Clarifications On My (Or Lack Of) Emergency Fund Situation

From the outside looking in, I guess many might view me as a young, brash and authoritative wannabe (from the way I write) who has crashed into this increasingly saturated personal finance blogging sphere. After all, with only 2-3 years of both working and investing experience, what gives me the right to be arrogantly dispensing personal financial tips to the reading public? Seriously, what can I offer?

“What, no emergency fund?! He must be one of those Gen Ys who expects a shiny unicorn on top of the flowery lawn. Life isn’t that perfect, dude. Wait till you get hit by life’s inevitable disappointments and tragedies.”

I will be the first to raise up my hands and admit that the original title of this post “Why We Don’t Keep An Emergency Fund” is at best, misleading. And it’s unfortunate if some people only read the title or the first few paragraphs (really appreciate those who read that full post and tried to defend me by making reference to my third point) and take the information (or worse, advice) as such.

Besides illustrating the point that 30% of my assets are in cash or cash equivalents in that particular post, I have also written about the importance of holding cash in order to sleep well at night in an earlier and separate article. To most people, those balances can be considered as a form of emergency funds. So yes, I ain’t that big a risk-taker and I do keep plenty of cash.

But then, as correctly pointed out by many readers and bloggers, isn’t those monies part of a warchest for investment opportunities? And if I become 100% invested in equities, the cash and emergency funds would disappear. Theoretically, yes. I had initially thought that if the STI index drops to 1,500, I would probably have been 90% invested already and if it then drops to 1,000, I could exhaust all my cash at that time. Even though such a scenario is very unlikely to happen, my dear wife has convinced me that even if both of our jobs are safe in that situation, she would probably not sanction the transaction.(Now we all know who wears the pants in the house. =p)

Therefore,we have decided that at this present moment, the $10k in my CIMB account (together with the minimum amount we have to hold in other bank accounts to avoid penalty charges) would form our current emergency funds. The 0.8% interest would help to partially offset the cost of holding the cash. I guess I am probably just playing with words and definitions as a part of the opportunity funds (I even list this account as part of my passive income portfolio) will now be called an emergency fund?

I don’t know if this constitutes a reversal of my stance in the previous post on this issue, but at the very least, it’s a softening? So yeah, I am going to keep a separate emergency fund, even though it’s still a relatively small one.

Blogging isn’t supposed to be a one-way traffic (information) and I have learnt that besides preparing for the outcome of losing one’s job, the emergency fund is also supposed to provide us with the intangible peace of mind. So how much cash one wants to keep is largely a personal and private choice. Some people believe that when it rains, it pours.

But letting this issue just die down like this is abit of a waste, isn’t it? After all, I always had issues with those one-size-fits-all-approach adopted by many of those so-called personal finance experts. So instead, I shall try to analyse the factors that would influence/determine the appropriate amount to have as emergency funds in the next post.

Before I end off, I would like to emphasize that except for some initial shock at some of the comments, I am actually quite glad that my post has triggered some debate (and even follow-up posts) on the usefulness of an emergency fund. Sets people thinking and questioning some of their long-held assumptions, including mine.

Maybe you detest my views on emergency funds, but perhaps we are similar in the sense that we both do not see the value of owning a car in Singapore or believe in saving >50% of our incomes? Not so different after all, eh?

So I really hope that the personal finance blogging space has some room for diversity. If all of us are the same, wouldn’t that make all of us boring and some of us obsolete? As what AK71 had said, let’s agree to disagree in a civil and pleasant way. That would make this fun and interactive community an even nicer place to be a part of!