A Selfless Emergency Fund

Alone in the Foggy Night

One of the primary pillars of personal finance is an emergency fund. I’ve written about it before, and I even wrote a quick “how to start” one of your own. The idea of an emergency fund is money set aside (even before your debts are paid off) for unexpected expenses. So if your car breaks down, you lose your job, or you break your leg, you’re covered for a little while financially. You don’t have to go into debt, undoing your hard work, and you relieve stress for when those situations do arise.

Some people might look at this and see a level of selfishness. Why? Well, essentially, you’re taking money, maybe extra money that you’ve worked overtime for, or gift money from the government or Christmas, and setting it aside for yourself. “This money”, you declare, “is for me.” I will use it when I need it, and there is nothing that can arise that will make me change the purpose of this money because I might need it someday. This money, one might argue, could be better used elsewhere. Perhaps the church needs it, or your friend. Maybe you should be giving it to a charity, or to the guy you see begging on the sidewalk on your way to work. Why did you even work so hard to get it, in the first place? Wouldn’t your time be better spent with your family, or with friends, or with God?

While these may be valid thoughts, I would argue that saving an emergency fund is selfless, not selfish.

When the crisis hits, what are your options? If you have an emergency fund, you use the money you have saved. If you don’t have an emergency fund, then you either use credit or rely on others to bail you out. Let’s say, for example, that you suddenly lose your job. The unemployment rate is as high as its been in quite some time, and you’re having a bit of a problem finding another job. One month goes by, maybe two, or three, and you’re still unemployed. How do you pay for rent? Your phone bill? For food? If you’ve saved up 3 months worth of expenses, you’re covered. If you saved up six months, you’re golden, no worries, no stress. Do some soul searching, teach yourself new skills, wait out the recession.

Or, you whip out your Platinum Credit Card and go for some cash advances for your rent. Got a phone bill? Don’t worry about it, you’ll pay it back when you’re employed again. Suddenly that 19% interest seems a little higher than it used to, and whoops, you missed a payment, so it’s 24%. Your three months of expenses look a little more like 4, or 5 months worth of expenses after fees and interest take their toll. Your monthly payments are growing, and because you had to take a job that had a salary a little less than you were used to, you can only make the minimum payment – and just barely. Suddenly you’re scraping by paycheck to paycheck, so what happens when the vehicle you need to get to work decides it doesn’t want to go to work anymore?

So you’re in over your head financially. You don’t want to go into debt (or any more than you already are), and the bill collectors are coming for you. You want to stay in your apartment, or condo, or house, so you go looking for a nice, interest free loan, or perhaps even a gift. You inform your parents, your friends, you tap your social network, looking for help. So maybe an aunt lends you some money, an old friend you helped move a couple years ago returns a favor, and your parents write you a cheque for the rest.

Here’s the problem with that scenario. Where do you think these friends and family are getting the money from to help you? Do you think that they have room for an extra thousand dollars or two in their monthly budget? Even if they have money set aside for these situations, you’re adding stress to their finances by pulling money away from their potential disasters. Now, to be clear, I’m not suggesting that you shouldn’t look to your friends and family if you’re stuck financially. I know that I have, on a regular basis, looked to my parents for an interest free loan when things become tighter than I hoped they would. I am suggesting that not saving money for your own emergencies is not only foolish, it is downright selfish, because you’re relying and depending on others to do the hard work for you.

Saving up an emergency fund isn’t easy, and it isn’t fun. I have a tiny one that’s taking a beating and I find it incredibly hard to find an extra $50 a month to drop in there. But it is responsible, and it is the right thing to do. Still not convinced? Want to make sure your money is selfless and not solely self serving?

Remember that your emergency fund doens’t just have to be for your emergencies. In a family context, anytime an emergency happens to any of you (wife loses job, son crashes car, daughter is unexpectedly born), the emergency fund is tapped to help out anyone who is hurting. This can extend outside of your family, of course. Perhaps some foolish soul forgot to save up an emergency fund, and suddenly needs help because his car broke down. You can use your emergency fund, if you’d like, because that’s what its there for.

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