You Need an Emergency Fund

What is an Emergency Fund?

An Emergency Fund is an account that should contain money in the event of an emergency or life change. Most financial writers advise people to have six months to twelve months of expenses in the fund.

Why?

Shit happens. You need money to cover it.

Most Importantly…

I was reading two articles whose points are completely unrelated but yet subtly contained points that are very related.

The first article is titled: Rich Kids Already Won the Career Game Here is an excerpt:

Consider two analysts at a prestigious financial firm, both 24 years old and of equal drive, intelligence, and talent. One is from a double-income family in suburban Connecticut earning \$125,000 per year– a decent sum by average standards, but less than the analysts hope to be making by 26. The other’s father is a hedge fund manager earning \$10 million per year. Let’s also assume, for now, that none of their co-workers or managers know either analyst’s family background, except through their behavior. The middle-class kid spends the bulk of his time trying not to offend, not to behave in a way that might jeopardize the job he worked so hard to get and could not easily replace if he lost it. He doesn’t invite himself to meetings, avoids contact with high-ranking executives, and doesn’t offer suggestions when in meetings. Thanks to the fear he experiences on a daily basis, he’s seen as “socially awkward” and “mousy” by higher-ups. Nothing recommends him, and he will not advance.

Middle-class kids generally fuck up their first few years of the career game in one of two ways. Either they fear authority tremendously, which is crippling from a career perspective and renders them devoid of creative energy, or they show an open distaste for managerial authority, described by the wealthy as having a proletarian “chip” on one’s shoulder, and fail to advance on account of the dislike they thus inspire. Even when they are cognitively aware of how to manage authority, the stakes of the career game for a middle-class striver, who will fall into humiliation and possibly poverty if he fails it, are so severe that only the well-trained and steel-nerved few can prevent these calamitously high risks from, at least to some degree, disrupting their game.

The rich kid, on the other hand, relates even to the highest-ranking executives as equals, because he knows that they are his social equals. He’ll answer to them, but with an understanding that his subordination is limited and offered in exchange for mentoring and protection. He views them as partners and colleagues, not judges or potential adversaries. Perhaps this is counterintuitive, but most of his bosses like this. (Most bosses aren’t assholes and don’t like to be feared, at all. In fact, they’d be happy to forget that they are bosses.) His career advances fast. He’s “up and coming”. This occurs even if no one has any idea that he’s from a wealthy background.

The rich kid, fearless on account of not needing to keep his job, can effortlessly walk the middle path

The other article is titled: We Don’t Get Out of Bed for Less Than \$10k Here is an excerpt:

Money is cool for almost everyone. Everyone could use money.

But as soon as you need money – and people know – you’re hosed. And you know, it kind of permeates around you to some extent. When you don’t need money, you just don’t take shit from people. I met a guy some months back who made 1.2 million pounds sterling in 2010. Really cool guy in a number of ways, doing some interesting things. I’d have worked with him, and I had a skillset that would have been useful to him. I made negative money in 2010 (second year in a row that I did so), and you know, that can’t go on forever.

Anyways, this guy… we had coffee and ate some meals together a few times, had some good convervations, swapped some knowledge. But I was getting a strange impression from him. Well, not strange, I guess this happens sometimes. He’s a guy that divides people into categories of “respected on my level person” and “flunky” – you really don’t want to work for someone like that.

Long story short, he writes me an email and asks if I can run an errand for him while I’m in Singapore – something really trivial, he wanted to me to go buy him a bound leather notebook and mail it to him. And it’s like, dude, come on, you can buy a notebook in any stationary store in any international city anywhere in the world. You can ask the concierge at your hotel to get you one, and he’ll do it. You can ask your assistant to do it, and she’ll do it.

So I guess I made a mistake somewhere along the line, because he’d mentally put me in the “flunky” bucket. I wrote back, “Sorry, I’m a bit busy, but I think you can pick up one at pretty much any stationary store. Good luck.” Now, don’t get me wrong. I’m willing to shovel shit for what I believe is worth doing and I’d always encourage that. And you might be thinking – well, hey, he’s just asking you to do one thing to prove you can get stuff done.

Indeed, he is. Yes. But in the flunky capacity. This guy didn’t see me as a peer of his, apparently, and he doesn’t treat people underneath him very well.

But what happened next was surprising (or perhaps not) – after I told him politely that he can buy a notebook at any stationary store (duh), he became about 1,000 times more interested in meeting up again internationally while we’re traveling, or talking on the phone, or connecting more.

Did you pickup the related points? I know you did… the most important reason as to why you should have an emergency fund is so that you don’t need money. You won’t be afraid. You’ll take more risks. You won’t have to take shit if your boss asks you to do something unreasonable. If you have a 12-month emergency fund, you won’t be afraid to take risks in your current job; risks that if successful, could even get you promoted.

If you don’t have an emergency fund now, get started today. There is no reason that you can’t start saving \$1 to \$2 a day. Ya, it’s not much now, but in a few years, if you increase the size, it’ll add up. Stop buying Starbucks in the morning, stop buying apps on your iPod Touch, and stop buying all those damn shots at the bar. :p

The Simple Dollar has a great article on building an emergency fund.