruptcy or refusal to honor a severance package).

    In your case, you have the brokerage accounts to fall back on. That’s a smart move, but isn’t really foregoing an emergency fund – you’ve simply invested your emergency fund. It’s still liquid and you likely have enough to withstand a severe market correction – you may reasonably expect to lose 25% or so if you have to sell at the bottom of a market, but considering your alternatives you’d probably be happy to do so.

    At your high net worth, your emergency fund isn’t about fixing your dishwasher – you can (as you point out) do that out of your normal cash flow. Your emergency fund is for catastrophic events such as an extended loss of primary income combined with a recession.

    You have to be careful, though, on extrapolating this situation out to the family that owes $5k in revolving CC debt; has an annual salary of $50k; has $5k in savings and $100k in a 401k. If they invest their $5k savings and their washer needs replacing – it’s a choice between washing clothes by hand (not going to happen); borrowing an additional $500 from CC (and ending up spending another $500 in interest); or selling some investments (and end up costing 2% in transaction costs, and possibly locking in a 10%+ loss).

    If they took your advice, paid off the CC and had $0 savings and then lost their job (or was unable to pay some other bill triggering universal default) – now they’re borrowing against their 401k or cashing it out.

    *That’s* who the advice is for. If you’ve managed to amass a 7-figure net worth, it’s likely you know what you’re doing and can break a few “rules”, as long as you understand what the rules are there for.

    FWIW, I’m in between you and the median – enough income and monthly cash flow to weather the daily extremes, but not high enough to adequately protect myself from a job loss. I use a tiered strategy of:
    – 1-2 month’s expenses in a savings account, which can ebb and flow based on daily needs.
    – 6 month’s expenses in I-Bonds, for loss of income scenarios which offers a small, but safe return
    – Another 6 month’s expenses of Roth IRA contributions, for extended scenarios

    Liked by 3 people

    • 1: you make the excellent point that everybody needs savings. We agree that someone with credit card debt should pay it down as quickly as possible. In fact, CC debt is an emergency every day it eats up your money to the tune of 15-20% interest. I also think that we can both agree that accumulating an emergency fund at 1% return, while still having CC debt at 15-20% is insane, but it’s still recommended by some people. That’s truly irresponsible. I simply say that once you get going with your savings, don’t slow yourself down by stashing large quantities of money in <1% yield assets.

      2: one to two months of spending in cash seems a bit excessive but I don't think anybody ever had to delay their early retirement for having a few thousand dollars extra sitting around in cash. I won't argue with your higher preference for liquidity.

      3: six months in I-bonds seems excessive. Even if the market drops by 20%, as in a garden-variety recession, the loss is still less than your lost income (opportunity cost) of just one single calendar year (2013). Are we going to have another 2008/9? I doubt it. People always try to protect themselves from the thing that created the last crisis. But the next crisis will be different.

      Also don't get me wrong: I'm not some crazy risk-seeking financial cowboy. I'm very risk-averse, and for example recommend a lower than the usual 4% withdrawal rate. To be safe, one should withdraw only 3% p.a., at least that's what we think.
      https://earlyretirementnow.com/2016/03/24/the-4-is-not-as-good-as-i-hoped/

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  15. Mine is in a Bond Fund (tax free fund that pays fairly well) plus some in Betterment’s Safety Net fund (60% bond, 40% stock). That and some CD ladders that mature every month or so give me the safety blanket to be more adventurous in my other investment activities.
    Leaving it in straight cash seems horribly wasteful. Though it seems to concern mortgage people since my ready cash is relatively low.

    Liked by 1 person

    • Daniel – I did not specify previously, but I have earmarked similar and am also using Betterment’s safety net similarly and using some lower amount holdings in a few bond funds. To me this is a good “intermediate” perspective of having growth but ready access and is unlikely to go south in the short term.

      Liked by 1 person

  16. I was definitely a Suze Orman follower of the 8 month emergency fund for quite awhile until my husband sat me down and showed me how much we were losing by not investing the money! I now try really hard to be comfortable with keeping less cash on hand.

    Liked by 1 person

  17. 8 months is so huge! I’ve not yet gone that long without income. So much of financial advice is rubbish and not tailored to an individual. People should think about what works in their situation and do that.

    Liked by 1 person

  18. I think this just proves that you can’t take “expert” advice without evaluating how it fits your individual situation. For some people who work in careers with high turnover, it might make sense to have large emergency funds. For others, if they were to lose their job, they could potentially have another once within a couple weeks.

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    • Hi “George”, thanks for stopping by. True, inflation is a real drag on your emergency fund. And it’s insidious: You won’t notice it any given day or week or month, but over the years you will. For us that was too much of a price to pay for that elusive peace of mind.

      Liked by 1 person

  19. We have $150k sitting in a savings account earning 0.9%, ready to put a down payment on a house. The trouble is that I’ve had it in there (adding to it monthly) for about 15 months now. I don’t like having that money just sitting there, but I want it to be available if the right home comes on the market. Where else should I keep this money?

    FYI, the reason we’ve waited 15 months and will continue to wait if we have to, is that we have a narrow search area for homes. We know our neighborhood very well and we know which blocks we want to live on. We are comfortable in our current condo and don’t feel the need to move unless the new place is exactly where we want to be.

    Thanks for the great work on the blog.

    Liked by 1 person

    • Hi JS, thanks for the comment and the nice compliment.
      Yes, the house downpayment fund is one example where the trade-off between opportunity cost and the convenience of cash is not clear-cut. If it’s any consolation, equities haven’t gone anywhere over the last 15 months and the events in August 2015 and January 2016 would have caused great stress: what if the perfect home had come along right when the house fund was under water? With dividends you probably would have made more than the 0.9% but the anguish from the volatility in between probably wasn’t worth the extra money. Different story if you had missed the 2013 rally, though.
      Anyhow, I got an idea for a new post on some investment options for prospective home buyers, stay tuned!

      Like

    • I also have had a similar amount sitting around for over a year waiting for a home to come along. It might materialize at some point, but I was quite tempted to put a large chunk of it in a high-yield 3% CD (which still isn’t that high yield).

      Liked by 1 person

  20. I like your way of thinking. The only scenario holding me back is the following and if you have any suggestions I’d welcome them. Once we are old enough that going back to work is no longer realistic and of course the market crashes right when our older home’s plumbing needs to be redone (not covered by insurance) how would you handle this? Assume even with severely cutting back it would take four years to pay back the loan — and that’s assuming nothing else goes wrong.

    This happened to us right when I quit to be a SAHM in 2008 and I had to go back to work. The plumbing repairs cost $26k. I had worked in insurance and knew how to shop these things around. $26k was a great price. But we did things the MMM way and weren’t pulling in much money on my husband’s teacher salary. Our retirement funds won’t be bringing in a healthy amount. We probably will have about $5k to $6k in discretionary funds a year so it would take forever to pay a $26k loan back and taking the money from our principal right when the market falls isn’t smart.

    If we were to keep $15k in cash we would be much better situated for this type of event or series of events. We’ve also had years where nothing went wrong and then wham, one thing after another added up to $18k from medical deductibles to car deductibles and repairs and house deductibles and repairs, etc. I don’t mean to center on the plumbing as a sole source of what could go wrong but rather the fact that at the time of a huge market down swing, a major event or series of smaller major events could do us in and take too long to recover from if we didn’t have a strong cash basis.

    Any way around this? With such a small principal base it’s even more important for us to keep our money invested. I’m okay with holding maybe $7k or $8k in cash but at $10k I start to itch. Lol.

    Thanks for the great thoughts.

    Liked by 1 person

    • Thanks for stopping by and thanks for your very thoughtful comment. All good points. One way to maybe not avoid but alleviate nasty surprises is to have a budget that takes into account future repairs and maintenance. It’s our theory that sometimes “emergency spending” isn’t a true emergency but incomplete budgeting. Having an inventory of all the major components of the house and their remaining useful life and projected future repair/replacement costs would go a long way. In that sense, an emergency spending event is not a repair, but a repair occurring earlier than expected.
      We live in a condo right now and all major repairs are funded out of HOA dues. But part of the fees is directed into a savings account that funds future expenses. Once we have a house again, we will set up an account for those expenses too. When we go through the buying process and hire a home inspection we will ask what are the likely upcoming expenses and what’s the horizon and cost. One could keep an account to pre-fund those and contribute monthly as the components age. Or just use our general savings in equities to fund these expenses.
      If using a separate account, if 100% equities seems to aggressive we have some ideas for slightly lower risk, but higher return than CDs/Money Markets, kind of the same as our recommendations for how to invest a house downpayment fund:
      https://earlyretirementnow.com/2016/06/15/how-to-invest-a-house-down-payment-fund/
      For example: 40% stocks, 60% bonds. Or Equities with upside potential sold through covered call writing.
      Same for cars. Check out the True Cost To Own calculations on edmunds:
      http://www.edmunds.com/tco.html
      If you’re not budgeting for those repair and maintenance expenses, there could be one “emergency” after another.

      Also as we said before, we’re not saying to skip the savings, just skip the massive cash holdings and invest in something more productive!
      Cheers! Have a great weekend!!!

      Like

  21. This is a well reasoned argument, and you haven’t even started to discuss how a low interest savings account actually loses money when adjusted for inflation, making your emergency fund worth less over time. Using your analogy of the fire trucks to include inflation – you could assume the trucks have open water tanks and some non-zero amount of the water evaporates throughout the scenario.

    I look forward to reading your other articles and hoping you tackle some of the “pay down low interest loan” arguments I read a lot about, as well. Why would someone accelerate amortization on a 3.5% tax advantaged loan?

    Liked by 1 person

    • Thanks for the compliment and thanks for stopping by.
      Yes, exactly, inflation is a killer for the emergency fund. Back in the old days you’d at least get a positive real rate. Not enough to really help the asset accumulation, but at least something. Now your money just evaporates in real terms, like the water in the fire truck analogy. Good point!
      Yes, the other piece of financial advisor malpractice is the recommendation to pay down the mortgage as fast as possible. Very cringeworthy to hear the rationale “you save thousands on interest” but not taking into account the opportunity cost of not investing in stocks. Oh my!
      Cheers!

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  22. Interesting thinking and I can’t fault it. Although, with reward checking accounts nowadays offering up to about 4% interest on balances up to about $15K, it doesn’t seem like a terrible idea to keep an emergency fund in an account like that.

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    • Sorry, this was held up in a spam folder for some reason. Just found it. Good point!
      Agree, the special sign up bonuses will juice up the Money Market return, but I don’t want to move the account all the time after the promotion ended, not worth the hassle.
      Thanks for stopping by!

      Like

  23. […] Yes, agree. And? Just because some households are irresponsible (nobody in the FIRE community, of course) doesn’t mean we have to pile on even more bad advice to hinder the success of already financially challenged folks. Keeping an emergency fund while having credit card debt, for example, is one of the crazy irrational pieces of advice (see example here: “If you’re in debt, prior to getting out of debt it’s more important to create an emergency fund”), which encouraged us to write our original piece on emergency funds. […]

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  24. Hi,

    As a recovering big spender with a lot of debt, the greatest comfort to me as I try to get to a reasonable baseline has been my emergency fund. I think that you should have caveated your post possibly to explain this is not for those of us who have ZERO financial common sense and are just trying to get to a place where we make sensible decisions. I have no Condo or line of credit. Heck I don’t even have a credit card (because my credit rating and destructive behaviour in the past mean I cannot get one). I also do not have a bank of mum and dad or friends to borrow from so even the £65 unexpected charge I got hit by when I went for a wedding recently would have sent shock waves down my budget had I not got my meagre emergency fund in place. I can see where you’re coming from and in a year or so when I have got out of debt, I too might adopt this philosophy. But for now, I’m ridiculously pleased that I have finally done something that I should have done years ago and have cash sitting around to ensure that I don’t spiral into bad behaviour again.

    Thanks for a different perspective though. LT

    Liked by 1 person

    • Thanks for stopping by! True, our post is targeted at the financially savvy. But keeping the money out of sight and invest in equities would also lower the temptation of burning money on that emergency spending spree. Just saying! 🙂
      Cheers!

      Like

  25. Makes sense to use the capital you have built up in other places rather than an emergency fund. For many of us, me included, the E-fund has been a god-send, though, because we don’t have money in other types of accounts. The focus for me right now is paying down debt. So, I keep $1500 in savings in case my car breaks down (the most likely scenario) or unexpected house repairs (e.g. the AC dying in summer). It’s a cash cushion for someone who doesn’t otherwise have any resources to pull from.

    Liked by 1 person

  26. […] Run simulations at a monthly frequency, rather than annual, to be consistent with our other research on the topic and, of course, for the plain and simple reason that once we are retired we don’t like a whole year worth of withdrawals sitting around in cash every January. We hate leaving money on the table, as you may know from our post on emergency funds. […]

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