The Best Emergency Fund Debate | Bloggers Lair | Yakezie Forums

I recently had a post entitled "The BEST Emergency Fund Setup Ever."

The title and tone of the piece are intentionally hubristic, meant to encourage readers (and other PF bloggers) to offer their thoughts on what I got right, and what I got wrong.

Yes, I realize that my piece is an opinion, and there is no such thing as the perfect emergency fund.

Yes, I realize that some don't even believe in emergency funds (I never had one until we were debt free).

No, I don't think you are wrong if you do it differently.

Before we take a look at the criticisms of my emergency fund setup, I'll give a quick overview.

It is all-cash and spread out across 4 different locations, each layer a bit more difficult to access than the last.

For a hypothetical $10,000 emergency fund, I decided on:

• Layer 1 – Cash at Home (in a bolted-down fireproof safe) – $1,000
• Layer 2 – Cash in a Checking-Linked Savings Account – $2,000
• Layer 3 – Cash in an Online Savings Account – $3,000
• Layer 4 – Cash in a Safe Deposit Box in a DIFFERENT City – $4,000

Criticisms of My Plan

Too hard to access all the money – [Verdict: GUILTY] Yes, a good portion of the emergency fund would require a bit of legwork to retrieve, but nothing that would affect your life. Keeping it away from myself was intentional. Based on my setup, I could confidently write a check today or pay cash for $3,000 based on Layers 1 and 2. If the emergency costs $10,000 like a major roof repair, trust me, they will give you time to pay. One commenter said he wants his cash ready at a moment's notice, but I can only think of one scenario where I would need $10,000 cash immediately: someone kidnaps my kid and wants the cash in an hour.

Sounds "doomsdayish" – [Verdict: INNOCENT] I guess this is more of a criticism of the planner than the plan. If my plan were truly doomsdayish, I would have an emergency fund made up solely of ammo and canned goods, not worthless bank notes. I'm not sure how we got to the point where preparing for a scenario where we might face weeks without power due to a storm is doomsdayish. It's happened before, in my own state, and I think it is just plain common sense to have two weeks of food/water and enough cash to buy more when the card readers are down.

You can't keep cash in a safe deposit box – [Verdict: INNOCENT] One commenter said that most banks prohibit storing cash in a safe deposit box. I searched the internet and did indeed find accounts of people claiming that it's illegal to keep cash in a safe deposit box because you are removing currency from circulation. As preposterous as this sounds (because it's really no different than putting it in a savings account or at home), I'm never surprised by any federal law. On any given day we all probably break a few. I also found a good article from Bankrate that eased my mind. While it may be possible that a bank doesn't want you to keep cash there, they can't know what is in your box, so even if they said no cash I'd still do it anyway.

Half of the e-fund isn't earning interest – [Verdict: GUILTY] Yes, half of my fund, the cash at home and in the safe deposit box, isn't earning interest. I am fine with this. Have you seen the rates lately? I'll gladly trade a half of one percent on $5,000 for the peace of mind knowing that I have some at home and some in a safe place in another city that my parents can access in case they have an emergency or I'm incapacitated. But I won't put it in a CD ladder or mutual fund and risk not being able to get it when I need it.

CONCLUSION: I truly appreciate everyone who read and commented, as I would truly like to know if there are holes in my plan. After examining the criticisms, I haven't found one yet that caused me to change my setup, but would like to hear more.

So what do y'all think?

Hey Sam, thanks for weighing in.

Your post did raise a point that I had considered: what distinguishes $10,000 in a savings account from the other $90,000 that's in there with it?

I think you hit on it at the end: millionaires don't need emergency funds because they have…a million dollars.

I need an emergency fund because I have…nothing, and am at risk for having less than nothing if something bad were to happen.

I think that you are right – when you've saved up tens of thousands, or hundreds of thousands of dollars, you don't need an emergency fund.

I do think the emergency fund is a valuable tool for the 90% of us in worse shape, however.

This does raise an issue that I mentioned in my member post and was developing for a future post: personal finance is something practiced by middle class people. Poor people don't do it. Rich people call it wealth building or something else like that.

That's why Yakezie is so great: we get perspectives from food stamps to the 1%.

Regarding the electricity going out, I think fiat currency will be replaced by things that have true intrinsic value, like food, ammo, hard work, etc.

:)

No cash hidden in the freezer or underground in the backyard?! What if all the electricity goes out, like the TV show Revolution?!

I donno man, I encourage my readers to move away from the EF concept in my post, The Emergency Fund Fallacy.