Voodoo Emergency Funds

in Saving

All of us Financial folk talk about the importance of having an Emergency Fund of some sort for the rainy days (or in my case the incredibly frigid days) in your life. Until a big financial emergency arises a lot of us don’t think an emergency fund is that important, but after the first head gasket replacement or the dishwasher dumping it’s load in the kitchen most of us think that having an emergency fund is a little more important. The problem is some of us have voodoo emergency funds as our reaction.

As usual what an emergency fund entails is always interesting, and open to opinion. Many “experts” seem to think you are relatively safe with a fund that is about 3 months pay backed up (but having more is never a bad thing either). Thinking you can’t get that much money socked away is not a good reason to not have an emergency fund. You need to have some cash squirreled away, just in case.

Note I said cash, where my view of cash is either:

  • Cash, foldable money, coins, cabbage, reds and browns: you get the picture
  • Money in a savings account or something as reliable and easily liquidated
  • 300 Krugerands in your basement freezer (but while valuable may not be easily liquidated)
voodoo emergency funds

Ben Stein in Ferris Bueller’s Day Off

I knew a lot of folks in my Nortel days that made the following interesting statements:

  • “My emergency fund is in Nortel Stock, and I can get that in about 3 days…”
  • “My emergency fund is in Nortel Options, so I can convert those quickly…”
  • “I loaned my {familial unit member} money for a down payment so I can get the money from there…”

Why Aren’t These Emergency Funds ?

Can anybody see where these might be tenuous emergency funds? Anyone? Anyone? Bueller? This is an example of Voodoo Emergency Funds, Voodoo Emergency funds (paraphrasing Ben Stein in Feris Bueller’s Day off).

Your emergency fund cannot be virtual money, that could disappear like a fart in the wind if you aren’t watching closely. I knew many “millionaires” at Nortel, who did not exercise their options, and as Michael James has pointed out, that means they are actually “Nothing-aires”. Worse still I knew people who borrowed money and as collateral used their options? How that worked, I didn’t want to know.

Your emergency fund must be: Available at any time, and Not subject to large value changes in a short time.

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