Emergency Fund: Essential or Overrated?


I have a love-hate relationship with my emergency fund.

Some days, it feels oh so good to have that money stockpiled away, knowing that if something, anything happened, I would be okay. By the next morning, I am so frustrated with the snails-pace progress of my other financial goals that I want to immediately ditch any more contributions to my EF.  I think it might be time to do just that – even though I do not have 3-6 months of living expenses set aside.

Big or small, the personal finance world overwhelmingly advocates the importance of the emergency fund. I totally get that. Life happens. Shit happens. Emergency funds help.

Suze Orman recommends making minimum payments on your debt until you have 8 months of living expenses stashed away (Whaaaa?).  Dave Ramsey, on the other hand, suggests building a baby emergency fund ($1000), tackling your debt, and then building your 3-6 months of expenses emergency fund.  Gotta say, I’m with Dave on this one (although I actually think $1000 could be a little low, depending on your life circumstances).

So this goes back to the question of how essential is an emergency fund and how much do you really need?  Some PF bloggers argue that 3-8 months of living expenses in an emergency fund is not necessary for everyone and may be considered a lost opportunity since you could be investing that money instead of holding cash. I read these posts and they make my heart skip a beat. Like I really love these posts. A personal favourite that rethinks the emergency fund comes from Green Swan in “Rainy Day, Rainy Month or Rainy Year“.

Because 6-8 months of living expenses saved in a chequing account sounds bananas to me.  Some people really thrive on having this safety net. Yet I feel like a small part of me dies when I see important dollars getting funneled into that EF account every month only to sit there (I know, I know, that’s the whole point).  This begs the question:

Do I actually need to keep building my emergency fund right now?  

I think continuing to build my emergency fund right now is totally overrated, and here’s why:

  • I have no children or pets.
  • I have a (relatively) stable job. This, of course, always comes with some degree of uncertainty, but I work for a well-funded non-governmental organization. My chances of getting laid off are virtually nil and chances of getting fired also minimal.
  • I do not own a car.
  • I do not own any property.
  • I live in Canada, where medical emergencies are still a thing but our tax dollars pay for them.

And the current status of my emergency fund? $1770.87.

The money is stashed in a high-interest savings account, earning 1.95% interest. I have been sending about $100/month to this account to slowly build it.

I also have a small chunk of change invested in a tax-free savings account, which can be accessed anytime without penalty, as well as separate savings accounts for big household purchases, etc.

My main rationale for not continuing to build my emergency fund right now is that I am still paying down my student loans. Even with my debt, I was initially jazzed to see my emergency fund accumulating, but it’s hard to feel that joy when I am getting nailed with student loan interest every day. Don’t get me wrong – it is very comforting to know that I do have something set aside for an emergency, and I think everybody should have some kind of emergency fund.

But since potential emergencies in my world don’t include car repairs, pet surgery, or fixing the leaky roof on my non-existent house, my emergency potential simply seems much lower than the average bear.  I would hazard a guess that I am not the only Millenial in a situation like this, either.

What do you think – are big cushy emergency funds always essential or are they sometimes be overrated?  I think I am ready to stop building mine right now – how are you doing with yours?

20 thoughts on “Emergency Fund: Essential or Overrated?

  1. I think it’s smart to look at emergency funds as a sort of insurance, since that’s essentially what they are. You wouldn’t go out and buy $10M worth of life insurance if you’re single, have no debt or kids, and are just starting out your career. If something catastrophic happened, it wouldn’t take much to settle your estate. Likewise, I think emergency funds should be adaptive to your individual needs. We’re doing the Baby Steps, so right now we’re at $1,000 in our EF, but that’s a little scary to us. There’s definitely an emotional need for it to be higher since being married carries more risk (you have another person depending on your income). If/when we have kids, that risk factor goes up more. Just bought a house? Up yet again. But while you’re young, healthy, single, and don’t have a whole lot of liability, I think your emergency fund can be kept lower to allow for more freedom in investing and saving for larger purchases. Which, ironically, will increase your risk and need for a bigger EF, haha.

    Liked by 1 person

    1. Thank you so much for the comment, Kyle. I had never actually thought of the emergency fund as a kind of insurance but you are so right! And I totally agree, if I was married, then that financial responsibility toward somebody else is a gamechanger – as is a having a child, buying a house, etc. and having a bigger cushion makes sense. Kudos for having $1000 in your fund – I know it may still feel a little uneasy, but that’s an awesome start!

      Liked by 1 person

  2. I have similar circumstances as you, except I live in the US with a less-than-generous healthcare system. For me, I’m using my brokerage account as an EF I guess, and plan to use my credit card to pay for an emergency while I wait for the brokerage money to transfer over. Unorthodox for many folks, but it feels right for me. I just moved 18k from my savings to my brokerage account. Waiting for the market to drop so I can pounce! For me, there’s no reward without some risk. And you can try to at least hedge the risk with some index funds rather than individual stocks.

    But I totally get EFs for people who are starting out, because it’s getting into the mindset of saving for the future. But once that habit is mastered I’d rather focus on actually growing your money.

    Liked by 1 person

  3. Thank you so much for sharing! Unorthodox, maybe, but I think that’s a great approach! I’m definitely going in a similar direction. After writing the post, I paused my auto-contributions to my EF and am now redirecting those funds to my investment account – like you said, a bit of a risk but it’s going into diversified index funds, and I still have my current emergency fund to fall back on. A little risk can be a good thing 🙂


  4. I’m a big fan of the emergency fund, but I think it can be different for each person’s financial situation. My wife and I have about 3-4 months of expenses set aside. But we own a home, have a kid, a dog, and two cars. Although our jobs are relatively stable, we sleep better at night knowing we have some funds set aside if anything comes up.

    In your case, I can see how you wouldn’t need as much of an emergency fund. Probably more important to pay off your student loans and/or invest to start building up your wealth.

    Liked by 1 person

    1. Thank you for your comment – it makes me feel better about redirecting some of my EF money toward my investments and debt instead! And I totally agree, if I were in a similar situation to you (with way more life responsibilities), then I can see what a huge comfort that must be for you and your wife to know that you’re covered for a few months in case of [fill-in-the-blank].


  5. I think they’re very important (I’m very paranoid and risk averse) yet I am becoming more comfortable with having less of an EF over time. Weird, since I now have a mortgage! I guess reasons are: Interest rates on savings accounts are so low (so I’m focusing on the mortgage rather than building up the EF more). I have a reasonable stable job and have never been unemployed. I also have income protection insurance which will help if I did lose my job. Basically I’m torn between having money sitting there earning basically nothing but giving me peace of mind, vs making that money work harder for me but risking not having enough should I need it. $10k used to be my comfort figure and now it’s less than that… and I’m feeling okay about it.

    Liked by 1 person

    1. That’s awesome that your EF comfort figure has evolved over time. Really, that’s what that money is there for – to provide security and comfort. If you can have the same level of comfort with a lesser amount in your fund than before…great!

      Also, income protection insurance…um that sounds amazing. Is that common in NZ or just a thing with public sector jobs?


      1. No it’s a private thing people pay for themselves, like any other type of insurance. It’s common here because our unemployment benefits suck. http://nzmuse.com/2016/03/income-and-life-insurance-nz/

        Liked by 1 person

  6. I actually don’t have an emergency fund. I have savings, so if I truly had an emergency I could pull it from there, but that is meant for a down payment on a rental property. I have a reasonably stable job. I work at a university, probably won’t get fired, and if they eliminated my position they’d first try to find me another one in the system before letting me go. I also have rental income, so even if I lost my job I’d still have money coming in (and if I lost my tenant, I still have a paycheck. It’s unlikely both will happen at the same time, but still possible, I guess.)

    I own a house with my partner, but ever since we started renting our basement on Airbnb it’s paid for our mortgage every month. I have an HSA in case of a medical emergency, though if it were a true emergency the money probably wouldn’t go that far. I try to live with a monthly cushion so if some large expense came up I could cash flow it.

    I think I wouldn’t be so cavalier about an emergency fund if my income wasn’t reasonably stable. When I was still in school and before I got my first ever full time job my savings account got up to $30k (mostly because I banked an entire year’s worth of stipend from a fellowship and continued working to pay for my living expenses.) It was really important to me to have that money available (I ended up using it for the down payment on the house I live in now.) Now, I feel like I have a lot of options before having to dip into savings.

    Liked by 1 person

    1. Sounds like you’ve got it covered without an emergency fund..love it! That is my ideal situation eventually, to have enough income streams and a high enough savings rate that I would be able to absorb the cost of an emergency without too much difficulty. There are so many ways of building some extra cushion into your finances to deal with unexpected life things without having a traditional emergency fund.

      P.S. Saw your Feb extra income report… sounds like you’re killing it between the rental and the AirBnb. Congrats!


  7. I think you’re doing great right now – you’ve built up a decent buffer, and you don’t have any big liabilities or upcoming expenses to think about.My emergency fund is actually a little smaller than yours, right now, and I’m prioritizing debt repayment because I don’t think I need much more than 1K as a backup. That said, I’m projected to have my loans paid off this year, and I plan on building up my emergency fund further once my loans are taken care of. Long-term, I think it’s better to have a bigger buffer, but that total depends on what your short-term goals are.

    Liked by 1 person

    1. Thanks, Jane! Sounds like your fund is in good shape for your needs right now as well! Since debt repayment is still on the table for both of us, I think it makes sense for that to take precedence over building up a really cushy fund right now. But I know that dynamic will probably shift for me once I’m not paying interest on a loan anymore and building up my fund will become a priority again. It’s exciting to actually think about starting to build security and wealth rather than just throwing all this money at debt!

      Liked by 1 person

  8. mrspickypincher March 19, 2017 — 3:43 am

    I don’t think a huge emergency fund is always necessary. I do think some type of emergency fund is always needed if you suddenly have to pay a surprise bill. We do have a hefty emergency fund at the moment. This is because we’re pumping ALL of our excess cash into debt payments for faster debt freedom. If something does happen, we can at least use our emergency fund without pausing debt payments.


    1. Yesss this is such a great point. I have thought about that so many times and felt like if something happens, the last thing I would want to do is have to slow down my debt repayment! That is actually one of the few things that would motivate me to continue to build my emergency fund right now.


  9. I think your ef fund is fine. I’m in a similar situation. Single, no kids, stable job. My credit cards are paid off and I’m about to start throwing money at student loan debt.

    And yes, I think they’re a bit overrated.


    1. Haha yes thanks for the validation, Matt!


  10. I think your ef is fine where it’s at and I also think they’re a bit overrated.


  11. I loved going through your post…Once again pondering over this eternal question…I personally feel that its requirement is definitely not overrated ..but it will be smart for us to divide our emergency fund into : 1-a highly liquid nominal interest group and 2-an easily accessible high interest group. I also wrote about this very thing 2 days back…you can check it out if you wish to- https://dimwittedmindspeaks.wordpress.com/2017/04/21/the-ouch-fund-do-you-have-it/#more-245


    1. Thanks for your thoughts! And I totally agree – the idea of having a two-tiered emergency fund is so much more appealing! Will be sure to check out your blog 🙂

      Liked by 1 person

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