Here’s why I won’t be increasing my emergency fund just yet

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The pandemic has prompted many people to bloat their emergency savings. Here’s why I don’t.

Ever since I started earning an income, I have made it a point to always put money in my savings account. This means that when I was 13 and my only source of income was babysitting, I made sure to put the money I earned in the bank. And once I got older and luckily started earning more than a babysitter’s salary, I ballooned my savings enough that if I lost my job or faced unexpected expense, I would have cash reserves to fall back on.

When the pandemic hit, I had a nice amount of money in the bank, but the health and economic crisis scared me. With schools closed, I didn’t know how much work I would be able to do without childcare. Nor did I know if my income would suffer, with the economy in shambles. So around this time last year, I started to increase my savings, even if that meant cutting back on the little luxuries that probably would have made the pandemic more manageable, like more takeout.

At this point, however, I have no intention of putting any more money into my emergency fund. Here’s why.

A fine line between being cautious and being paranoid

Generally, we are told that an emergency fund should contain enough money to cover three to six months of living expenses. My emergency fund has over a year of expenses. And that’s exactly why I’m done adding to it, at least for now. Here is a widget that can calculate what your emergency fund should be.

Part of the reason I like having a year of living expenses in the bank is because as a self-employed person I normally don’t qualify for unemployment benefits if my workload drops or goes away. goes. (Although at present this kind of help is available to the self-employed and gig workers as a specific provision due to the pandemic).

But here’s why I think I can stop funding my emergency savings now. As mentioned, I already have a little over a year of living expenses in there. And also, if I lost my job, my household would not necessarily lose all of its income. My husband also works and his salary covers a large part of our expenses. And I guess I’d like to be optimistic and assume that we wouldn’t both lose our jobs at exactly the same time. Even if that were to happen, as an employee, he would receive unemployment and possibly severance pay as well.

Make sure my money works for me

Another reason is that if I leave too much money in my savings account, I will limit my ability to grow my wealth. Savings account interest rates are extremely low right now, and the more cash I keep in cash, the more that money stagnates. On the other hand, if I continue to increase my brokerage account, I will have the opportunity to invest this money and turn it into a larger sum.

One of the main reasons I’ve always opted for a larger emergency fund is that I’m a financially conservative person and also one to hate the idea of ​​debt. But there is a difference between being cautious and worrying unnecessarily. At this point I have a good cushion of cash to tide me over in case of an emergency, and I can sleep at night knowing that at least for now I have enough saved up.

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