Unpopular opinion: You don't need 6 months worth of expenses as an emergency fund!
Now when I say this, people often think that I don’t like saving… but that’s not true. An emergency fund is definitely important, but I think that focusing on saving up that large amount of money before you pursue any other strategies is actually holding you back.
Let me explain. A lot of people get discouraged from saving because when they hear “six months of funds”, they think there is no way they can ever save that much, so they just don’t try at all. And when you have too much money in savings, remember that it’s losing value every day because of inflation.
The key to an emergency fund is access to money, not just cash sitting in a bank. Your emergency fund could include multiple sources, like a high-yield savings account and an investment account with relatively stable, highly liquid stocks, assets that you can sell quickly when you need the cash.
Because chances are, you won't need all the money in your emergency fund at once. If you lose your job for example, you'll need a little at a time until you find another job. And even in other situations, you may have at least a day or two to come up with the rest of the funds.
By using this strategy, you still have a safety net, but you’re not tying up all your cash in a place where it loses value to inflation. Having options for your money allows you to stay protected while also making progress toward your financial goals.
So, I’m not against emergency funds. I just think we should approach them a bit differently.
Learn more in Money Mission premium and change your financial future in twelve months!
Sign up here!