Memes

I honestly think the "6 months of salary in an emergency fund"-advice is a bit overblown and certainly not universally applicable.

An emergency fund must per definition be very liquid in order to fulfill its purpose, hence you can only really place the money in a simple savings account with a not-so-spectacular interest rate. This means that the opportunity cost of having 6 months of salary in an emergency fund is the delta of expected return on investment in a higher-yield method of savings, such as placing the money in index funds. This can be quite significant, in particular since saving up 6 months of salary is not an easy task for the average person.

If you had the money placed in investments, the money would be less liquid, and there's the chance that you may have to liquidate it during a downturn, which would of course suck a little. Consider carefully under which scenarios you would have to liquidate, though:

• Lost your job? I have unemployment insurance to cover this scenario for me, meaning that I will get 80% of my current salary for close to a year, a period during which I would have to liquidate nothing.
• Disaster strikes my home? My home insurance policy covers this more than enough for me.
• Medical emergency? I'm lucky enough to live in a country where health care is free, but I have additional health insurance on top of that as well.
• Emergency while traveling? I have great travel insurance. They cover all medical expenses and would even fly me back home post-haste in disaster scenarios.
• Other accidents where I hurt myself? You guessed it, I have insurance for that too.

Now, there's an argument to be made that these insurance policies might be a bit slow to pay out, and that I might need to be a bit more liquid to cover the expenses temporarily. I have a solution for that too - credit cards. With credit cards I can make a short-term loan that should bridge over most issues until I can either get money from any of my insurance policies, or worst case have time to liquidate some of my higher-yield investments.

So yeah, that's my plan. It does not involve 6 months of salary being invested in a low-yield savings account, because that'd lose me a lot of money. I dislike the fact that the 6 months emergency fund is basically parroted as religious gospel, and it feels like people who repeat it have not thought about the issue thoroughly.