We, the Bitches, have said many times that emergency funds are absolutely foundational to financial stability—which makes it wild that today, I’m here to completely contradict myself and say you might not need an emergency fund at all!
When we first started this blog, our frame of reference was regular folks. We gathered experiences from friends and coworkers who were mostly young and broke, with neither interest nor experience in managing money. Overwhelmingly, those people needed emergency funds and often didn’t have them.
Now we have a healthy readership of self-identified personal finance nerds… and we’re seeing the opposite problem! These people took the “build an emergency fund” step and ran with it. But like, past the goal post, straight out of the stadium, and deep into Parking Lot B. They’re sitting on shockingly large piles of cash, afraid to spend or invest, chasing ever-higher amounts for “safety.”
So today I want to talk about why you might not need an emergency fund. Or at least, why you might not need a classic emergency fund (i.e., the giant pile of X months’ expenses in cash). In some cases, it’s a smart, strategic decision to have a smaller or less traditional emergency fund. Especially if there may be better uses for your cash right now.
It doesn’t apply to everyone—but if you’re reading this blog, odds are good it applies to you!
Three factors: Risk tolerance, social support, and financial adaptability
There are basically three factors involved in determining if you might not need an emergency fund. The first is your personal level of risk tolerance. How costly might a potential failure be? The second is how much social support you have access to. Do you have accounts or—gasp!—actual human people who could help you out in a crisis? The third is your financial adaptability. How quickly could you find another source of income and begin to recover?
Insert mandatory repetition of the phrase “personal finance is personal” here. All of these factors can be drastically different from person to person, family to family, and motley crew of space loners turned found family to motley crew of space loners turned found family.
You may be high in one category, low in another, and average in the third. That’s totally cool. Everyone is different. (But we’re all shiny.)
What is your risk tolerance?
Risk tolerance is essentially your answer to the question “is failure an option?”
If you lost your source of income tomorrow, what would the consequences be? Dire or survivable?
If it would be utterly catastrophic, you have low risk tolerance. For these people, a loss in assets or income might mean, say, losing custody of their children, or going without expensive lifesaving medications. If a financial crisis would be unideal yet endurable, you have high risk tolerance. Generally, people with high risk tolerance don’t have children, dependents, disabilities, or other critical vulnerabilities. Must be nice!
How much social support do you have?
Social support plays a huge role in determining whether you might not need your emergency fund. Social privilege, connections, and community wealth are among the best protections from true catastrophe. We talk about this shit all the time at Bitches Get Riches, yet we can never really say it enough, because it so often goes unsaid in the world of personal finance!
If a situation arose in which you needed to borrow $1,000 today, is there anyone you could call that could—and would!—say “sure, hold on, I’m Venmoing you right now”?
When I started this blog, my answer would’ve been: yes, three people. Today, I counted fifteen, and probably could’ve kept going. Which is an absolutely wild thing to think about. Because for so many people, the answer is zero! If you have low social support, you probably couldn’t come up with even one tenth of that amount. If you don’t come from an affluent and stable community with generational wealth to share, it lowers your options in a crisis. It’s one of the many reasons we will never shut up about the gender and racial wage gaps.
- 1 Easy Way All Allies Can Help Close the Gender and Racial Pay Gap
- Ask the Bitches: “Do Women Need Different Financial Advice Than Men?”
- The Biggest Threat to Black Wealth Is White Racist Terrorism
I’m lucky to have high social support. It’s a privilege to be surrounded by people who are stable enough to help me. As I write this, I’m caring for my husband after his second major surgery of this year. Our friends organized an unbelievable conga line of homemade food and takeout delivery to ease the strain of caregiving and recovery. We’re getting incredible help from every direction because our community is healthy enough to give it to us.
Obviously, this isn’t just about interpersonal lending. Connections help you find good jobs, housing, and softer forms of support. Communities can—and should—be crisis buffers, but they can only fill that function if they’re stable and healthy. And this community doesn’t have to be huge to be impactful! Partners alone make a huge difference, as we discussed in our recent article about financial discrimination against single people.
One more thing: DON’T BE A SHITTY FRIEND. You should still pay your loved ones back for spotting you in a dire situation. Or better yet: repay them in kind the next time they need a hand getting through an expensive emergency.
How financially adaptable are you?
Finally, adaptability counts for a lot in emergencies.
Losing your job can be scary. But if you work as a generalist in an in-demand field, it’s a lot less scary. Like, the difference between Luigi’s Mansion and PT. If you were laid off from your job as a restaurant server or a nurse practitioner, you could have multiple competing offers by day’s end. But if you’re an alpaca shearer or a nuclear security sergeant, the total number of companies looking to hire such roles is far smaller. You might have to face the costs associated with a long job search, a cross-country move, or retraining to fully recover.
The same goes for having assets in general. Have you paid off all your debts? Cheers! Got mad money invested in easily accessible non-retirement accounts? Bravissimo! Developed skills or side hustles that can be monetized at a moment’s notice? Mazel tov! You’ve established a great baseline of financial adaptability that makes you much more prepared for rainy days.
If you have high financial adaptability, you can probably safely scale down the size of your emergency fund. But if you’re a specialist with low financial adaptability, it’s wiser to keep your emergency fund thick and liquid. (Barf—sorry.)
How much is too much emergency fund?
If your risk tolerance, social support, and financial adaptability are all high, you can play pretty fast and loose by saving an almost nonexistent emergency fund. Having low (or no) debt and a credit card is plenty for someone in this highly ideal financial situation.
I’m trying to picture who this kind of person might be, and all I’m coming up with is the Winklevoss Twins circa 2002?? Let’s go with that. Tyler and Cameron are set for life on the strength of those foreheads alone! No additional saving support required, no notes! They can get the idea for Facebook stolen from right underneath their noses, and come back as crypto kings and venture capitalists like nothing ever happened.
If your risk tolerance, social support, and financial adaptability are all low, saving a traditionally large liquid emergency fund is still the best choice. Fantine from Les Miserables lives in a broken country with high unemployment and no social safety net, has a minor child with fragile health, a retaliatory boss, shitty friends, untrustworthy and expensive babysitters, and no assets besides enviably glossy hair. Yeah… plot might’ve been slightly different if she’d had a few mille in le olde banque.
My quick and dirty formula for a just-the-right-size emergency fund
Okay, okay, so how could you get to the point that you might not need your emergency savings? How much do you really need that rainy day fund to be? Again, this number is incredibly personal. But I’ll give you a quick and dirty formula that might help you pinpoint how much you might need to tuck away in a savings account.
In my extremely unprofessional opinion, everyone should save a minimum of one month’s living expenses if they are able to. That barely feels like it qualifies as an emergency fund… more of a personal overdraft protection plan, really.
If you have low risk tolerance, add 3-4 months’ expenses.
If you have low social support, add 3-4 more months’ expenses.
And if you have low financial adaptability, add another 3-4 more months’ expenses.
In summary, the Winklevoss Twins need a month’s worth of money saved up. Fantine needs a year. Maybe she could’ve used it to hire a lawyer to sue Tholomyes’s ass for hella child support! IDK, I’m not a fanfic writer! YOU tell ME—NaNoWriMo’s coming up!
I practice what I preach
I’d describe myself as having low risk tolerance, high social support, and high financial adaptability. It helps a lot that I’m debt-free and imminently employable. (If you ignore all the anti-work shit I write on this blog, lmao.) I have solid connections who can—and do—help me out in moments of crisis. Plus a loving partner to split all of life’s surprise bills 50/50!
Fittingly, my cash emergency fund for the past few years has been 3-4 months of savings. And I include the credit limit on my credit card as part of that fund, because I carry no balance on it.
My credit card is my emergency fund
Years ago, I kept a full year’s worth of cash squirreled away as my emergency savings. It was enough to pay rent, eat food, and cover almost any insurance deductible. I was very lucky, and none of those financial hardships 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! I was too scared of debt to touch the damn thing. And no one had explained to me the importance of a long credit history to your credit score.
Eventually, I came to realize that my rainy day fund was bloated. I was hoarding cash, dragon-like, to stave off the financial anxieties every veteran of the Great Recession carries. Clearly, I needed to let that shit go and grow as a person by embracing greater risk. I saw an opportunity to justify that card, and put my emergency savings to better use. In the end, I invested most of my huge-ass emergency fund, and invited the credit card I was once so afraid of into my emergency preparedness plan. I’ve come to think that’s the ideal role for credit cards to play.
My credit card works as an emergency fund because of my high risk tolerance and social support… but mostly because of my adaptability. If I use my dusty credit card to cover an emergency, I’ll pay it off lickety-split with my high income potential. The last thing you want is for credit card debt to become an emergency in and of itself.
You might not need your emergency fund if its primary function is allaying your financial anxieties
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. At that time, each one of those things was a good reason to keep a strong emergency fund in a savings account.
My life is more steady now. We actually have room for error. So novel to know I can hit a rough patch and actually bounce back from it! It would be extremely cool for that to be everyone’s experience, but I know I’ve already asked Santa for too much this year…
If your life is pretty stable you’re living well within your means, do the math to see if shrinking or phasing out your emergency fund makes sense for you too. In my observation, large emergency funds are almost always an expression of financial anxiety. Which is utterly understandable! But compulsive cash-hoarding is holding way too many frugal young people back from reaching their true financial goals faster. And I rarely see it actually curing those anxieties. Instead, it becomes a cyclical problem where defending and growing that fund becomes a new source of even more intense financial anxieties. I don’t want this Smaug Paradox for any of our readers.
Consider repurposing that emergency fund into less debt, diversified investments, greater stability, and greater happiness. Because yeah, at the end of the day, money is supposed to be traded away for stuff you want more. Amazing how that works.
Loyal readers, how much do you keep saved in your account? Do you consider your credit card to be part of your financial hardship plan? What about other assets? Please share your experiences in the comments below!
More Bitch wisdom on emergency funds:
- You Must Be This Big to Be an Emergency Fund
- On Emergency Fund Remorse… and Bacon
- Financial Lessons Learned from a Night in the ER
- I Think I Need to Go the Emergency Room?
Trouble saving? We have a coloring book for that
If you have a savings goal in mind—for an emergency fund, perhaps?—try the patented Bitches Get Riches savings goal coloring page! It comes with savings tips and tricks and a handy dandy calculator too. Plus, it’s real fuckin’ purdy: