Do You REALLY Need A Large Emergency Cash Fund?

There have been a ton of personal finance bloggers posting about emergency funds: Money Smart Life provides a good overview with special guest appearances by other personal finance bloggers Lazy Man, Binary Dollar, Money Matter and More Musings, Digerati Life, and Sun's Financial Diary. I'm not going to rehash any of the following (so please don't leave):

  • Where to keep your emergency fund
  • How much to save in your emergency fund
  • Whether you should build your emergency fund versus paying debts like credit cards
  • How having a big emergency fund will having you beating away members of the opposite sex with a large stick

What I will be doing is telling you why I don't have much of an emergency fund at all.

Before I really get into this, let me just reiterate I'm just some knucklehead with a keyboard. I don't advocate my method over the more traditional prescriptions regarding emergency savings. I'm just giving you another view. Do whatever works for you. And if you're so sick of reading about emergency funds on personal finance blogs that you're about to throw up, please stop reading if only for your computer's sake.

They always say write for your audience and you probably wouldn't be reading a blog claiming to be ‘Advanced' unless you had the basics down. So chances are you have your financial life somewhat to totally under control. You know what you're doing. You most likely don't have credit card debt and if you do, you're working it down. That means you also probably have ample credit available.


So do I.

That is the core reason why I don't have a large emergency fund. In case of emergency, true emergency, I can tap one of several sources of credit. A HELOC or credit card becomes my second line of defense in the event my small liquid emergency fund cannot handle the expense. This buys me time until I set up some other arrangements. For the record, my definition of ‘small' is about three months of living expenses.

Here's why I only have a small emergency fund.

  • I have a small pile of cash for unforeseen expenses (again, three months of living expenses). By definition, an emergency comes up infrequently. This isn't for replacing the broken vacuum cleaner.
  • If true disaster strikes, I have access to plenty of credit that can provide a quick backstop in the event the emergency exceeds my cash fund.
  • I have other assets that I can sell if the emergency isn't solvable within a short period of time.
  • I'd rather not tie up a large emergency fund in savings that is, for all intents and purposes, just maintaining its real purchasing power.
  • I have great health insurance and disability insurance. If I were to lose my job, we could move to my wife's plan.
  • I am not the family's only source of income — my spouse works, too.
  • I feel confident about keeping my job and believe I can get another one in my industry relatively easily.
  • Because emergencies are infrequent by their nature, a long time can pass where an overly large fund will suffer significant opportunity loss.

I know this method isn't for anyone. Maybe it's not for most people. But like I said, if you're still reading this, you're not most people. That said, it is critical you do whatever makes you feel comfortable and able to sleep at night. If you're comfortable sleeping on a large pile of money, keep at it! For me, I can sleep on a thinner mattress.

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