Recently, a headline grabbed my attention. That doesn’t happen often these days because I’ve vowed to be more aware of and intentional about ignoring sensational headlines, mostly because the articles typically don’t have much substance or meaningful analysis behind them. But this one caught me—hook, line, and sinker.
The article I read was centered around a survey that found more than three in five Americans have already or will soon run out of emergency savings (i.e. by the end of 2020). After reading the article, I thought about all the implications. Given the unusual, infrequent, and chaotic events that transpired in 2020, the content should not have been surprising. But for some reason it was! And I found myself in a circular reference wherein I was surprised by the content but knew I shouldn’t have been, what with high unemployment rates, mile-long lines forming at food banks, retail bankruptcies, rising personal and government debt, social unrest, and so on.
After some reflection, I decided the reason it shook me so much is that having emergency savings is supposed to give us a sense of security. Maintaining an emergency savings account is prudent, wise, careful, reasonable, and sensible; it requires forethought and planning to build one, as well as diligence and restraint not to spend it on anything but emergencies; it’s supposed to insulate and keep us safe from some of the unpredictable events that happen in this world; it’s a lifeline, in a way, that tethers us to a sense of normalcy when we’re at our most vulnerable. While all those things are true, the fact remains that a significant amount of people are exhausting their emergency funds. On the contrary, we often read stories of how emergency funds kept someone out of harm’s way or kept them out of financial trouble but almost never read stories of people burning completely through their emergency savings. At least not until the last few months.
In light of those thoughts, I couldn’t help but ask myself: does having an emergency savings account lull us into a false sense of security? Do we feel invincible if we build a reasonable emergency savings balance—as if nothing bad can ever happen to our finances again? My conclusion is: yes if we allow it.
Because this topic is important, timely, and relevant, I plan to make this a three-part series. In the next two articles, I’ll discuss the following topics (and more):
- Part 2: What if I’m currently using my emergency fund to stay afloat? Or, more critically, what should I do if I’ve used nearly all my emergency fund? Are there certain tasks I should prioritize over others? How do I get the best return on my investment of time and energy when my account balance is dwindling?
- Part 3: What exactly is an emergency fund and what is it intended to cover? How much protection can it offer me? Should I rest easy at night knowing I’m secure? Should I use it as my exclusive financial readiness vehicle or is there a better way to mitigate potential financial risks or emergencies?
I encourage you to read all three articles in the series, even if you feel the content isn’t relevant to your circumstances right now. Most of us believe we’ll never need to rely on an emergency fund, but you never know when circumstances might change!