FinanceDo I really need an emergency fund? (with Coronavirus update) - Stacy Willoughby

March 18, 2020by Stacy

I wrote a draft of this blog post about an emergency fund a few weeks ago when the Coronavirus was mostly in China and a few other cases in other Southeast Asian countries. I was concerned about friends and family over there. When the virus hit the Seattle area, where my immediate family is, my concern level escalated. I have been praying a lot, especially for my immunocompromised mother and my pregnant daughter-in-law.

It got me thinking about what I could do to help. I know that I can support my local businesses by ordering take-out food and shopping when the other stores reopen. I have volunteered to buy groceries for those who need to shelter in place. But what else?

I have strengths and skills that I can lend to any who need to talk out a financial dilemma or need a fresh perspective.

There is a lot of uncertainty right now because of how we are trying to protect our elders and the vulnerable. Living in these times of the coronavirus, two weeks feels like a year. And who knows how long we will be in this situation. There are a lot of moving pieces, and every day brings something new. I feel you.

How can I help?

The rest of this post is from a conversation with a friend on the way back from happy hour. (Oh, how I miss hanging out with friends and happy hour!)


A friend and I were talking about his debt payoff plan. He is throwing a bunch of money towards his student loans. He told me that he didn’t feel like he needed an emergency fund. The low-interest rates in savings accounts are not enough of an incentive for him. He isn’t carrying a balance on his credit cards, so in the event of something unexpected, he feels like he could use a credit card.

I was excited that he was paying down his debt. It has been a nagging weight for a while. I also know that emergencies come up in weird and unexpected ways. It could be an unplanned move, a transmission that needs rebuilding, an appliance that quits working, or a sudden change in your family situation. And if Murphy’s law is in force, then these unexpected situations can pile on one after the other.

What I appreciate about an emergency fund is the freedom and flexibility that it offers compared to using a credit card.

When there is cash available, obligations can be taken care of quickly and efficiently. There is no stress about finding the money or trying to figure out which credit card to use. Money in savings also means the ability to take advantage of opportunities. Many overlook this benefit.

If you use a credit card, at some point, that debt will need to be paid off. Credit cards, personal loans, and lines of credit do offer the advantage of smaller payments over time. Still, this new obligation will require money that was previously designated for something else. If you choose to use a credit card for airline miles or convenience, if you had an emergency fund, you can pay off that debt with your savings. New payments won’t disrupt your cash flow.

For example, let’s pretend that he has $10,000 of student loans remaining. He has been motivated and has been sending in $1,000 a month towards that debt. He’s excited that this loan will go away in 10 months.

Fortunately, this loan has a zero interest rate for another year. Another option for my friend is to reduce his payment to $800 a month and then put the remaining $200 a month into a savings account. In this scenario, it would take him an additional two months to pay off that loan. Over that same period, he would have $2400 set aside in a savings account.

What I like about this situation is that after he pays off the debt, since he is already regularly saving, it will be easier to keep up that good habit.

In addition, he has that $800 a month that he can redirect towards another goal. He can add it to the amount that he is already saving, increase the amount going towards retirement, or find another investment. I also know that once you start saving, it gets easier and more exciting as those amounts build up.

Alternatively, if he was used to going to the credit cards for every emergency, it creates the feeling of living paycheck to paycheck. Something always comes up just when you eliminated the last debt. In this situation, it is harder to get ahead.

Just like an emergency fund can be used for those unexpected obstacles in life, it is also useful for opportunities. And like an emergency, you don’t know when an opportunity will present itself. It could be a friend who has asked you to join them for an Italian vacation. The rental house in Tuscany is paid, but his previous travel partner bailed out. All you have to do is get there and pay for your food. Yes, please!

You don’t know when or if you will want to buy a new home, but it would be nice to have a down payment in your back pocket. If an exciting job opportunity came up, would you feel comfortable financially to take that on? ¬†Your emergency fund could afford you the ability to take unpaid time off to support a friend who lives across the country with her new baby.

It is easier to take a risk when you have the savings available and little or no debt.

Sure, interest rates on savings accounts are low and unexciting. I hate lazy money too. As we just discussed, there are other benefits to having money in savings. Peace of mind, security, and the ability to take advantage of opportunities are a few. Once you have enough in your emergency fund, we can talk about other savings options that could work for you. I also get into that in my upcoming book, The Sweet Spot Project.

Of course, every situation is different. I would be happy to chat with you about how you can improve your financial situation. As I wrap up the first draft of the new book, I find that I need a little extra juice to get to the finish. You could help me out by talking about your money stuff. I know it’s a big ask. People don’t usually like to talk about their money stuff.

My strengths are:

  • Clarifying priorities
  • Brainstorming innovative ideas
  • Considering your current situation with your goals in mind
  • Getting everyone in your family on the same page
  • Creating new processes that work for you
  • Understanding the emotional aspects of money

There is no obligation to work together in the future. My goal is to help in any way that I can. I also want to make sure that I am current with what people are concerned about, financially speaking. Let’s schedule a chat.

Let's chat



The above references an opinion and is for information and education purposes only. Please do your research and analysis. It is not investment advice. Seek a duly licensed professional for investment advice.

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