Is an emergency fund really necessary?

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Initially the emergency fund was developed in reaction to the all too typical cycle of debt and hardship. Individuals who scrape by, living paycheque to paycheque, can be absolutely ravaged by an unanticipated one time expenditure. Unlike the weather forecasters predicting a financial “Rainy Day’ is impossible.  Major expenses have a way of happening when you least expect it. So – is an emergency fund really necessary?

Have you actually heared it said: Keep 3 to 6 months of living costs in the bank “Just in Case”?  That’s what I was taught (not that I actually listened)!   But, do folks pursuing Self-reliance or Early Retirement  truly require an emergency fund?

With the help of Dave Ramsey (and other money gurus), “emergency fund” has pretty much become a household phrase. Most people know that an emergency fund is an important part of getting your finances in order. But not everyone agrees on the particulars.

As a family, we are no longer living paycheque to paycheque, Praise the Lord!   Since we became more financially aware as a family we learned that there are a few other choices, rather than the standard emergency fund:

We now have  financial investments that could be tapped in an emergency situation. The drawback of this is that an emergency situation might possibly require us to sell out assets at a sub-optimal time, i.e., when the market is depressed.

We do have a credit card with a reasonable limit and a zero balance.  I call this our I.C.E card (In Case of Emergencies).
Each month a small amount of our income is diverted to a Tax Free Savings Account so technically, this is our Emergency fund.

How are we achieving our goals?

1. Keep your goals manageable — start small to ensure that you can stay the course.
2. Make it automatic — redirect some income from each paycheque.
3. Include any unexpected income, like a bonus or tax refund, to build your fund faster.
4. Keep it separate — restrict access to your funds until absolutely necessary!
5. Keep it stable and convenient — this money is for emergencies not investing.

I am an avid follower of Robert Kiyosaki (Rich Dad, Poor Dad) and one of his posts had me scratching my head a little:

“Why the Rich don’t save and Savers are losers.  The Power of Paying yourself First. ”

In this post he states “One sad thing about savers is that they never put their money to work for them”.  After reading this we reevaluated and took some savings to plough into investments.  The major goal right now is to clear the mortgage because, as Robert points out, your house is not an asset if it doesn’t earn you income and whilst it costs you money, it is actually a liability!

So everything the banks have told us from the beginning is a Big Lie.  Banks need savers so they can invest your money to make them money.  Banks need people to own houses so they can make money charging interest.  A bank is simply a money making machine for the shareholders.  Hmm – ponder that one for a while.

I do, of course, have bank accounts: Chequing, Savings and Investment.  They offer convenience for amalgamating financial products and I use their services to pay bills automatically and for that, I’m happy to pay.  As we no longer actually have any debt and have access to alternative funds to cover emergencies, why do I still have a savings account and why am I still diverting small amounts into it for a Rainy Day?

I believe it’s been ingrained so hard into our wiring that it’s actually really scary to think outside the box and go against the current on this one.  My husband likes to say “What’s the worse that can happen?” and he’s right.  We have already been through the worst that life can throw at a married couple with kids and we survived.  We didn’t lose the house or the kids college funds so why am I still so worried about money?  Perhaps we should take a leaf out of Robert and Kim’s book and turn that cash into liquid assets such as Gold and Silver?  Maybe then – when I’m sitting in a pile of gold coins allowing them to run through my fingers, will I perhaps relax 🙂

XO

Anna