Bob, thank you for this helpful article. This article attacks the chimera of the emergency fund principle. As a financial planner, I have repeated this mantra like an ad nauseam yoga chant. It's time to modify our approach to this pet platitude.
Financial planning involves emotions, risk, and fundamental principles . A sensitivity analysis brings numbers to bear on a person's situation and desire to have a "reserve" fund. We use Envestnet / MoneyGuide's financial planning software to run "what if" scenarios for our clients to help us more accurately determine how much they should keep for a rainy day, week, or decade.
I like the example of how an $80,000 annual living standard may be reduced to $75,000 by allocating a certain amount to "reserve" funds. You wrote, "As an example, placing $40,000 on reserve may decrease today’s living standard to $75,000. Not much of a change for the security afforded by a rainy day fund." Yes, the "reserve" fund provides psychological comfort that is likely more important to the client than the reduced living standard, which is spread out over a period of time.
One biblical reference that could be used to support an emergency fund is found in the Book of Proverbs. The Bible says:
Four things on earth are small,
but they are exceedingly wise:
the ants are a people not strong,
yet they provide their food in the summer..." (Pro 30:25).
Where Do Ants Store Their Food? Ants store their food inside the nest in separate compartments for future use. Moreover, they can also keep it inside the abdomens temporarily to feed larvae through regurgitation. Furthermore, they hide seeds, grains, and dead insects in addition to water during the summer season.
This would be one verse to support the biblical basis for saving your money - so you have enough to eat and take care of yourself when conditions are not favorable.
Personally, I don't keep a lot in savings. I have a higher risk tolerance, but we also have a decent amount of retirement assets and access to credit. As people often say, "You do you."
One other thing I didn't notice in this article was typos. Keep up the great work! It's a pleasure to read these posts and participate in the community.
Bob, thank you for this helpful article. This article attacks the chimera of the emergency fund principle. As a financial planner, I have repeated this mantra like an ad nauseam yoga chant. It's time to modify our approach to this pet platitude.
Financial planning involves emotions, risk, and fundamental principles . A sensitivity analysis brings numbers to bear on a person's situation and desire to have a "reserve" fund. We use Envestnet / MoneyGuide's financial planning software to run "what if" scenarios for our clients to help us more accurately determine how much they should keep for a rainy day, week, or decade.
I like the example of how an $80,000 annual living standard may be reduced to $75,000 by allocating a certain amount to "reserve" funds. You wrote, "As an example, placing $40,000 on reserve may decrease today’s living standard to $75,000. Not much of a change for the security afforded by a rainy day fund." Yes, the "reserve" fund provides psychological comfort that is likely more important to the client than the reduced living standard, which is spread out over a period of time.
One biblical reference that could be used to support an emergency fund is found in the Book of Proverbs. The Bible says:
Four things on earth are small,
but they are exceedingly wise:
the ants are a people not strong,
yet they provide their food in the summer..." (Pro 30:25).
According to www.antsauthority.com:
Where Do Ants Store Their Food? Ants store their food inside the nest in separate compartments for future use. Moreover, they can also keep it inside the abdomens temporarily to feed larvae through regurgitation. Furthermore, they hide seeds, grains, and dead insects in addition to water during the summer season.
This would be one verse to support the biblical basis for saving your money - so you have enough to eat and take care of yourself when conditions are not favorable.
Personally, I don't keep a lot in savings. I have a higher risk tolerance, but we also have a decent amount of retirement assets and access to credit. As people often say, "You do you."
One other thing I didn't notice in this article was typos. Keep up the great work! It's a pleasure to read these posts and participate in the community.