I read an article recently on Investopedia that came to the conclusion that emergency funds are a bad idea. This is troubling to me because the one guarantee in life is that nothing is guaranteed. You could loose your job, your house could be damaged from a storm or you might have an unexpected hospitalization. This list could go on and on and on but life is full of the unexpected. Insurance isn’t a perfect safety net nor is it an excuse to forgo emergency savings. Nor is the idea that if I really need the money I could always borrow it. Debt as an emergency fund is the perfect recipe for a disaster. So what is the argument against having an emergency fund?
The first argument is the need to get rid of debt over creating an emergency fund. Absolutely, I completely agree with the idea that paying off debt is the most important thing you can do. Eliminating debt is the first step to any successful financial plan. But it isn’t the end all be all goal. The other goals such as creating an emergency fund, saving for retirement, giving more and more to charity each year or saving for your child’s college education need to be the secondary goals after you’ve paid off your debt.
For thou hast broken the yoke of his burden, and the staff of his shoulder, the rod of his oppressor, as in the day of Midian. Isaiah 9:4 KJV
The next argument is stagnant returns. Right now the world is obsessed with low interest rates and debt. So it is true, investment returns are at historical low. Although some return is possible and the idea that low returns is the reason to forgo an emergency fund is ridiculous. Most of my emergency fund is in stocks and ETFs right now due to our low rate environment. You have to get the best return you can by investing in things that still allow you to sleep at night. If all you can stomach is a savings account, than go ahead and put your money there. Low interest rates is something that no one can control but it should never be an excuse to dangle yourself off a cliff.
The last argument I want to focus on is the idea that no one can afford to have that much in untouchable savings. It’s true, Americans are carry historical levels of debt. So much so that it is setting records right and left for pretty much every category out there. As I stated above, all debt needs to be paid off first before doing anything else. But debt in of itself should never, ever be an excuse from not saving, giving and taking care of your family. The excuse that your debt is too much is never a legitimate excuse to just give up. You not only can do this but you have to do this. This isn’t just about you, it is about your family. Remember, none of the money you have is yours, it is all God’s. Your only the steward of it while your here on Earth. God tells us to be responsible with our finances so we can provide for our family. Saving for a rainy day and crushing debt are the best ways to do this.
But if any provideth not for his own, and specially his own household, he hath denied the faith, and is worse than an unbeliever. 1 Timothy 5:8 ASV
I know this whole financial thing is hard. It has never been easy and to be honest is never will be. We have so many voices telling us to do the wrong thing with only a few whispers through the noise telling us to do the right thing. You have to learn to drown the bad noise out and focus on what you know is the right thing to do no matter what the cost is. You can do this, I believe in you. Pay off your debt, build an emergency fund, save for retirement and simply take care of your family. Remember, you can do this.