Fortunately, I’m not the one that needs the emergency funds. The topic has been in the news, and it’s been in personal conversations. Various analyses revealed that the majority of Americans can’t afford to pay for a $1,000 emergency without going into debt or selling assets. The economy may be improving, but many personal safety nets haven’t been mended – yet. Being able to survive a simple household repair, trip to the doctor, or computer failure may be one of the new signs of wealth.
The world is getting weird. Have you noticed? Maybe it was the election. Maybe it was the Supermoon. Maybe it is the fact that so many aspects of society are having to shift to new norms that foundations don’t feel as solid as they were. Politics is weird, at least for some, probably the majority – and that’s true in many countries. Economies are looking healthy, until you check the fundamentals of commodity supplies, negative interest rates, governmental debt, and currency devaluations. Climate change is passing from an era of subtle changes to ones that are significant enough for the US Department of Defense to include in their near term projections.
In the last two weeks, I’ve heard too many stories of individual lives running into weird misfortunes. The following list comes from only a few friends.
- truck repair
- hot water tank fail (that required a custom repair)
- furnace failure (which remains unresolved as parts of Seattle sit below freezing)
- deaths in the family
- flooded business from municipal systems
- flood at home from natural causes
- car accidents
- business losing its existing license
- unexpected doctor appointments
- unexpected dentist appointments
… and more, with each person having to deal with at least three of those issues.
Got that extra $1,000? Try multiples of that. Each upset also upsets income because so few people have sick leave.
Fortunately, my friends are resourceful, resilient, have senses of humor, and aren’t the sort that will complain about their latte not having the right density of sprinkles.
Ideally, everyone has an emergency fund. A common guideline is to have six month’s living expenses set aside for the emergency that is a job loss. Evidently, if the majority of Americans (an ostensibly rich society) can’t accommodate a $1,000 upset, then the guideline is not in active use. From what I see and hear, the failure is of necessity, not of choice.
Relative to what my friends are going through, I feel better off. My friends flipped that when I said so. From what they know about my income, and a recent series of cutbacks, they feel better off, at least in some ways. Several friends have said that they’re amazed that my good luck hasn’t arrived yet. It looks to be overdue. Sooner is better than later, and now is best. (I’ll check those lottery tickets in a while; in the meantime, call me if you know of a good job for someone who enjoys program planning and management.)
As my fortunes turn positive, I look forward to re-establishing that buffer, one that isn’t just using up more space on the credit card.
I say re-establishing that buffer because at one time I had a buffer that was measured in decades. Conventional wisdom encourages people to build emergency funds. Unfortunately, it then treats an emergency fund as if it was abstract, as if it will never really be used. The reason to have an emergency fund is because emergencies are real. Get a big enough emergency and the fund serves its purpose; but may leave nothing behind. There’s very little advice about the reality of recovery; especially when measured against the criticisms that come from having bad luck.
My portfolio has barely recovered. It is the remnants of my IRA that was drawn down after my non-IRA was almost eliminated. The recovery, therefore, isn’t just refilling an emergency fund, but also refilling a retirement plan, and a conventional set of investments.
There is some good news for homeowners in the Seattle area; housing prices are up. According to Zillow, houses in my neighborhood are appreciating at 12.9%, which for my house is about $3,000 a month or $100 a day. That $1,000 emergency can seem relatively small. Emergencies don’t constrain themselves.
The bad news for homeowners who have to sell is that they have to sell. Selling a house in such a rising market may mean not being about to buy back in. If I had to sell, I’d have to move out of the area. I’m not the only one. If you want to move, well then, don’t wait for an emergency to pick your timing for you.
My experience is actually proof of the usefulness of an emergency fund. My current situation is also proof of how difficult it is to maintain one, sustain one, and regain one. I’m not surprised that the majority of Americans don’t have an emergency fund. Most lives encounter more than one emergency. With the impact of foreclosures, the price of medical care, and the cost of accidents, it isn’t a surprise that the longer people live the more likely they are to have used up their financial reserves. That doesn’t mean ignore the emergency fund, it does mean don’t be surprised if you have to build one, then rebuild it, then rebuild it, and repeat. The longer you live, the more opportunities for both kinds of luck to arrive.
A good approach, of course, is to have a lot more to start with, live frugally, and hope. If you have a few million, you’re probably okay. You’re definitely in a much better situation than people who have a few hundred thousand, and they are better than the majority who are living with less than car replacement cash.
The world is weird. We may run into new types of emergencies. We (with our communities) may have to build our own safety nets. But, don’t let the prospect of emergencies absorb all your attention. Those folks I mentioned above? They are some of the most creative, fun, and lively people I know. Their lesson – Live, regardless.