I have been keeping an emergency fund since I started working. I always aimed to have between 3 and 6 months worth of living expenses. This was kept in a savings account that was immediately accessible. The amount that I have usually kept has been anywhere between €4,500 during my first year working. This was when I was living quite cheaply in a shared house. The amount increased to AUD 12,000 (€7,467) during one of my least frugal years in Australia.
Getting rid of the Emergency Fund
That $12,000 was the most I ever kept in an emergency fund. I haven’t had one since. I realised that I had that emergency fund while I still had debt. When I realised, I immediately used that rainy day fund to pay off the last of my debt. The remainder went towards opening a brokerage account and investing for the first time (that was a very exciting AND scary time).
Invest and Invest More
Since then, I have been pouring my savings into my investments month to month (except when buying the car when I moved back to Ireland). These investments are working for me all the time rather than sitting in a low interest bank account.
The Essential Emergency Fund
When I was initially living paycheck to paycheck, an Emergency Fund was ESSENTIAL. I think this is true of the majority of people and/or families who are not what I would consider financially stable. But I feel like I have finally moved out of that category into the more financially savvy. If I lost my job tomorrow, I wouldn’t go hungry, I wouldn’t go without shelter, and I would have a plenty time to find work, preferably reasonably well paid, but I would be in an emergency state so if I had to, I would take a minimum wage job to keep me afloat.
How can I do this without an emergency fund?
Emergency Fund Alternatives
- Option #1: I could cash out the €20,000 tied up in investments and live on them for a year, probably more if I was extra frugal (which I would be if I was jobless). The risk with approach is an emergency causing this may lead to me selling my assets during a down market.
- Option #2*: I have a credit card with a €6,000 limit that I don’t use for anything right now, therefore there is a zero balance on this. This allows me to have immediate access to that money should there be any sudden expenses, and then my monthly savings would be redirected to paying down this credit card until back at the zero balance.
- Option #3: I have a savings rate of €1,500 currently, I think I could stretch this out to between €2,000 and €2,300 in an emergency situation. This of course would involve me staying home and living on beans and rice, but in an emergency situation, that it necessary. I have never had an emergency expense pop up that has surpassed the €1,500 so I feel confident enough that I shouldn’t have any major surprises.
So a separate Emergency Fund is a thing of the past for me and for any people in a similar situation, or those who are further along the path to FIRE.
BUT, there is always a but!!!
EMERGENCY FUNDS ARE A NECESSITY FOR THOSE WHO ARE NOT FINANCIALLY STABLE.
People who I consider to be financially unstable are those who are still in debt (excluding mortgages) and people who haven’t considered FIRE or are not interested in FIRE and have not built up any savings.
*I would not recommend Option #2 for anyone who doesn’t have the nest-egg or monthly cash flow to quickly repay the credit card amount. I have a €6,000 limit on my card, which I can pay back in under 5 months, with interest. If I did not have that monthly excess, I wouldn’t have that high a limit on my credit card as the interest rates are extortionate, and it would only make things worse if I wasn’t able to pay this back on top of my living expenses.