Why I Don’t Have an Emergency Fund

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

As you probably know, an emergency fund is meant to be a buffer for unexpected costs or bumps in the highway of life. These might include the following (all are things I’ve experienced):

  • Unexpected health care costs, like an ER visit for broken bones, suspected appendicitis
  • Car issues: blown tire, broken windshield, etc.
  • Unexpected house issues: roof leak, broken pipes & subsequent flooding
  • Unexpected pet costs (my dog inhaled a foxtail and it required a $1200 procedure to remove it)
  • Job loss (I actually haven’t experienced this, but I know it’s a reality for many people)

Given how devastating unexpected events like these can be to the unsuspecting family, most financial experts (like Dave Ramsey) recommend that your emergency fund should be able to cover 3-6 months of full expenses. Exactly how many months depends on the stability of your job, whether you have dual incomes, and how healthy you are. Suzie Orman even advocates for 8 months of full expenses!

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

Then… I watched as that cash sat there and did nothing. All I could think about was how it was wasting all of its potential.

I began asking myself whether having an emergency fund was truly the right thing for me. I decided to do a deeper analysis, and spoiler alert, I decided against the emergency fund altogether.

So, 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 although she only works part-time now, I know that in a pinch we could both work more.
  • Delayed payment from work. In terms of billing, I am paid on a two-month lag. For example, on March 1st, I get paid for what I did in all of January. There is almost always a lag between service, billing, and collection. So I know that if something comes up, I’ll still have a paycheck coming in 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 income of more than 15% due to a disability or injury, after a period of 90 days, my insurance company will start paying me to compensate for the difference.
  • Passive income. Of course, this is a big one for me. I’m earning passive income from other sources, which currently covers over half of my expenses.
  • Home equity loan. I opened up a HELOC that is maintained for only $75/year. If I had to use it in a pinch, this could cover 10-12 months of expenses.
  • I’m decently adept at selling things online (Ebay, Craigslist, FB) and if it really came down to it, I could sell some things. I’d start with some of my wife’s nice purses (shhh, don’t tell her).
  • Opportunity cost. This is a big one. Sure, I could have funds in a high-yield savings account like Ally, but with an average yearly inflation rate of 3%, a 1% return simply isn’t enough. I wanted to put that money to work.

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

$1200 to remove something from his nose? Not my actual dog, but cute nonetheless…

When an unexpected event does occur, like that $1200 procedure when my dog inadvertently sniffed something up his nose (which has happened twice, by the way), I put it on my credit card. By the next month, I’m able to pay it off in full as my paycheck comes in. I’m fortunate enough to have a buffer and don’t live paycheck to paycheck, and I always pay off my credit card in full every month. If the worst case scenario occurs and the expense is very large, I could tap into one of the resources mentioned above, like my HELOC.

Ultimately, this is just one situation where I decided that the conventional wisdom just wasn’t right for my particular situation. Obviously I believe that you need to be prepared to handle life’s unexpected circumstances. After all, the one 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? Anyone think I’m not being smart about this? I’d love to hear…

16 COMMENTS

  1. I’d argue you have an emergency fund, the home equity line. Each person has a different risk tolerance for such things, and a HELLOC represents yours. In a worse case scenario your mortgage company goes bankrupt, you both lose your jobs for extended periods, and the market is down, then your hosed. Choose the company wisely though and your risk is fairly low. One thing to watch out for, that has kept me from the HELLOC approach (barely). Are your dual incomes highly correlated? I.e. How likely are coincidental lost jobs?

    • You’re right, in essence the HELOC is my worst case emergency fund. Don’t forget to also add to the worst case scenario that my house burns down and my insurance company goes bankrupt as well, hahah! My HELOC is with a large institution that is probably “too big too fail” at this point. Good question about the jobs – luckily they’re not particularly correlated, both in medicine but different fields & different institutions so dual loss of job is super unlikely. Plus it helps that we have a couple different income streams we can rely on as well.

  2. Great post. I’d love to do the same, but I don’t think it’s be wise right now. I’ve still got way too much student loan debt, small children and a mortgage. I’ll be employed for the next year until I make partner. We are kind of living paycheck to paycheck because everything above our standard of living goes to student loans. Here is what I have for my plan:
    $10K cash in Ally Savings & 11 month no penalty CDs
    $10K credit limit on Fidelity cash back credit card (which we only use enough to keep it open)
    $10,500 credit limit on Citi cash back credit card (which we only use enough to keep it open)
    Disability kicks in after 3 months at about 67% of my take home pay.
    If needed, we also have about $5K set aside for a vehicle which will need replacing soon. That’ll get me through more than 3 months.

    I worry about decreasing my funds much more than that because I’m still an hourly employee. I only get paid if I work. Once I get student loans at a more manageable level, I definitely want to explore more passive income opportunities.

    Maybe you should do a post about paying down debt versus investing in passive income opportunities. What are the scenarios where one is more appropriate than the other? That’ll help me as I look at 6+ yrs of aggressively paying down student loan debt (Currently at $430K after one year of attendingship).

    • Go get that partnership. Seems like you have a good plan in place for your emergency and often times as doctors we can often just work more if needed. (Of course that depends on the specialty & job situation.) Thanks for the post idea, I actually have made a very conscious decision to let my student loan debt linger and pursue other opportunities instead.

  3. I didn’t know about the delayed payment from work thing. That’s freaking genius! Why doesn’t all employers do that?! Then we can eliminate our emergency fund since there’s still one bullet left in the chamber.

    We went with Discover bank for their 1.1% rate+$100 cash bonus for signing up. If it wasn’t for our rental we would be more risky but for now we keep 20K on hand. Lame I know…

    Holy…$1,200 for fox tail removal?! Our Gracie swallowed a fox tail too!! Was it one of those from the dollar store? Fat, round, neon colored? Grace ate the tail and it was literally two and a half weeks before she threw it back out. I had no idea! She acted just fine but oh my god. It was inside her tummy for over 2 weeks! What?! Well at least it only damaged my carpet…

    • The delayed payment thing is good and bad. The problem is when you start, you don’t get paid for 2 months. But luckily our group gives us a no-interest loan to cover that period. As for the rental, you’re right you do need a reserve fund. That’s a little different, I do put aside a little every month automatically deducted as a maintenance fund for my rentals. That comes straight from the business and isn’t to be used for personal stuff.

      Hahah, so to clarify, it was a foxtail sniffed up his nose, the plant variety. Those things are like one way barbs, kind of looks like a badminton shuttlecock. They can only go one way, and if it’s sniffed up, the only way to get it out is under anesthesia and using a scope. Crazy! After the 2nd time it happened, I had every foxtail plant within a mile of my place removed hahah…

  4. Nice post; it’s great to see a different perspective on emergency funds! I admit I’ve been guilty of blindly following the 3-6 months advice echoed most places without really thinking it through.

    We’re not in a place where if feel comfortable foregoing one at the moment, but I’m definitely reconsidering the amount now.

    • Wow, both frugal genes on one day! Yeah, it’s not for everyone, but the great thing is that as you keep adding other sources of income like you’re doing, the emergency fund becomes less and less a priority.

  5. I’m right there with you in the no emergency fund camp. I’m in the same boat as you with a four-month delay in income and some passive income streams.
    My investments could alway be sold if that is necessary. I just don’t see how long term, someone should keep 3-6 months of expenses sitting in cash year over year.
    I can see the comfort of converting a year or two to cash once reaching retirement years, especially early on, but while accumulating, I think the cash drag isn’t worth the comfort. Of course, like you say, everyone’s situation is different.

  6. I see my savings wasting away too and have split my “comfort” emergency savings. I have only personally experienced job loss (multiple times), and that is the most realistic emergency I may have.

    I had about 6 months of savings if I were to completely maintain my lifestyle. I decided to invest about 40% of it because if I’m being realistic, I think I could live less comfortably and stretch the remaining 60% for longer. I’m still too risk averse to actually invest it all!

  7. I don’t have an emergency fund. I had it for a while but then it morphed into my Roth IRA. But I think the big difference is how and when you expect to need it. The examples you gave are for irregular expenses and regular income and the guideline (X months of full expenses) is for regular expenses and irregular income. Might not be comparable. When you are retired/FI you are more likely to have the irregular expenses, I think.

  8. My situation is a little different as I’m in private practice. I have a small emergency fund that could cover 6 months of necessities. I also have disability insurance which would kick in after 180 days. I’ve begun a emergency fund for my practice to help keep the malpractice and lease paid. I manage my risk by knowing my wife has very steady income from a large company and could easily get another job as she’s constantly being head-hunted. My personal emergency fund is perhaps uniquely located in Betterment’s “safet-net” fund which is mostly bonds and about 1/5 in stocks. I’ve averaged about 5% returns on it. It’s liquid enough to have funds available in 5 days. I also keep a small liquid reserve in a traditional “high” interest savings account. I’m considering changing the disability insurance to a 60 or 90 day period instead of the 180. How did you choose 90 days?

    • Never heard of Betterment’s safe-net fund, but seems like a decent place to store some semi-liquid cash. Honestly, I chose 90 initially because I thought that was the longest I could safely go without stressfully using up reserves. I receive payment based on the previous 60 days of work so I knew if I stopped working today, I would still get paid for 60 days. I could handle another 30 days on my own and after that I thought I’d probably need some help. As I continue to build up my assets, who knows, I may increase it to 180 or someday get rid of disability insurance altogether.

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