The unfortunate part of having an emergency fund is having the emergency. I was recently hit with an event that required a fair bit of money in a short period of time. Needless to say, my emergency fund was far from sufficient to cover everything. Yet I still wanted a solution where I would have some money leftover in the emergency fund. I didn’t want to clean it out, take up any debt, or liquidate my investment portfolio.
This is where the “spend less than what you earn” philosophy comes into play. The other advantages gained from acting in accordance with this belief revealed themselves to me during this time.
How I navigated my emergency
I simply paused the money I would normally set aside to save and invest. I looked at my portfolio and cashed my Purple group chips (The only single stock I own). I cut out a few fun life expenses and used some money from my discretionary investment. Following these steps, I was able to come up with roughly 30% of the required amount. Rinse and repeat for a couple more months, and voila. In the end, I only had to use about 60% of my emergency fund instead of the whole lot.
So in a sense, my emergency fund gave me an interest-free loan and I achieved my goal of not using all of it.
“Spend less than what you earn” is more than just a philosophy. When faced with a financial emergency it provides you with freedom and options and gives you some control over the situation. Expensive short-term debt was waiting for me, but I was able to avoid this path.
The repair plan
I will add extra money to my savings challenge contribution for the remainder of the year.
Remember that your savings rate (the proportion of your income that you save) isn’t just savings. It’s another source of funds during an emergency. Because in an emergency you would, ideally, want to keep life’s important expenses well in check the entire time with the least amount of stress as possible. You have far more control over the situation if you’re already living on less than you earn.
Cash Club blog
Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.
Follow Njabulo’s journey here every month. You can also follow his trading journey by listening to his Village Trader podcast.
Find him on Twitter: @njabulo_goje.