BLUF:
Life is full of emergencies that need to be paid for.
The right amount to save for an emergency fund is a personal decision but if you're worried about money, that is a hint you should save more.
Not everyone wants an emergency fund but all of us need one.
I don’t know about you, but I’ve learned to reconsider my stance on a lot of stuff as each day of this endless pandemic rages on.
For instance, prior to the start of the pandemic, I would not have agreed with the 3-6 months worth of expenses stashed away in cash.
The whole concept to me was asinine.
Why would a high earner keep tens of thousands of dollars earning pretty much nothing on the sidelines, just in case something happens?
In my head, credit cards are better served for that purpose.
However this pandemic has been one curve ball after another.
Only 17 percent of U.S. adults report having more emergency savings now compared to pre-pandemic, while twice as many (34 percent) indicate having less emergency savings now. (Source: Bankrate)
Between, toilet paper hoarding, chicken wing shortages, and other ridiculousness, I’ve had to ask myself, am I still doing the right thing?
I mean s**t happens right?
Take for instance this tweet which came across as I am writing this post.
If you own a home you know just the mere thought of the pipes bursting in your home should is enough to send a shudder down your spine.
Pipes Bursting = “Oh s**t” moment
Having an emergency fund is your "oh sh*t" moment response team.
But that begs the question…what is the “right” amount to keep tucked away?
To be honest, not enough of us are putting enough away for emergencies.
"A quarter of Americans (25 percent) say they have six months’ worth of expenses stashed away in a savings account for unplanned expenses. Another 19 percent say they could cover three to five months’ worth of their bills and living costs with their emergency fund, according to Bankrate’s poll. That’s in addition to the 25 percent of households who report having no savings at all and another 26 percent that say they have less than three months’ of expenses covered in an emergency account." (source: Bankrate)
So how much should we (I) put away?
Well thats complicated…
Theoretically the more you make the more you should save.
Theoretically…
“…25 percent of those earning between $50,000-$74,999 annually and more than 2 in 5 (43 percent) of households earning $75,000 or more annually have that level of savings stashed away.” (source: Bankrate)
The reality is 3 to 6 months of expenses in an emergency fund doesn't make sense for everyone and is a tough pill to swallow because ideally that should be a rule.
However reality doesn’t follow ideal scenarios.
As someone with ambitious goals, I am not comfortable keeping that much cash on the sidelines. However I do recognize that my savings rate should increase.
Lastly, the pandemic has shown us that crazy sh*t happens. As such, if you don’t have an emergency fund, you should probably think about starting one.
Because who knows when this pandemic will end…
I like the idea of an emergency plan rather than emergency fund. The opportunity costs of saving that much cash before investing, and then keeping that much cash on the sidelines are way too much for me. I would rather have everything in a taxable brokerage and rely on margin/lines of credit/credit cards should an actual emergency arise.