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When an Emergency Fund Isn’t

I was reading Money magazine the other day and saw the results of a CNNMoney.com poll. It asked participants, “How much is in your emergency fund?” That 22% had less than three months of reserves and another 22% had none wasn’t the most disturbing part of the poll. What bothered me were the participant quotes.

One, a nurse from Houston, said that while she had 6-months of living expenses saved up, she had just used some to pay for college tuition. Another person, a tech manager from Boise, said that he had several months saved and was trying to save more. He then admitted that they weren’t trying too hard as they were answering the poll while on vacation. A third person, this time an economics professor from Miami, stated that she had $60,000 saved up, but she was going to use it to buy real estate.

My friends, at least two of these people didn’t have an emergency fund, and the other deemed pleasure more important. Let me explain.

The nurse has a good bit of savings, but I question whether it is emergency savings. If the savings can be taken to pay for college, then it is college savings. College is not an emergency. I only hope that she has examined this and kept enough back for the credible emergencies she had planned for.

The tech manager said he had some emergency savings and was trying to save more. That implies to me that he felt the amount he had saved up was not yet adequate. I’m assuming he has taken a vacation to give himself time to craft a budget that allows him to build up his saving to a level that makes him secure. My guess is that not only won’t he do that, but if there are some vacation cost overruns he’d much rather rob his funds than rob his pleasure. A vacation is not an emergency.

Then we have the professor. She’s got $60-grand saved up for emergencies. Or does she? Maybe buying real estate is some new-age economic emergency theory I’m not aware of. I do not doubt that she’s getting some great deals in Miami. I’m guessing she’ll make a pretty good return on her money over the next decade. But buying investment property is not an emergency.

A financial emergency is when something that shouldn’t happen does and causes you financial distress. A medical event, a car wreck, a dying relative you need to visit, the loss of a job; these and more are emergencies. Investing, vacations, and college are not.

Do you have a true emergency fund? Or do you have an emergency/college/vacation/remodeling/gift fund with not enough money in it to fully fund one, let alone all of its goals?

An adequately funded emergency fund is the foundation of any money plan. Are you treating yours as such? Is your emergency fund really for emergencies?

Gary Silverman holds the Certified Financial Planner (CFP®) license, and is a member of the Financial Planning Association (FPA®). Gary is the founder of Personal Money Planning, a retirement planning and investment advisory firm, and is a Qualified Kingdom Advisor.

Find out more about Personal Money Planning at the company website or follow on Facebook.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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