You should never feel guilty about eating ice cream – or dipping into your emergency funds. They are there to help you. Just like the guilt, you feel after indulging in a creamy cold treat, tapping into your emergency fund can feel like a sinful indulgence of excess.

STOP.

If there is one lesson you take away from this article, it is that you should never feel guilty about dipping into your cash reserves, whether it is to help get through an unforeseen event such as an unexpected repair, unforeseen job loss, or just an emergency date night.

In fact, I don’t even like calling it an emergency fund.

I call it a cash cushion.

Or my ice cream fund.

Now, I know I am going to get a lot of hate for this, but here goes.

The purpose of your emergency fund, of your cash cushion, or your yoga fund – or in my case my business fund. Is to allow me to enjoy my life WITHOUT upsetting my long-term financial stability or goals.

See, I could do without the ice cream. God knows I could use losing the weight. But, is that really a life worth living? And I am just being facetious about the ice cream fund…but I do have a “next business” fund, and I have a “make my wife happy” fund, and a “oh shit fund” and plenty of others.

These funds are there to help take the pressure off my investment funds.

My investment funds are for my long-term financial stability. They will provide me with income and wealth in 10-, 20-, 30+ years. My investments will allow my daughter to have a better life than me, and her kids to have a better life than her.

…but

In order to achieve that long-term wealth, I need my money to be able to sit, and accumulate wealth, and grow faster than inflation.

This means, not touching it.

Not touching it for car repairs, home repairs, or date night.

So, how do we separate and protect our long-term needs from our immediate life or death needs…and yes, ice cream can be life and death. Don’t judge 😊

Simply put, an emergency fund is money set aside in a “safe bucket”, like a checking account, money market fund, or even short-term Treasury bills, that you can access quickly without paying penalties or fees. It’s also kept in safe investments that will not lose significant value. The last thing you want is to see the money you thought was safe drop in price due to goings-on in the stock market.

Establishing an emergency fund is a good first step toward having a solid financial foundation. In fact, it probably is the most important step you can take towards financial independence and long-term stability. (I talk about this extensively in the 321 Retirement Plan guide. You can download a free copy here.)

Not only does an emergency fund provide a safety net for your investments. It also allows you to disconnect emotionally from your investments. What?!? Yes, you heard me. The key to successful long-term investing is to not be emotionally involved in your investments. But, how can you do that if your day-to-day survival is dependent on your investments? If a sudden wind can come and knock down your precious house of cards, of course, you are going to monitor the markets like a hawk, of course, you are going to be emotionally involved.

Having an emergency fund allows you to separate those two concerns. Your emergency fund is your “survival fund” it is the money you rely on when life goes to shit…and you should monitor those funds like a hawk…even I don’t invest my emergency funds.

..but my investments, hell yeah I invest those babies! That’s my retirement we are talking about, I don’t want to be scraping by, I want to be livin’ a little. And the only way I am going to do that is by growing the hell out of my money.

So, how do we build up that emergency fund? That Stability fund. That fund that let’s us say fuck you to life.

Here are some rules of thumb:

Keep 3-6 months of expenses on hand.

Keep money on hand to cover any “expected” emergencies.

If you are married, and both you and your spouse have stable incomes with flexible spending habits, then maybe you can get by with a slimmer emergency cash position.

If you have a riskier job—such as being self-employed in a sales role—then you should consider a bigger safe bucket.

..but remember, in addition to the hard numbers of what you objectively need to survive. Think about the subjective needs. What do you need to make you feel safe? What will help you sleep at night? For me having a “next business” fund is essential. For my wife, it means having lots of cash in the bank. For my dad, it meant having a fridge full of food at all times.

What we all need to feel safe is different, for some that means having more cash on hand, for others less. Remember, the goal is to get to a point where we feel emotionally and physically safe, once we are there, then and only then are we able to start making sound financial decisions for ourselves and our loved ones.

To learn more about how to build up your emergency fund check out Chapter 1 of my book Living with Financial Anxiety.

Discover How to Build Layers of Protection So that no matter what happens in the market, in the economy, or on Capital Hill, you have a strategy to not only survive but thrive! Download the 321 Retirement Plan and discover the step-by-step system that can help you take back control of your finances from Wall Street and help you achieve the financial freedom you deserve.

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Originally published April 24, 2022. Updated April 25, 2023.