Don't Fall for the Myth that Everyone Needs an Emergency Fund

[@JohnSmith-dj5gf]

My problem is that almost all my net worth is tied up in retirement funds and real estate. I really need to focus on developing more liquid assets.

[@jamesmccoy3847]

Most people’s problem

[@barrybegley5379]

PERHAPS, if at some point in the future, if the Internet and the Banking system goes down, You might just wish that you had a CASH emergency fund on hand. Try purchasing needed food or other necessities with a credit card or check at such a time. True, while that stash may not be making you a dollar return, it may just save your LIFE. That, in my humble country bumpkin opinion would be the ultimate "Return On Investment". Greetings from Ontario, Canada.

[@Bruceman17]

I've never heard anyone say this and it makes so much sense! New subscriber!

[@sharonwinsmith]

Welcome aboard! 🫡

[@gustavodiaz4689]

You should take her course! One of the best financial training I ever taken.

[@MarcioSouza1]

“Does your family live on Mars?!” 😂😂

[@sassysusie9243]

I think family emergencies or unexpected travel, would probably due to a funeral or a family member needing medical care for a short amount of time. A last minute airplane ticket is probably more than a couple of hundred dollars and are usually the most expensive. Plus there may be hotel and food costs. So this could easily get up to thousands of dollars for a last minute trip. Your advice is obviously geared to someone who is financially successful and not for someone who is just beginning to build wealth or for someone doesn't have a lot of extra monthly income/cash flow. I just found your channel, so I don't know yet. Interesting video/concepts!

[@MarcioSouza1]

If you really must pay for something Today, in many cases you can use a credit card and sell liquid assets to pay off your credit card within 30days.

[@DavyDavePapi]

I just had this same thought

[@lenniscata]

Saving to pay for "my cat lung transplant"🤣

[@Itravelbackintime]

My business asset will be the hedge against inflation. With a business you have more control of your money and scale not based on your time but value. What another company (or government) does with your money you have no control.

[@iconoclastic23]

Thanks for making this video, this is exactly my mindsett and I've always felt like I must be taking crazy pills with the ubiquity of the emergency fund advice. People whose advice I otherwise respect have said 18 months of expenses in a hysa, that's bonkers to me. It takes like 2 days for a sell order to hit my checking account

[@sharonwinsmith]

Completely agree! Imagine the modeling showing the opportunity cost on 18 months of expenses sitting in a HYSA. 🤯

[@gustavodiaz4689]

Agreed! My lender though that I was Irresponsible because I had zero cash in the bank and I was bringing in 250k per year 😂😂 until he saw my portfolio

[@DavidKnicks]

You are making sense. But i do think i want some money in a high hield savings account

[@sharonwinsmith]

I fully recognize that a lot of people will still do this, largely for psychological reasons. I used to work with clients who would have $10M-$30M+ in a brokerage account but still hold $100k or so in cash in a HYSA. It doesn't matter if you have enough money that you can afford the opportunity cost. The economist in me just hates the waste! We all make decisions that might not be the best from a financial perspective. For ex. the vast majority of people are still going to buy a home instead of renting. My goal is just to educate people so they can fully understand the real financial impact of the decisions they are making.

[@Anvillgroup]

Love LOVE this video. Agreed 💯

[@gdelacruzjr]

I agree with this 100%

[@BelleDividends]

An emergency fund is not the same as placing the largest part of your cash in SA or MMF. One can argue the amount your EF should hold - I'm thinking on a different level than just 3 to 6 months. PS Kudos to dare to think differently.

[@SuperFS11]

Nice video! 100% agree. This is old school thinking from a time when cash was the only option (or maybe sell some of gold teeth 😅). I only leave cash in my account, which is still earning close to 5% interest when searching for investment opportunities.

[@sharonwinsmith]

😆 @ selling teeth

[@mikeinOhio471]

Are you suggesting people avoid tax advantaged accounts such as 401k's and IRA's and stick to after tax brokerage accounts for this ease of access? If not, what percentage are you advocating for across taxable and tax advantaged accounts?

[@sharonwinsmith]

It would be a huge mistake to have most of your savings/investments sitting in a 401k or IRA or any retirement account. I have a ton of videos on my channel about how I don't like 401ks and traditional IRAs and why we don't really use these for high net worth people anymore unless you are doing the backdoor Roth-IRA strategy.

[@mikeinOhio471]

@ Appreciate the reply. I’ll look for those videos. I do have a follow up. Is there any amount of money you recommend to have sitting in cash? Or are you literally paying any expense outside of a normal monthly expense out of a taxable brokerage account? I’m just trying to get an understanding of your strategy and as always, the devil is in the details.

[@michaelb.8953]

When I need money I never sell shares, but rather just use a margin loan and then pay it off ASAP.

[@hagbard72]

Bit late for me, late 60s. Have a tiny amount in the market, almost all in cash been that way forever.

[@BeefRocknmore]

Never too late. I'm late 50s and recently started making money work for me after listening to The Richest Man In Babylon (free).

[@sharonwinsmith]

Fantastic book!

[@MarkLopez-h1y]

Thank you so much for this amazing video! I have a quick question: I have a SafePal wallet with USDT, and I have the seed phrase. (alarm fetch churn bridge exercise tape speak race clerk couch crater letter). What's the best way to send them to Binance?

[@docb77]

I think a cash emergency fund makes sense at the beginning of your investing career. Save up your 3-6 months first then put your margin into your brokerage account. When your brokerage account gets up to about 1.5x your desired emergency fund, dump all that cash into the brokerage account as well.

[@sharonwinsmith]

I understand the reasoning behind this type of approach. However, this type of strategy is based on the idea that there is going to be a downturn in the market, someone is going to lose their job, not be able to get a new job, and end up on the street when they run out of money in a few weeks. That simply isn't reality for the vast majority of people in this country for a number of reasons. Losing out on the benefit of compounding over the course of your life when you don't invest those first few years early in your career will have a drastic, irreversible impact on the net worth you are able to accumulate throughout your entire life.

[@christfollower122491]

I agree assuming your house is paid off and you dont habe excessive debt. If you have no debt and lose your job you dont need an emergency just get a job a McDonald's and keep the ship afloat.

[@BeefRocknmore]

Your premise is sound... except for the scenario of a bank or other crisis. The people that banked at SVB or the small bank in Oklahoma could not access money for some period while the bank crash was handled. The people hit recently by the hurricane could not purchase goods; no credit cards, no banks. However, if they had cash, they should have been able to transact. Sure some local places or providers would be willing to put it on a tab, but how many could afford to do that or be willing.

[@sharonwinsmith]

Hopefully people aren't banking at these places and/or have money at a larger, more stable bank and a major credit card of some sort.

[@danvaida6938]

In Canada some bank accounts were frozen a while ago

[@sharonwinsmith]

Was this in connection with the Freedom Convoy protests? The U.S. definitely isn't perfect, but I don't personally view this as a big risk here.

[@MaxwellMax]

What if you're a home owner and your HVAC system goes out, or your septic system needs work? Both of these emergency scenarios can run in the tens of thousands and are not covered by home insurance.

[@sharonwinsmith]

Sell some shares or take an SBLOC.

[@mdmartin1211]

@@sharonwinsmithare we assuming this is usually sitting in a Brokerage account and not in a Retirement vehicle?

[@damianforsyth39]

I have never understood the logic of the whole emergency fund thing even if you are irresponsible with money the chances of having an emergency fund is almost zero. Dave Ramsey and others need to change their advice.

[@yarmohammadi]

It makes sense! You definitely don't need to follow the convention of keeping 3 to 6 months of expenses in an emergency fund, but you still need some cash on hand for ongoing expenses, or do you not? The part you mentioned you use your brokerage account as a checking account didn't quite make sense. I guess my question is, how much money to keep in a checking or saving account? One month's worth of expenses?

[@taurusthebull76]

Fidelity has excellent cash management accounts you can use as checking accounts or whatever. The best part is that they're fee free & you get reimbursed on all ATM fees.

[@sraborg]

Hi Sharon, I just discovered your channel, and I really appreciate your advice! While I understand your perspective on not needing an emergency fund, I struggle with balancing the idea of optimized investing versus having a very, very small emergency fund. I agree that proper insurance (health, disability, home, vehicle, etc.) can mitigate most of the “emergencies” people prepare for, and much of the emergency list you mentioned does seem overblown. One type of emergency I’m particularly concerned about is unexpected job loss. I completely agree with you that having multiple streams of income is the best solution to reduce dependence on a single source. However, many of us aren’t quite there yet, and job loss can create a short-term gap that’s difficult to manage without some sort of buffer. I recognize that I could liquidate assets quickly during this time to get by, but this leads to my bigger concern-the timing of such an event. The problem is when a job loss (or other emergency) coincides with a market downturn. This is not only when layoffs are most likely but also when selling assets would mean locking in significant paper losses. My parents experienced this during the 2007-2008 recession, when they were forced to sell assets at considerable losses to make ends meet. If they’d been able to weather the storm without selling, they would have been much better off in the long run. That’s exactly the kind of situation I want to avoid repeating. If we think of an emergency fund as more of “asset insurance,” wouldn’t it make sense to allocate a fixed amount for this purpose? The idea is to set a hard threshold for the fund, and once it reaches that number, contributions would stop indefinitely (except for minor adjustments if inflation erodes its value). Over time, as investments grow and all future contributions are directed entirely to those investments, the emergency fund would represent an increasingly smaller portion of total assets. Would this kind of “insurance” approach still conflict with your optimized investing philosophy? Does sacrificing a minimal return on a negligible allocation seem reasonable if it helps protect long-term growth? I’d love to hear your perspective on this-am I overlooking something important?

[@sharonwinsmith]

@sraborg Thank you for sharing your perspective! I am going to do a separate video on this in a few weeks. IMO, this is one of the only fact patterns/situations worth discussing more when it comes to this concept of an emergency fund for financially responsible people.

[@FIRE_DrNinjaTurtle]

I have a line of credit in case of emergency. Yes I use it and pay interest for a few days or a week, but I have not had any major emergencies where cash is needed. Cash is trash.

[@sharonwinsmith]

This 👆🏻

[@josephmaschak8652]

Another type of Emergency Savings not using your sick time at work. Having 4 or 5 weeks of time accumulated can make huge difference during an illness or injury.

[@sharonwinsmith]

Great point!

[@jrbk2023]

Unfortunately, sick leave doesn't rollover at my company, so it's use or lose.

[@rdoswell]

What if you lose your job through a restructure? Happened to me 😢.

[@daleybrennan9867]

I am so glad that someone finally made this video. I totally agree. What could ever really happen that couldn't be covered with a charge/credit card in the short term and then gets paid off when the statement is due? Even I as an expatriate with family across the world have enough of a credit limit to buy a last-minute long-haul flight. Sure, keep cash around to pay for things day to day but 6 months' worth of expenses just sitting around? It doesn't appeal to me. Thank you, Sharon!

[@Leonmaster189]

Cash is trash!

[@sharonwinsmith]

💯

[@JoeSmith-jd5zg]

0:55 Cash is trash. And, it's not ONLY beating inflation, you have the TAX perspective gnawing at you too..

[@sharonwinsmith]

Absolutely - those already low interest rates get a lot worse when you look at the real rate after factoring in taxes. One can easily access appreciation in stocks without paying any tax, or, at a minimum, by paying a lower rate of tax on the gains vs. interest income.

[@rolandosouffrain7957]

CASH 💸 IS 🗑 TRASH. LOL 😂😂🤣🤣

[@sassysusie9243]

I work in the hospital "arena'.. and YES, they will take months to send you a bill! It may get billed to the insurance company within a week to two weeks... but then the insurance company usually take up to 30 days (or more.. could be months) to process that bill. And then the payment has to be issued to provider... Then if any items were denied, someone at the providers office will have to review the denials and decide to write off or appeal... Or a corrected claim may need to be filed due to previous billing errors, which has to be reviewed by the department that made the error and corrected, then sent back to billing to refill. And then begins round two of the claim being processed by the insurance company. If nothing was denied, then there is still the process of getting the payment posted to the account and then the bill being sent to you. Then you have at least 30 days to pay. Exhausting.. and time consuming!

[@TruthRevealer1]

Go tell it to Warren Buffet

[@scsu300]

Yup, he doesn't need to hold all that cash.

[@sharonwinsmith]

Buffett isn't holding a lot of cash in the sense of generating an emergency fund. He has been selling off some stock (largely Apple) as part of a rebalancing and repositioning of his long-term investment strategy. This is a completely different concept than what I am talking about.

[@scsu300]

@@sharonwinsmith Yup, I don't have much of anything in the bank as a cash savings. If I need money in an emergency, I'll float that expense on a hotel/flight miles/points credit card, allow some dividends to come into my account and just use that.

[@sharonwinsmith]

💯