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.