Why a meaningful emergency fund is important?

This seems like a rhetorical question since the answer seems obvious enough. It is so obvious that I do not recall having a blog post dedicated to the topic.

So, when I came across a blogger who thinks that an emergency fund is not important to him, it got my attention. This is a contrarian and I always like to find out why contrarians think the way they do.

In summary, the reasons why he does not keep an emergency fund are:

1. His family has adequate insurance coverage.
2. His family's expenses are relatively low.
3. His family's investment portfolio is sizable.*

*Current value is about $150,000, generating about $10,000 of passive income annually. This is taken from the regular updates provided in his blog.

Anyway, have a read as I don't want to poison the well:
Why we don't keep an emergency fund?

An esteemed blogger, CW, had this to say:

No emergency fund? Never mind. But still have to maintain adequate level of liquidity to meet unforeseen multiple life events happening.

It is never one hole that sinks a ship. It is several holes happening one after another that sinks that ship.

The blogger, My 15 HWW, replied:

I admit my life experience is lacking compared to many qianbeis like you but I do hope that life would not be so harsh as to sink my small boat. Because it’s small, it could also be nimble and flexible enough to steer clear of impending danger (unlike Titanic)?

If several holes happen, think the emergency fund might not be enough too and one might have to liquidate other assets.

To which, AK says:

I get where you are coming from.

However, I would really encourage some kind of demarcation and even a blurry one is useful. Why?

Let us say that Mr. Market gives us that correction some of us have been waiting for, how much of your cash on hand would you put to work? Doing what you do, if we put in 100%, then, we would have no money left for emergencies.

A small craft might be nimble but try watching “The Perfect Storm” instead of “Titanic” to see the other side of the coin.



"We never want to count on the kindness of strangers in order to meet tomorrow’s obligations." Warren Buffett

A perfect storm could sink us if we did not have a meaningful emergency fund.

Update (29 May 2015):
How much should we have in our emergency fund?

Related post:
Don't think and grow rich.

How much for hospital and surgical insurance?

The renewal certificate for my hospital and surgical insurance just arrived. So, what is the cost?

Total: $904.00.

$665.00 will be deducted from my CPF Medisave Account and $239.00 will be deducted from my designated savings account.

The importance of having good hospital and surgical insurance cannot be over-emphasized. We are not being frugal if we save money by not having such insurance. There is another word that starts with the letter "F" to describe those who do.

The insurance premium will increase as we age. My mother's yearly H&S premium is in excess of $2,000 now. Yes, we pay more as we age but don't let this scare you. What should scare you is the size of hospital bills which will surely come one day (although we could continue to hope that they don't).

My mom told me that my uncle who is almost 60 was thinking of cancelling his H&S insurance due to financial difficulties. I told her to dissuade him from doing so. We could help with the premium. It is only a few hundred dollars a year in his case as he opted for the least expensive plan available. If he should be hospitalised, we could help pay the deductible and co-insurance but without the H&S insurance, it would be a much heftier burden.

I remember when an uncle was hospitalised for cancer a few years ago, my dad had to help to pay his bills. It amounted to a rather hefty 5 figure sum. My dad's bank account took a long time to recover but my uncle never did.

Suggested checklist:

If you don't yet have H&S insurance, go get it.

If you have basic H&S insurance but can afford a better one, consider upgrading.

If people you care about don't have H&S insurance, make them get it.

H&S insurance might just be the best investment we could ever make in life. How so? I am sure you have the answer to this one.

Related post:
Enhanced Incomeshield (H&S) for my mom.
"...I only have to pay 10% of my total medical bills if I were to be hospitalised and this 10% has an annual cap of $3,000 in my case. So, if my hospitalisation and related bills were to total more than $30,000 in any year, I would still pay a maximum of only $3,000."