Saving up an emergency fund is often times easier said than done. If your budget is tight, or you are saving for future goals such as retirement, a down payment on a home, or paying off debt, an emergency fund can easily be pushed to the back burner However, there have been some debates on whether you really need an emergency fund at all. After the recession of 2007, it is hard to make the case that having at least several months of cash on hand is a bad idea. But it just so may be the case that it is not always the best option.
A common theme in the world of finance is that every person’s situation is unique. With that being said, it might not be in everyone’s best interest to have several months of cash stashed away in case of an emergency Here are some places your cash may be better off than in an emergency fund.
Towards High Interest Consumer Debt
Credit card balances are a present day emergency. There is no sense in saving for a future emergency when you are paying high interest on your debt today. The rates that you will get from an emergency fund in a savings account or CD will not offset the interest you will be paying in interest on your credit cards.
If You Have No Retirement Savings
Retirement is an easy aspect of your personal finances to forget about, especially when you are young. In the decision between saving for an emergency now, and saving for your future, always chose the latter. The money put aside today in a Roth IRA or 401(k) will far exceed the growth that you will ever see in an emergency fund. Plus, certain retirement vehicles will allow you to borrow principal if you ever get into a situation where you need cash fast.
You Have No Debt and Low Expenses
In the case that you have managed to live debt free and below your means, you also may be in the category of someone who doesn’t necessarily need an emergency fund. Redirect your cash from emergency funds towards investments that offer long term returns. Reinvest your dividends until they grow to a substantial amount, at which time you can either retire or use the dividends in the case of an emergency to either live off of or subsidize your income.
You Have Investments That Are Accessed Easily and Without Penalty
It just so may be the case that you have an emergency fund and don’t already realize it. If you have been investing heavily for the past few years, you may have already accumulated a sum that would more than cover you in the case of an emergency. As long as you can withdraw without penalty, you may very well be sitting on an emergency fund that is making money for you.
You Have Flexible Finances
There are several situations where someone may be able to live without their income already and they just don’t know it. You may be living beyond your means, have a spouse that can support your lifestyle, or you have other employment options available. If any of these are the case, an emergency fund may be u unnecessary and your money will be much better invested elsewhere.
Regardless of where you are in life, having peace of mind is invaluable. Despite your current standing you should be constantly working towards having the ability to live on your own terms without having to be dependent on anybody else. In all cases, financial preparedness is key. Being alert to your financial situation allows you the ability take advantage of opportunities that come your way as well as protect yourself when you are met with misfortune. cy fund is one of them. One size does not always fit all, and an emergency fund definitely falls into this category. Sometimes the best preparation is knowing what you don’t need to prepare for.