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The Death of the Emergency Fund: Smart People do This Instead
In a world that is ever-evolving and uncertain, the concept of an emergency fund has long been seen as a financial lifeline – a safety net for unexpected expenses or income loss. However, with changing times and shifting priorities, many experts argue that the conventional emergency fund may no longer be the best approach for managing financial emergencies effectively.
Traditionally, financial advisors have advocated for setting aside three to six months’ worth of living expenses as an emergency fund. This reserve would act as a cushion to cover unexpected circumstances such as medical emergencies, job loss, or major repairs. While this strategy has its merits, it may not be the optimal solution for everyone.
One of the main reasons for reevaluating the traditional emergency fund strategy is the current low-interest rate environment. With interest rates at historic lows, the returns on cash savings are negligible. This means that stashing away a significant amount of money in a savings account may not provide the best long-term growth potential. Instead, smart people are looking for more efficient ways to make their money work harder for them.
One alternative gaining popularity among financial experts is investing in a well-diversified portfolio. By allocating funds to stocks, bonds, and other investment vehicles, individuals can potentially generate higher returns over time. While investing does come with a level of risk, a diversified portfolio can help mitigate that risk and provide a better opportunity for growth and wealth creation.
Another argument against traditional emergency funds is that they may discourage people from taking control of their financial situation and acquiring new skills. Relying solely on a cash reserve can breed complacency and hinder personal and professional development. By investing in themselves – either through education, training, or pursuing new business opportunities – individuals can boost their earning potential and build a more secure financial future.
Furthermore, maintaining a large emergency fund may also prevent individuals from taking advantage of exciting investment opportunities or pursuing projects that could accelerate their wealth-building journey. By keeping funds idling away in a savings account, one misses out on potential investment gains that would have helped grow their wealth over time.
While critics argue against the traditional emergency fund, they do not advocate for impulsive or reckless financial behavior. Instead, they emphasize the importance of comprehensive financial planning, which involves setting clear financial goals and considering a wide range of contingencies. This approach encourages individuals to build a strong foundation, create multiple income streams, and regularly evaluate and adjust their investment strategies.
In conclusion, the death of the emergency fund does not mean abandoning the concept of financial preparedness altogether. It simply signifies a shift in focus towards a more proactive, dynamic approach to managing financial emergencies. By embracing the idea of diversification, investing in oneself, and pursuing growth opportunities, smart people are redefining their financial strategies and taking control of their financial well-being. The key lies in adopting a holistic approach that considers both traditional wisdom and new insights to build a resilient and prosperous future.
What if you need the money today? It takes a week to get the money out of the stock market.
I do not carry a puse or cash, for I stay home. I do have 6 months food and rent money. The money is to pay my rent, when debit card is down. I moved at 79 to a less expensive and safer country, where there is plenty food etc. I use online shopping for groceries etc. for home delivery..
I use a Roth IRA as my emergency fund. The money is invested in index funds until you need them. You can take out your contributions without any penalty and without any age restriction at any time.
Imagine being 30ish and use traditional ira/ 401k lol
He just admitted he keeps at least $500 and up to $1000 in the bank.
Where the 33000 come from if the other 2 had 20000 to start with?? Shouldn't they all start with 20000 to show the real scenerio?!
This makes a lot of sense.
I know Dave Ramsey. I dont know Kevin. Thanks but no thanks, kid.
There's ALWAYS money in the banana stand
Hi Kevin, Thanks for the video – some interesting food for thought! However, I would say that that you will likely never be invited to be a guest host for Dave Ramsey.
I did want to point out also that in your "numbers" comparison, the comparison was not really apples to apples, as the three scenarios did not start from the same initial situation. Your third scenario is very interesting, but to show its benefit, you really need to have it start with the same initial situation.
For a fair comparison, all three scenarios need to start with the same situation – someone who has $5K debt and earns at least $33K extra. Scenario 1 takes that $33K as W2 wages, pays $13K in taxes, and retains the $5K debt. Scenario 2 takes that $33K as W2 wages, pays $13K in taxes, and pays off the $5K debt.
To be fair then, Scenario 3 should either retain the $5K debt also, or else take $8333 (of the $33K) as W2 wages, pay $3333 of that as taxes, pay off the $5K debit, leaving the remaining $24,667 in the pre-tax 401K account. This scenario will still come out ahead (with typical stock market returns), but not by as much, and more importantly, would be a fair comparison.
Also, in the scenario that assumes a negative stock market return, unless I am missing something, I don't believe there is any taxable loss to deduct. Gains or losses in a pre-tax (IRA or 401K) account are not taxable; you are simply taxed on the amount you withdraw.
As a disabled American who works part time, get paid weekly and still has to be on SSI (what people like Meet Kevin call "Government handouts"), I did not choose to be in a low income situation. That happened because of the SSI and the restrictions put in place to keep it…also as a disabled person, I cannot work full time because 7 days and 8 hours is physically demanding on my joints (I have a slight rheumatoid issue)…Did I mentioned I am disabled?
you like to hear yourself talk bye-boy
I am keeping my money in beanie babies. They are coming back.
why not just have a few ounces of gold on you?
if you need something liquid and need it now, why not use a charge card?
This advice is stupid. Corona March 2020 emergency. This will kill you.
So they were so wrong???
Dave works for the majority. This works for the 1%. Both ways are great
Oh rapaz, o fundo de emergência é para ser uma coisa bastante segura e sabermos que podemos retirar sempre o capital quando quisermos, por isso o index fund não é apropriado para este tipo de investimento porque pode ir todo á vida. O index fund é bom se ja tiver um fundo de emeergencia!
They are called young and restless!
Marcus savings pays you .50 % and it's safe. You're an idiot.
There is a middle ground between this guys advice and a year of expenses in savings. I personally have 3 months in my emergency hoping to god I can build it up to 6 months.
There is a bug in this plan. It assumes that emergency funds is only used in case of an emergency for the account holder or immediate family members whereas it is often times the case that you need these funds to help out a close friend or someone you are not related to.
I have my emergency fund in BlockFi which is currently giving me 9% APY on my Gemini USD balance.
Good stuff. Agree on all minus relying on HELOC to cover for you. As you are well aware, Banks usually shut those down and sometimes call the debts in hard times.
12 month stock funds instead of emergency fund. Using this Idea
I experimented with investimg my emergency fund for faster growth, but i ultimately got out (while in the green thankfully) because I didn't feel comfortable with it at all. #1 rule of thumb with investing outside of your retirement accounts is only invest money you can afford to lose.
I get inflation is an issue, but you have to have a reserve of liquid cash ready to go in case of an emergency. It's one of those things you don't need to overanalyze and try to get cute.
Would you recommend a Roth IRA or traditional IRA
Stock and index funds lmao. Okay, stop market drop 50% the next day and rise 200% the next next day but oh no, you need to liquidate your shares at the 50% drop because you have a fcking emergency.
How does that make any sense?
Hi Kevin.
This is some very dangerous and risky advice. Proceed with caution.
This video was eh…moving on.
I like him. He looks like a republican
I feel like many on the comments are missing the point. However, I agree with this. It's quite simple to move money from one account to another, in an emergency. May take a few days but I'm feeling many commenters may lack in the patience area. Also, forgot to mention inflation. They are actually losing money keeping it in savings. Stocks are the hedge. Cheerio !
I just made 85k profit in the stock market this year off the meme stock craze. I'm buying my house now but was thinking I should buy a rental property. Any suggestions?
I have 50k in savings as well that I plan to invest into safe sticks. Totally new to this investing btw. Just trying to make a better life for my kids
Jesus Christ I just saved 30k in 6 months and needed this vid to that money is my emergency fund
Bad advice
I think enough people have highlighted how risky this is but I'd rather suggest a compromise. If someone wants a 6 month emergency fund that could very easily reach 30-40k. If you hold a minimal fund of 3 months expenses then pay income protection insurance and use the extra towards a deposit for a rental property you are locking in financial independence and someone else will be paying for it
Oh this dude is 27 (looks 37 at best) that's why he's talking like this. Some good points but having that available cash it definitely is necessary.
This dude hasn't had enough of life's surprises yet. He's still riding that, "I know everything" vibe.
Cute.
@daveramsey
Good advice for people like you and I, but dangerous for the average person that doesn’t have that self-control or excess income.
Kevin makes complete sense. I’m actually going to adopt us as soon as I finish flipping my first two properties ever
Well you don't need an sos fund if you're worth millions anyway. The average person does need something.
His example during down market is only ok if you gambled your emergency funds in the market and it had 3-5 years of gain without you having to use it