Big Cajun Man (aka Alan Whitton aka the “Clown Prince of Personal Finance”) at Canadian Personal Finance Blog wrote a post a few years ago about universal advice that all personal finance blogs agree with. I agree with all 6 of his statements, but in the interest of being contrarian, I thought I’d play the devil’s advocate and argue against emergency funds (I think I could put together a decent case in favor of payday loans and doing nothing to prepare for retirement too). That being said, this post is completely genuine and honest: I’m not writing anything here that I don’t believe to try and make my case.
This post is sophomore-level personal finance. If you wouldn’t feel confident enough to post your reasons for not having an emergency fund to a personal finance forum or subreddit and stand your ground against all detractors you should probably have one. It should probably be for 6 months of living expenses too.
Why I’ve Never Had An (Explicit) Emergency Fund
While I’ve never had an emergency fund, I understand the purpose behind them and have protected myself in other ways. A 6-month emergency fund is intended to get you through unexpected bad times like the loss of a job, health issues, or a family emergency. Credit often becomes unavailable in times of crisis – it’ll be much harder to get a loan if you don’t have a job – and being forced to sell investments can sometimes incur a large penalty. This can be both due to selling at a price you hadn’t intended or possibly paying fees when you withdraw from your retirement account.
All Investments As Emergency Fund
Before I got serious about personal finance, I kept all of my savings in fixed income – savings accounts and term deposits. From one perspective, this was all emergency funds. I paid a huge price in low returns for my laziness.
When I got serious about personal finance, I put almost all of my savings into stocks initially – back then I was quite into dividend payers – then eventually into real estate. I didn’t bother with an emergency fund then or since. The primary reasons for not bothering were:
- Living cheap: My lifestyle has always been inexpensive, and in times of crisis I could tighten my belt even further. I can probably survive off of almost $1000 / month if I really cut back. $3,000, or even $6,000, isn’t that hard to come by.
- Good earning potential: I can do all sorts of work that pays reasonably well – almost anything related to computers, research, teaching, writing or public speaking. I could quickly get up to speed as a bookkeeper or preparing tax returns. I’m not too proud that I wouldn’t dig ditches if that’s what I needed to do to get by. A friend of my wife’s once said she could pay her mortgage working at McDonald’s if she had to. I love that view of things – that your lifestyle doesn’t require a high income.
- Investment income: I have investment real estate and stock investments that bring in money every month. None of this is guaranteed, but in the aggregate it goes a long way to covering my monthly expenses.
- Access to credit: The common argument about counting on credit for emergencies is that you can lose that access. Credit card companies can cancel your cards and banks can cancel lines of credit. I have multiple credit cards in Canada and the US, a $20k line of credit, can borrow on margin from my stock portfolio and own a duplex outright that I could take a mortgage or HELOC against. In an emergency, some of these might be cancelled. All of them simultaneously? Hard to imagine that situation.
- A spouse: It isn’t the most romantic view of marriage, but implicit in relationships is the commitment that “I’ll take care of you and you’ll take care of me”. I would feel terrible if my wife was ever covering my monthly expenses, but we can act as emergency funds for one another.
- Liquidating assets: It may not be the optimal time to sell some of my “Vanguard Total Market” fund, but I can sell as much of it as needed and have money within a day or two.
Do YOU Need An Emergency Fund?
Everyone should evaluate this for themselves. If there’s any uncertainty, then having an emergency fund is the way to go. I can’t imagine that I’m the only person who is able to address the purpose of an emergency fund through other avenues.
Do you have an emergency fund? What situations (if any) do you think would let people live without one?