From Here to Financial Happiness

Day Eighteen Desperately Seeking Solvency

Financial experts constantly exhort us to have an emergency fund. They typically recommend keeping three to six months of living expenses in so‐called cash investments – savings accounts, money market funds, and similar ultra‐safe investments.

Why keep so much cash? The fact that this is expressed as “months of living expenses” is the giveaway. This isn't about emergencies like repairing the car or replacing the refrigerator. You could probably tackle those expenses fairly easily. Instead, an emergency fund is really an unemployment fund. Losing your job is the big financial emergency.

Yesterday, you put a number on your monthly fixed living costs. Now, imagine you were out of work and needed to live off savings, unemployment benefits, and other sources of spending money. Where would you turn to cover your fixed monthly costs?

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If you tapped the resources you've listed, how long could you cover expenses before your financial life started unraveling? ...