All of us Financial folk talk about the importance of having an Emergency Fund of some sort for the rainy days (or in my case the incredibly frigid days) in your life. Until a big financial emergency arises a lot of us don’t think an emergency fund is that important, but after the first head gasket replacement or the dishwasher dumping it’s load in the kitchen most of us think that having an emergency fund is a little more important. The problem is some of us have voodoo emergency funds as our reaction.
As usual what an emergency fund entails is always interesting, and open to opinion. Many “experts” seem to think you are relatively safe with a fund that is about 3 months pay backed up (but having more is never a bad thing either). Thinking you can’t get that much money socked away is not a good reason to not have an emergency fund. You need to have some cash squirreled away, just in case.
Note I said cash, where my view of cash is either:
- Cash, foldable money, coins, cabbage, reds and browns: you get the picture
- Money in a savings account or something as reliable and easily liquidated
- 300 Krugerands in your basement freezer (but while valuable may not be easily liquidated)
I knew a lot of folks in my Nortel days that made the following interesting statements:
- “My emergency fund is in Nortel Stock, and I can get that in about 3 days…”
- “My emergency fund is in Nortel Options, so I can convert those quickly…”
- “I loaned my {familial unit member} money for a down payment so I can get the money from there…”
Why Aren’t These Emergency Funds ?
Can anybody see where these might be tenuous emergency funds? Anyone? Anyone? Bueller? This is an example of Voodoo Emergency Funds, Voodoo Emergency funds (paraphrasing Ben Stein in Feris Bueller’s Day off).
Your emergency fund cannot be virtual money, that could disappear like a fart in the wind if you aren’t watching closely. I knew many “millionaires” at Nortel, who did not exercise their options, and as Michael James has pointed out, that means they are actually “Nothing-aires”. Worse still I knew people who borrowed money and as collateral used their options? How that worked, I didn’t want to know.
Your emergency fund must be: Available at any time, and Not subject to large value changes in a short time.
Yep, options, gotta love them. Especially when they are for a price twice what your stock is currently trading at…..
I wonder if there’s some way to keep an emergency fund available but not too available. What if you put the money into, say, an ING account, but then gave the password and account number to some friend or relative that you trust not to give it back to you unless THEY think you really have an emergency? Nah, probably wouldn’t work.
Still, I do think some people use their emergency fund as more of a “really really want it” fund. Which is fine, unless the emergency really does happen before they re-fill the account.
You mean like my 110″ Ultra HD TV account? Oh, sorry, wasn’t supposed to mention that.
I hear this all the time when people say they have their emergency fund in a HELOC, but I also hear them say that is why they have credit cards. That statement makes me angry because your credit card should not be your emergency fund.
Your credit card is what makes you USE your emerg fund
Don’t forget the always available HELOC or LOC as an emergency source of funds. I have heard that many times and then the people are paying it off for years -myself included.
RRSPs are another bad source of emergency cash. I needed a new roof and it was the only money available. It cost me so much in taxes withheld and the money had to be declared as income.
I am trying to pay down debt and the first step is to develop an emergency fund so that I don’t have to use credit to pay for life’s little emergencies.
Or, you could live in an Emergency-free bunker where nothing could ever go wrong? I will build one of those very soon