ARGHHH I already hear the screams of horror about what a disaster this is...
What if something goes wrong?!?!
Ok what could go wrong?
1) Someone ends up with a medical issue.
Well insurance should cover most of this. Get a fair enough coverage with an acceptable deductible/co-insurance and you should be well covered for medical issues or long term hospitalization. If it's a real serious issue, then I think it may trigger one of the critical illness policies.
2) Sudden Debts
Do you have family members with gambling issues? Well I don't. So we're not expected to bail people out of financial problems which we did not create.
3) Loss of Job
Both of us work in high performance companies which have very low chance of getting fired/retrenched.
So as you can see most of the main scenarios have been covered. Maybe there may be some other issue which I have not accounted for. But I can always sell my shares when needed. I don't foresee any problem that cannot wait 3-4 days for funding. If it's really an emergency then I think taking a loss on my investments is acceptable. For other instances, I can always use my credit card to pay off any bills like car repairs and wait for my salary next mth.
HOWEVER, there are scenarios when someone NEEDS an emergency fund.
I'll list some of them.
1) Someone ends up with a medical issue
Well if you or your family members are not adequately covered by insurance. You'll need a good buffer of emergency funds. This is actually very common as many Singaporeans especially the older generation, do not insure themselves. This was mentioned in my post on insurance as Singaporeans treat insurance as a taboo subject.
2) Sudden Debts
Well helping your family member who has a drug/gambling problem doesn't really do any favours for any of you. However, you may want to keep some funds if you really want to help them.
3) Loss of Job / Employment / Irregular income
If you're in an industry which is on a downturn, you may want to keep some reserve funds. As there is an actual risk that you might be laid off. Other scenarios may be you are a business owner and sales for the period might not be as hot as expected, or you might be working based on commission and the income for the period might not be as great as hoped. So keeping an emergency fund for people who are at risk of losing their income or have an irregular income would make good sense.
As you can see keeping an emergency fund is similar to owning an umbrella. If you stay in the desert, you might not need to have it ready. The important thing is to analyse what your current situation is before listening to all those financial advisers on the importance of an emergency fund. It is important for some people. But for others, it might be just locking your funds away in low return accounts and hindering your early retirement.
What do you think? Have you been holding on to your umbrella even though you stay in the desert? Have I failed to consider other emergencies which I cannot handle with my current situation?