We’ve all heard the personal finance truism: Keep three to six months of living expenses in the bank just in case. But do folks pursuing Financial Independence and Early Retirement (FIRE) really need an emergency fund?
Originally the emergency fund was conceived in response to the all too common cycle of debt and poverty. People who scrape by, living paycheck to paycheck, can be utterly devastated by an unexpected one time expense.
But we’re not living paycheck to paycheck. In a more established financially savvy household there are a couple of options instead of a traditional emergency fund:
- We have a sizable taxable investment account that could be tapped in an emergency. Since both our checking account and our taxable investment account are held at Fidelity, we can do same day transfers between them. The downside of this is that an emergency could conceivably force us to sell assets during a down market.
Continue reading Is an Emergency Fund necessary? at Frugalwoods.