You Don’t Need an Emergency Fund

In the chaos of the Pandemic of 2020, the world shut down. If you were a retiree on pensions, Social Security and income from your portfolio, life was altered but manageable. However, if you were still in the workforce the situation was much more volatile.

For me, technology made it possible to work from home and communicate to my clients. Retirees learned how to use Zoom and I learned how to convert my upstairs bonus room into an office. As a Dave Ramsey SmartVestor Pro, I’ve always espoused Dave’s philosophy regarding Emergency Funds. In the Baby Step process, step 3 is to get your Emergency Fund up to three to six months of living expenses.

Quick hack that I’ve noticed. Take your rent or mortgage payment and multiply it by three. When I say mortgage payment, I mean your principal, interest, taxes and insurance (PITI). So if it’s $2100, I can estimate that your family lives off of around $6300 per month. Naturally, birthdays, holidays and travel can skew those costs higher, but I find it quite close.

In an emergency, birthdays, holidays and travel get truncated as we tighten the belt. How much travel did you do during the pandemic? Even the retiree with consistent, dependable income had nowhere to spend it other than online shopping. Furthermore, the pandemic meant less hours, less pay and in some cases no job at all.

We had this trite saying, “We are all in this together.” That was inaccurate and insensitive. The 33 year old single father of two bartending had a much different experience then a chubby financial planner eating ice cream talking to retirees from his upstairs bonus room.

The key here is that the emergency fund was crucial to getting through one of the toughest years on the planet. Dave Ramsey was vindicated in his conservative no nonsense approach to fiscal responsibility. And yet, I’m here to tell you, you don’t need an Emergency Fund anymore. Hear me out.

Words are powerful. Your subconscious mind is actually quite easy to hypnotize into believing just about anything. A great example of this is the placebo effect. If you google “examples of placebo effect,” prepare to have your mind blown. In study after study, participants are given a sugar pill and told that it does something like pain relief, for instance. Invariable a majority of participants find relief as their body releases endorphins in positive expectation of pain relief. It wasn’t the pill it was their mind/body response to a belief.

It works negatively as well. It’s called the Nocebo Effect. The Aboriginals of Australia have a ceremony called Bone Pointing. They sing curses over a bone and then point it at the offending party. Within a month, the accursed is sick or dead, simply by the nocebo effect. Did the bone have any intrinsic or extrinsic power? No, but the mind of the accursed did.

I’m of the opinion that the greatest hindrance to building an Emergency Fund is the nocebo effect. You don’t want an Emergency Fund because you don’t want an emergency. Why would you? In fact, could it be if you create an emergency fund the power of your subconcious mind will create said emergency? I don’t know. But my job is to persuade you to save money to an amount of three to twelve months of living expenses.

To do that, I suggest we simply change the name of your fund to an Opportunity Fund. Get three to twelve months of your living expenses tucked away and wait for an opportunity. It may be an opportunity for a brand new roof due to a hurricane or a brand new air conditioning unit. It may be to purchase a recreational vehicle from your uncle Bob. The key is framing this account in a way that is Placebo and rather than Nocebo. Should another 2020 come, you’ll have the opportunity to thrive.

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