Why I Don’t Have an Emergency Fund

By Dr. Peter Kim of Passive Income MD, a member of the WCI Network

Before we get started, I wanted to include a little disclaimer: every situation is different and what works for me may not work for everyone. I went through the numbers and found that an emergency fund is not in my best interest. Will it be the same for you? That is what you will have to decide for yourself. With that in mind, let’s dive in.

What exactly is an emergency fund?

As you probably know, an emergency fund is meant to be a buffer for unexpected costs or bumps in life’s road. These may include the following (these are all things I have experienced):

  • Unexpected health care costs: Such as an emergency room visit for broken bones or suspected appendicitis
  • car problems: blown tire, broken windshield, etc.
  • Unexpected house problems: roof leaks, broken pipes and subsequent flooding
  • Unexpected Pet Costs: my dog ​​inhaled a fox tail and required a $1,200 procedure to remove it
  • Loss of work: I haven’t actually experienced this, but I know it’s a reality for many people.

Given how devastating unexpected events like these can be for the unsuspecting family, most financial experts (like Dave Ramsey) recommend that your emergency fund be able to cover 3-6 months of full expenses. The exact number of months depends on how stable your job is, whether you have double income, and your health. Suze Orman even advocates eight months of full expenses.

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Now, I have read Total Money Makeover by Dave Ramsey. In fact, I recommend that most people read it. Having read it when I initially finished my training, I built up a sizable emergency fund and was confident in my ability to weather any storm.

After . . . I watched as that cash sat there and did nothing. All he could think about was how he was wasting all of his potential.

I began to wonder if having an emergency fund was really the right thing for me. I decided to do a deeper review and spoiler alert, I decided against the emergency fund entirely.

More information here:

Are emergency funds for the faint of mind?

Why do I feel like I don’t need an emergency fund?

Here are the considerations that went into my decision:

  • We are a dual income family: I work a little less than full time. My wife is a doctor, and even though she now only works part time, I know that in a pinch we could both work more.
  • Back pay for work: In terms of billing, I get paid two months late. For example, on March 1 I get paid for what I did in all of January. There is almost always a delay between service, billing and collection. So I know that if something comes up, I’ll still have a paycheck for the work I’ve already done.
  • Disability insurance: Not only does it cover 30% of my current income tax-free, but I’ve also added a partial disability rider. If I experience a drop in earnings of more than 15% due to a disability or injury, after a period of 90 days, my insurance company will start paying me to make up the difference.
  • Passive income: Of course this is big for me. I earn passive income from other sources, which currently covers more than half of my expenses.
  • Home Equity Line of Credit: I opened a HELOC that stays for only $75 per year. If I were to use it in a pinch, this could cover 10-12 months of expenses.
  • I’m decently adept at selling stuff online: If it really came down to it, I could sell some of my possessions through eBay, Craigslist, and FB. I’d start with some of my wife’s pretty bags (shhh, don’t tell her).
  • Opportunity cost: This is a big one. Sure, you could have funds in a high-yield savings account like Ally, but with an average annual inflation rate of 3%, a 1% yield just isn’t enough. I wanted to put that money to work.
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I don't have an emergency fund

More information here:

My emergency fund in action

What did I use that money for instead

So what happened to that hefty emergency fund of mine? I chose to invest it, and so it went (and continues to go) into crowdfunding, investment properties, and taxable accounts, to name a few.

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When an unexpected event occurs, like that $1,200 procedure when my dog ​​inadvertently sniffed something up his nose (which happened twice, by the way), I charge it to my credit card. For the next month, I can pay it off in full as my paycheck arrives. I’m lucky enough to have a mattress and I don’t live paycheck to paycheck, and I always pay my credit card in full each month. If the worst comes to the worst and the expense is very large, you might be able to tap into one of the resources listed above, like my HELOC.

Ultimately, this is just a situation where I decided that the conventional wisdom wasn’t right for my particular situation. Obviously, I think you need to be prepared to handle unexpected circumstances in life. After all, the only thing we can count on is that life is unpredictable.

I say, make sure you’re prepared for an emergency, but do it in a way that makes sense.

Has anyone else eliminated their emergency fund? Does anyone think I’m not being smart about this? Comment below!

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