Views on Emergency Funds

Many posts have been penned over the years regarding the necessity of an emergency fund. In this concept, there is a broad agreement. In fact, a commonly quoted phrase is, “40% of US adults don’t have enough savings to cover a mere $400 emergency“. As with all things statistical, this is likely debatable and/or a one-sided view, but there are enough stories being shared that it is difficult to deny the plausibility. Where the views diverge, politics tend to stand in the way of a consensus. One example being Sen. Cory Booker’s (D-NJ) proposal to open a savings account at birth with government seed money. I fail to see this gaining much traction particularly if farmed out to FDIC insured institutions managed by the likes of Jamie Dimon who proved last week he was clueless in the ways to reduce wealth inequality. But I digress …

Today is tax day and based on the grumblings, appearances are that most are unhappy. Part of this is messaging, part is radical change, part is perceived promises broken … Pick a reason and you’ll find an issue, mine being an accelerating deficit backed my the ‘promise’ of an administration best illustrated as:

I would gladly pay you Tuesday for a hamburger today.

attributed to J. Wellington Wimpy, a character of E.C. Segar’s Popeye

Yes my check is grudgingly going in the mail today after spending most of the quarter paring back my regular stock investments and cutting a little on my discretionary spending. The telltale evidence of this activity is reflected in my March report showing my typical ~20% year on year dividend increases dropping mysteriously to 8.46%. My cash position is my first line of defense when emergency funds are required which is why I don’t report it as an investment position. I have found over the years in situations emergency funds are required, generally a little lead time is provided.

Contrast this with a friend who owns his own business. Over the years, we’ve discussed his lack of an emergency fund. His rationale being his ROI was better reinvesting in his business rather than holding idle cash. All well and good until the unexpected occurs. With a breakout year behind him – his business nearly doubled – he was ready to add a couple of employees and expand into another business line until he saw his tax bill. His check will be going to the government tomorrow and his business expansion is now on hold.

I guess the moral to this non-fictional tale is that the fruits of an expanding economy are only present when the growth outpaces an underlying deficit. As my friend found, reserves are a necessary evil to fuel the future. Perhaps these are isolated incidents, perhaps we’ll hear more like these in the days ahead. One can only hope that perhaps this presidential promise – unlike Wimpy’s – will be paid on Tuesday as today’s hamburger is now in hand.

4 thoughts on “Views on Emergency Funds

  1. The whole thing about open savings at birth and stuff sounds good, so is open a credit card for an underage so they can start building their credits … until the parents changes their minds about inheritance, or start abusing the credit card and the child got stuck with the credit card debt when they turn 18 if the parent was not responsible:). I watched the documentary like 15 years ago. Stuck in my head.

    These kind of stuff is just better off learning from family like you doing for your grand kids or from school.

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    • The typical DGI mindset is regular investing coupled with (at least) living within ones means – some go so far as being frugal. While I agree conceptually with you, I’m not sure schools are the answer – I mean did Econ 101 provide the practical application experience? Likewise, I doubt most families have learned the ropes on how it’s done. But a program backed by a government that daily illustrates its’ inability to even attempt a realistic budget? You know me – always raising more questions than answers. By the way … the kid now has an IRA ๐Ÿ™‚

      How did you make it through tax season?

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      • terrible taxes season, my husband fought me on every single transactions I want to deduct ๐Ÿ™‚ The new tax law didn’t favor me at all… although I seem to make a bunch more hihih… greedy I guess ๐Ÿ™‚

        I heard on NPR that the GOP won’t be able to claim the new tax law as “victory” as majority of the people doesn’t notice the paycheck increase, yet won’t able to take exemption, and won’t able to get back as much or having to pay back taxes.

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