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Welcome to this session of grand rounds, a collection of posts I have discovered in the blogosphere and have found of interest and hope you do too.
This offering of Grand Rounds looks at articles from around the web that deal with issues on emergency funds.
Murphy’s law states that anything that can go wrong will.
Unfortunately most of us do not prepare for an emergency and can be caught financially off guard when it does happen.
As a physician I have previously written about how I really thought I did not need an emergency fund but got lucky when a black swan event occurred.
For those who feel they will not be as lucky as I was, an emergency fund is a great solution for a rainy day.
ESI Money shares his thoughts in, “The Good Old Emergency Fund.”
It is sad but the vast majority of Americans are unable to financially handle an emergency of over $400.
Anything greater than this amount and these individuals have to start digging themselves deeper into debt.
Accidents can and do happen, I know firsthand, and having an adequate emergency fund may be your saving grace.
The Finance Twins shares an experience where an emergency fund came in handy and shares some steps on how to build your own in, “You Need An Emergency Fund Now- Here Is Why.”
The key to a good emergency fund is that the money is easily accessible (liquid) and relatively stable in value.
Therefore a brokerage account, which can be volatile, is not an ideal resource to tap into in the event of an emergency (a worst case scenario would be a black swan even that drives markets down at the time of your emergency, which happened to me).
Thus a savings account is typically your go to for creating an emergency fund, but is it the only option?
Retire by 40 discusses a novel option for an emergency fund in, “Gold as Emergency Fund?”
So you have an adequate emergency fund, that’s great!
The key is to know what warrants dipping into an emergency fund (i.e. buying something on sale is not an emergency).
The Physician Philosopher lays down some rules in, “How to Use an Emergency Fund Without the Stress.”
The previous articles have shown the benefits of having an emergency fund.
There is a downside to having an emergency fund, however.
As most emergency funds are parked in stable, low interest, savings accounts, there can be a lot of cash drag on your portfolio.
There may be a point in your life where the need for an emergency fund diminishes and you can therefore utilize this money for better returns.
Passive Income MD explains his rationale for taking this approach in, “Why I Don’t Have an Emergency Fund.”
Hope you enjoyed the reading material.
Have a great rest of the week.
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