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- Traditional financial advice says you should have three to six months of expenses in savings.
- But I wiped out my emergency savings years ago and have no regrets.
- I have a lot of money invested and I’d rather let it grow there than stay in a savings account.
As a financial writer who frequently interviews financial advisors about emergency funds, I’ve been told this over and over all should have three to six months of expenses stashed away in a bank account that can be accessed quickly and easily.
I did this for a long time, but I drained my emergency fund a few years ago and have never, ever looked back. Here’s why this strategy has worked best for me so far.
1. I have easy access to credit
I’ve always been told that I need an emergency fund in case my car breaks down or I’m faced with unexpected medical bills or other unexpected costs that I haven’t specifically saved for. However, I faithfully use rewards credit cards and pay my balances down to $0 each month. Because of my excellent credit score, I also have six figures in open credit available at any given time.
If I had a true “urgent” expense, I’d probably charge it to my credit card to earn rewards anyway. I never, ever want to pay interest on my purchases, but this will buy me some time to access the money I need to pay off the debt before my credit card expiration date.
2. We have abundant assets outside of retirement
My husband and I save for retirement in solo 401(k) accounts with Vanguard, but we also invest our extra funds in index funds every month. Overall, this is the main reason I dumped our emergency fund. in so we have extra money that we can use in case of emergency. We would only have to sell investments (and pay taxes) to use it.
However, I’m very happy with the compromise I’ve made here. Where I could have had $25,000 sitting in a bank account earning a low APY, I invested my emergency fund in the Vanguard Total Stock Index Fund (VTSAX), which has a three-year return of over 21%.
While I would owe taxes if I had to sell investments to cover emergency expenses, the return I’ve earned makes the sacrifice worthwhile. Also, note that I have note needed to access this money since I depleted my emergency fund. If I can keep my money invested and grow without having to sell in an emergency, I’m increasing my returns even more.
3. We have multiple income streams
Finally, emergency funds are sold as a backup tool you can rely on if you lose your job. Being self-employed has taught me that this rationale for an electronic fund does not apply to me.
My husband and I have several businesses, including my writing business. Our income fluctuates wildly from year to year, but we have never been in a situation where that has been a problem. Having multiple sources of income means we never rely on just one thing to work the way we want. We have money coming in from different directions, and the fact that we don’t have a traditional job means that we can never be “excluded”.
Most traditional financial advice is worth considering, but you should take the time to decide whether each rule applies to your situation. There are so many nuances in personal finance that it’s likely that some advice is outdated, too general, or not appropriate to help you where you are.
After all, that’s why it’s called personal Financially Money moves are personal and the best financial moves for one person won’t work for everyone. The key to getting ahead is understanding how to work the system and doing your research so you can make an informed decision.
This article was originally published in November 2021.
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