Emergency Fund Provision
Adrian B Early, Ph.D., MBA, CFP®
Chief Investment Officer, shareGRO™ Practice
The person who doesn’t know where his next dollar is coming from usually doesn’t know where his last dollar went.
There is only one class in the community that thinks more about money than the rich, and that is the poor.
– Oscar Wilde
Emergency funds serve both goals of finance, growing and protecting wealth; meeting contingencies.
The first requirement in building wealth is to store and provide liquid cash for emergencies. Planners traditionally said this should be 3 to 6 months of income. But the economy and incomes are no longer traditional. Employment is shorter and changes, often pay is variable and contract based. The real value is built from founding and growing businesses, and diversifying assets from the capital thus formed.
So, the funds for an emergency should be greater than 6 months. But also in this era of capital, you may, if you agree, and your situation warrants, choose to consider part of your source of funds for emergencies to be from other investments. These, you will want to build aggressively anyway, if not large yet, and you want financial freedom. Capital is increasingly king as wages decline relative to the economy, shown at the right. Additionally, you will be dollar cost averaging if you add to the investment account regularly, so soon it could grow to be substantial, such that you view a portion to double as available for emergencies.
The purpose for this first pool of liquid capital, the emergency fund, and the first purpose of adding to investments is to have funds for meeting emergency needs, and whether through dry spells in income flow. It also serves to pay for unexpected expenses that arise like repairs insurance deductibles, personal or business near-term opportunities, etc. The very act of having this for contingencies can free the mind and psyche to make the effort needed for success in business or other endeavors. Raising insurance deductibles, having funds for emergencies can be a good cost saving measure, enabling growing more capital to become financially free sooner. Wealthy people live based on capital, with emergency funds as needed. By building the emergency fund and investments, you will be building to that condition.
May deploying assets effectively, winning the game of finance bring you joy and financial freedom.
© 2017 shareGRO™ Practice