Do You Really Need an Emergency Fund?

Linda Aberle recently posted a post on the Get Rich Slowly blog advising that it may not be necessary or even the best plan to always have an emergency fund. Do you agree?

I agree with Aberle that everyone must make the financial plan that makes sense for their situation at any one time. No one can say that absolutely everyone should always have anything… absolutes can be a problem. 

However I would say that for most people most of the time an emergency fund is a prudent and sensible thing to maintain. The alternatives that Aberle suggests may serve some of the purposes of an emergency fund, but not all of them. Nothing will give more peace of mind then knowing you have several thousand dollars to cope with those unexpected expenses, and as she notes they are common for most folks. 

Her primary argument against the emergency fund is that you can invest it elsewhere in a less liquid investment. You certainly can, however at most of today’s yields most investments are not going to make that much difference for most people. I do not suggest that you keep too much money on hand. A good emergency fund should take care of your essential expenses for three to six months. The rest can be often covered by insurance and some of the other ideas she suggests. 

I suggest that before you sink your emergency fund into an investment you cannot liquidate quickly that you carefully evaluate the risks and choose wisely. For most of us some cash on hand (or the equivalent) is a wise hedge against all those unexpected bills that can come along. 

What do you think? Let us know…

Wishing you success and prosperity,

Daniel R. Murphy
Helping People Learn to Build Wealth

Wishing you Success and Prosperity,

Daniel R. Murphy

Wishing you well,

Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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