Are Emergency Funds a Bad Idea?

Are Emergency Funds a Bad Idea?

I came across an article today that I had to comment on.  It was about Emergency Funds.  The Title was Emergency Funds Are a Bad Idea.  Here are some excerpts.

 “If the experts are going to issue a blanket recommendation to millions of people that they should all create a buffer to tie them over in unforeseen circumstances, it would make far more sense to say, “Instead of amassing an account that pays you 0%, or a few basis points above that, maybe you should focus on closing out an account or two that’s costing you 15%.”
Even for a person who has amassed debt, it still makes sense to build an emergency account. At some point, you have to be able to stop accumulating debt and stop the bleeding. After all, debt is often the result of unforeseen expenses that an emergency fund would have handled.
“But this is where the irony lies. Because, as a rule, the folks who are diligent enough to live without consumer debt usually pay their bills on time. They do not impoverish themselves so they or their offspring can attend college, and they do not spend extravagantly. They are also the ones who are going to be least prone to emergencies, and thus least in need of any emergency fund.”
Well I can’t say that I follow that logic. They are also the ones who are going to be least prone to emergencies? The last time I checked unforeseen problems can happen to anyone.
“Worried about a debilitating illness or injury? We have health insurance for that.”
I don’t know about you but my health insurance doesn’t always cover everything and I am looking at a $6,000 deductible before they start paying.  I would like to know that I have at least $6,000 handy in the event that life happens.
“Well what if I loose my job?  Well, what if you do? There’s this thing called unemployment insurance. Your employers pay into it and it’s for your benefit. We also have a workforce in which (overall, if not in every individual case) 95% of those who want jobs have them.”

Ask the high percentage of unemployed people if they agree with that 95% number.
Then my favorite piece of advice as an alternative to funding a savings account with your emergency fund.
“You can also pick a higher-risk blue chip stock or bond fund – which adds to your risk, but gives you instant access to your funds if you need them. Either way, you’d be building wealth instead of watching it methodically diminish.”
After all, you can’t lose money in a stock or bond fund – right? Why would you utilize a long-term investment for a short term problem? Instant access? What if you are down -10% in that stock?  Would you want to be liquidating it for an emergency?
Bottom Line – Emergency funds help keep you out of debt because the credit card is where we go when we can’t pay with real money. They are not designed to increase your net worth. They pay nothing because risk free earns nothing these days. Emergency funds are designed to be risk free because you don’t take risk on something that needs to remain liquid. Finally, emergencies will happen unless you are immune to change.
Tomorrow  – Some creative ways to create emergency funds.
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