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I've come to think that's the ideal role for credit cards to play in a debt-free person's life.

Why You Might Not Need Your Emergency Fund

Excluding my mortgage, I’m a debt-free individual. That means my credit card is a pretty lonely lil’ guy. He doesn’t even get to live in my wallet. He’s entombed in my office with my library card, my old student ID, and that Best Buy gift card with only $3.52 left on it. He has a zero-balance and a $10,000 limit.

I used to keep $6,000 in cash squirreled away as part of an emergency fund—enough to make a few rent payments if I lost my job or had to cover an unexpected accident deductible. I was very lucky, and none of those things ever came to pass; but this meant my emergency fund sat in my savings account, slowly depreciating. Meanwhile, I was toying with the idea of closing my credit card altogether—after all, I never used it.

But eventually, I saw a wonderful opportunity to justify that card, and put my emergency fund to better use: I invested the $6K and designated my credit card as my new emergency fund. I’ve come to think that’s the ideal role for credit cards to play in a debt-free person’s life.

Look before you leap

My need for an emergency fund is not as pressing as it once was. I used to live in an expensive city, work at a company known for abrupt layoffs, and stretched my monthly budget as thin as it would go to attack my debt. Each one of those things is a good reason to keep a strong emergency fund.

Now, my life is more steady. I bought a house that cost half of what I was told I could afford—which leaves lots of room for discretionary savings in my monthly budget. I work in an in-demand role at a stable company. My husband works part-time, but he could request more shifts at any time. We actually have room for error.

If your life is pretty stable, and you’re debt-free and living well within your means, do the math to see if shrinking or phasing out your emergency fund makes sense for you too.

More bitch wisdom on emergency funds:

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4 thoughts to “Why You Might Not Need Your Emergency Fund”

  1. Hi,
    Would you ever consider a post going into *how* you would use your credit card as an emergency fund, and a clearer reasoning for why you are comfortable using the card as one? What if you lost an income, had an emergency house repair, or needed a flight (and didn’t have cash on hand to pay for these things)?
    Do you have a plan for how to pay the card back? I think this is a really interesting idea, but I don’t feel like you provide enough information for me to evaluate whether it would ever work for me, or someone else with different circumstances.
    Thanks,
    Me.

    1. Sorry, this was one of our early articles where we actually aimed for 600 words! Hahahaha, oh those halcyon days… Now I hit 3K on the reg and Piggy’s gonna kill me.

      So there’s no real hard and fast rule. It depends on how comfortable you feel accepting some risk. For me, there were four main factors driving my large emergency fund: unpredictable pay cycles, unemployment risk, outstanding debts, and an overall shaky economy. I did not feel I could afford to take any chances, given all that instability. I only felt comfortable investing my emergency fund when all four of those areas had improved.

      If pressed, I’d say the most important one is “if you lost your job tomorrow, how long would you have to look to find a replacement?” You can afford to take more risks if you work in an in-demand field. But if you work in a field that’s unusual, seasonal, narrow, or prone to contractions, I wouldn’t recommend it. Hope that helps!

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