Should You Have an Extra Emergency Fund? (Just In Case?)

June 28, 2023

In this highlight, we discuss if it makes sense to have en extra emergency fund and how much you should have saved to be in a safe place.

Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.


Next, we have a question from Buckeye fan 14. So, well, look, you’re pandering to the moderator here. You’re pandering to the person who’s asking the question. Hey, Daniel liked this question too. We were comparing notes. Well, you’re a bulldog, Daniel. I have no idea why you picked a buckeye. He is a contrarian bulldog. Train wrecks and car accidents and just seeing, you know, so as soon as Georgia is now the dominant team. I don’t know that Daniel considers himself a bulldog fan. It’s so sad, sad. Well, Buckeye fan 14, you started something here. Really kicked off some rivalries. But he does have a good personal finance question too. He says, “I know three to six months is a good emergency fund. That’s something we talk about a lot. However, should homeowners have an extra emergency fund for major repairs? For instance, what if I lose my job and my AC goes out at the same time? How should he think about this?”

Yeah, so in the financial spreadsheet, folks, we get lost in this, right? Because we understand the reason and purpose for an emergency fund is for contingencies. “Oh no, what if X happens? I want to be protected.” Well, then our mind starts racing and our risk management systems start going off, right? “Oh, but what if this happens and then this happens and this happens?” And before you know it, you’ve got 432 months of an emergency fund to make sure that you’re covered. In reality, when bad things happen, when emergencies happen, they don’t all happen at once. Now, Brian’s Spidey sense is going to go off because he always talks about how bad things happen in quick succession. That’s true. But when I’m talking about true emergencies, right, you think about, “Alright, if I’ve got three to six months of expenses and I lose my job, okay, well then the air conditioning goes out. Okay, what I’ve probably done is I’ve probably shrunk down my emergency fund. I’ve limited my window of opportunity. But the odds of those two things happening at the exact same time are probably pretty minimal.” So, I would argue for most homeowners in this country, if you have a full emergency fund, three months to six months of your living expenses saved up, most major home emergencies are going to be covered by that. And if it’s a big emergency, a tree falls on the house, well, that’s the reason we keep insurance in place. So long as you can make sure you have enough to cover the deductibles, you’ll likely keep yourself protected.

So in my world, for someone who is gainfully employed and working, not in the accumulation phase, for their primary residence, I don’t know. I think that they need to hold a larger emergency fund in case of an emergency. Now, I would change that if someone owns a commercial property or someone owns a residential property or someone owns some other thing like that or has a known expense coming. Agree? Disagree? Want to fight?

I agree, but I was going to kind of go at a little different angle because I always like to think of things incrementally. What do I do with this dialer? What do I do to maximize my path to success? That’s why it comes back to, and I love making the sound because it’s so valuable, the Financial Order of Operations. Because this thing’s road-tested, it’s weather-tested, it’s actually created enough success that we know it’s going to work. Why is deductibles covered Step One? Because this is what Bo talked about if you have a risk that is going to be so catastrophic that it actually derails your life completely, you ought to insure it. And that’s why when we talk about deductibles covered, we’re talking about health insurance because you see a lot of bankruptcies are caused by health trauma and other things.

So you should have health insurance. You should have health insurance. So you should have insurance on your homeowners, on your house, your cars, and those types of things. So we just have, we made the process easy and we said, “Hey, just go write down every one of your insurance deductibles. Choose the highest one.” So if it’s like $2,500 and maybe another one’s $1,000, another one’s $400, you don’t add them up. You just take the highest. So that gets you, if it’s $2,500, you take $2,500. Get to move on with the other things in your financial order of operations journey. You’ll notice we’ll still have employer match because that free money, that 50% to 100% match, is worth too much. Credit cards, you’re paying them over 20%. You got to pay that down. That’s horrible because that’s going to just completely dig a hole that you can’t get out of. So then we get to step four, which is emergency reserves. And this is kind of where Buckeye fan 14 is over there licking their wounds from the dogs and everybody else. He’s kind of popped him around. And this is where the three to six months of cash reserves is, you know, is going to play out. And this is where you are worried about losing your job and other things that could be going on. Now, I want to tie into something Bo said, is that you probably, are you three months? Are you six months? Well, I have questions for you because everybody is going to be custom in this. Do you have, you know, a job where everybody in the house is living off of your income? You have a stay-at-home spouse, you’re doing it, you need to have six months. Absolutely. If you have, now both of you are working and you both make about the same amount of money, maybe that’s only three months, you know. So there are different things that increase your risk.

There are things that lower your risk. It’s also, hey, if you’re making so much money that you get to a point, this might tie into what you’re saying, Buckeye fan, is that if you are making so much money that if you lose your job, you’d actually have to move because you got some crazy, you know, because you’re an executive or something like that, then I would say you might need to take that cash up even, you know, to the six months, to the point that there’s a reason we tell people right before retirement, you probably, if you’re crossing in from builder of wealth to now consumer of wealth where you’re going to change your mindset, probably to help with that transition, having 18 months worth of cash reserves, um, 18 to 36 months actually is what we tell sometimes to retirees, but definitely 18 months might make sense. Look at your specific situation, Buckeye, and figure out how does this all fit in? Because what you do want to have is enough cash that no matter what comes your way, it doesn’t derail you from the get-wealthy behaviors of saving and investing, and that’s what the Financial Order of Operations will do. Another thing I always think is interesting, we base the three to six months off of living expenses.

If you want to create a little margin, play a little mental game with yourself. You could base it off of three to six months of income to add a little extra margin in there because expenses are the most important element. But if you want to create some force scarcity or some mental gains with yourself, you could try to go a little more rich by turning up the fuel mix of placing it off of income instead of off of expenses. And Buckeye, I hope you know I was just kidding with you. I couldn’t help myself. I had to put in a, I mean, a little “go dog.” We’ve waited since ’19, you know, the early ’80s. So how, I mean, you’ve got to give us a little grace on that long time. Also, my new favorite conversational transition is “agree, disagree, want to fight?” That was a nice one, though Brian did not choose to fight.



Most Recent Episodes

What I Learned From Being BROKE!!! (And Why I Wouldn’t Change It)

No one disputes the fact that being broke isn’t great. We want to spread the word that no matter where you came from, you can build wealth. In this episode, Brian and Bo share personal stories about their journey to wealth and lessons they learned along the way....

Top 10 Mind-Blowing Money Stats (2023 Edition)

These 10 money stats will blow your mind! We’ll discuss the unbelievable amount of money Americans save, when most reach millionaire status, and how many Americans carry a credit card balance. Research and resources from this episode: Most Americans don't have enough...

Wealth Multiplier Revealed: The Magic of Compound Interest!

There’s a reason why Albert Einstein called compounding interest the eighth wonder of the world! Do you know exactly how it works and how much your dollars could turn into by retirement? The Money Guy Wealth Multiplier can show anyone just how powerful every dollar...

From $0 to Millionaire in 10 Years (Is it Possible?)

How can you become a millionaire in 10 years or less? We’ll discuss common ways we see millionaires build wealth quickly, including through real estate, entrepreneurship, and the stock market. Discover how real wealth is built and why building wealth quickly may not...

Financial Advisors React to INFURIATING Money Advice on TikTok!

Brian and Bo are BACK to react to some more TERRIBLE financial TikTok advice! Join us as we take a look at some of the worst financial advice on the platform and tell you what to actually focus on in your own financial life. Enjoy the Show? Sign up for the Financial...

Investing Showdown: Dollar Cost Averaging vs. Lump Sum!

It’s a debate as old as time: what’s better, dollar cost averaging or lump sum investing? In this episode, we’ll cover the nuances and pros and cons of both, including in-depth case studies comparing investors at different times. Research and resources from this...

Is Inflation Really Ruining Your Finances? (You Won’t Like the Answer)

Inflation has changed our daily living expenses dramatically over the last few years. While we can’t control all of our expenses, there are many things in your control that can help you become a Financial Mutant and build wealth better than your peers. Enjoy the Show?...

Are $1,000 Car Payments Becoming the New Norm?!

New data shows more Americans than ever have car payments over $1,000. Is this becoming the new normal? How much could having a car payment of $1,000 be costing you for retirement? For more information, check out our Car Buying Checklist!