What if I lose my job? What if my car breaks down? What happens if I have unexpected medical emergencies?
Life is unpredictable and sometimes things won’t always turn out the way we would like. These kinds of events are all stressful enough without having to worry about the cost of it all. That’s why people create emergency funds. We all stash away some money in anticipation of these financial mishaps.
Except I don’t.
Now don’t get me wrong. I still worry about the same things as most people but I think the idea of an emergency fund is definitely outdated for younger people especially. Common advice many people still hear today is to save up at least three to six months of expenses in case of emergencies. Dave Ramsey says the same thing. He tells everyone to save up $1,000 in their emergency fund first if they have debt and then later on beef it up to three to six months worth of expenses. For the majority of people, this will be a smart financial decision.
For me? I don’t think so. I am a single guy in my early twenties living in the Midwest where cost of living is relatively low. I don’t have many expenses and no family to be responsible for yet. When I think about my personal finances, I have a very aggressive and risk tolerant mindset. I want to be financially independent by the time I am forty years old. Maybe not fully retired, but I would like to stop having to depend on a paycheck from my employer and be able to live totally off my investments by then.
I don’t want my money sitting in a high yield savings account or money market fund. Especially now with interest rates so low, putting money into any of these vehicles now will most likely only generate returns of a hundred basis points or so at most. The days of expecting savings accounts with 2–3% rates are long behind us. The current Federal Reserve Chair, Jerome Powell, stated in an announcement on September 16th that he doesn’t expect interest rates rising above zero at least for the next few years.
Instead of creating an emergency fund, using my income to pay off debt or fund investments seems like a much…
