Most professional financial advisors, and most non-professional know-it-alls as well, say that you should keep three to six months worth of expenses in an emergency fund for, well… emergencies.<\/p>\n
They aren’t wrong. You never know when life will throw you a curve ball, and when it does, you don’t want a few months of problems to turn into a crushing blow to years of hard financial work and smart decisions. However, the reality is that an emergency fund will never stand up to the worst financial calamities (long-term medical problems). Another reality that causes a lot of people stress is that your emergency fund is designed to be used. Over the course of your life, you fund will likely get drawn down, and then get refilled by more saving.<\/p>\n
When I was a professional financial advisor in Denver, I stopped calling it an emergency fund when people would find themselves torn about using it when they needed the money for something worthwhile. For example, imagine your son or daughter spent the last several years in the band. During that time, there have been numerous practices, and your child has built up a real love for playing the instrument. Then that day comes where the marching band has a chance to play in Ireland, on St. Patrick’s Day. It’s a dream opportunity.<\/p>\n
There will be fundraising, of course, but you still need to come up with $500 for your child’s part of the trip. It isn’t unreasonable to want to be there for what will likely be a huge event in your child’s life. You and your spouse would be looking at a few thousand dollars, plus a little extra because Ireland gets pricier around St. Patrick’s Day. All in, with expenses for the travel, getting your child ready, and having a nice trip, maybe this is a $10,000 expense.<\/p>\n
It helps to consider your emergency fund as something more. Calling it a reserve fund, or a cash reserve, is a more accurate way of explaining how and when those funds should be used when the time comes.<\/p>\n
For most people, just dropping $10K out of cash flow is difficult. The purpose of your reserve fund, unlike an emergency fund, is for you to take advantage of both OPPORTUNITIES and handle emergencies. This is an important distinction. While a reserve fund isn’t for every night on the town, or every suit or handbag that goes on sale, a unique, expensive opportunity is exactly what such a fund is for.<\/p>\n
Never forget that the purpose of all your hard work, and the money earned thereby, is not to check off various financial to-do list items, and it sure as heck isn’t to make a proper net worth spreadsheet. The point of money and work is to live lift. Being responsible is not the same as being stingy or fearful of spending money. When life gives you an opportunity to really live, take it. Enjoy the many wonderful things that friends, family, and places have to offer.<\/p>\n
Then, when you get back home, work that budget to get that reserve fund re-built quickly. Then, hope that the next change to tap it is not an emergency, but rather another of life’s many opportunities.<\/p>\n","protected":false},"excerpt":{"rendered":"
Most professional financial advisors, and most non-professional know-it-alls as well, say that you should keep three to six months worth of expenses in an emergency fund for, well… emergencies. They aren’t wrong. You never know when life will throw you a curve ball, and when it does, you don’t want a few months of problems to turn into a crushing blow to years of hard financial work and smart decisions. However, the reality is that an emergency fund will never stand up to the worst financial calamities (long-term medical problems). Another reality that causes a lot of people stress is that your emergency fund is designed to be used. Over the course of your life, you fund will likely get drawn down, and then get refilled by more saving. Emergency Fund versus Reserve Fund When I was a professional financial advisor in Denver, I stopped calling it an emergency fund when people would find themselves torn about using it when they needed the money for something worthwhile. For example, imagine your son or daughter spent the last several years in the band. During that time, there have been numerous practices, and your child has built up a real love for … <\/p>\n