Is it a figure of speech or is it a literal statement?
When she realized it was the latter, she became momentarily concerned. Am I out of my mind?
To allay her fears, I shared that it is for this purpose that we have an emergency fund in place. Of course, the larger the emergency fund, the greater the peace of mind it provides. Only extra cash, above and beyond the emergency fund, is allowed to be used in market crashes. The emergency fund is to be used only for the purpose it was designed for.
My mum and I share an interesting arrangement as to our emergency fund. Yes, we both contribute to and tap on the same fund. While she has been the major contributor for a long time, I have since began taking a more active role in contributing. Currently, our emergency fund stands at around $11000. For two people, it is indeed underwhelming. Psychologically, she is more comfortable if the figure is around $20000 instead. Hence, I will be redirecting more of my work income into the fund from now on.
To further mitigate her fears, I reminded her of our collection of pet rocks. Last I checked, our pet rocks are worth around the $20000 comfort figure. So all is not too bad.
It is for this reason why I don't include emergency funds as part of my net worth. First, it is shared. Second, it makes no sense to delude myself into thinking that I have a higher net worth than what I really have. My personal understanding of an emergency fund is a fund that is deployed to serve a defensive function. It is not chump change which I can use for any of my whims and fancies.
So what constitutes an emergency, since we are into definitions? We reached some pretty common agreements as to what constitutes an emergency:
- Emergency medical treatment
- Urgent home repairs
- Job loss
Note: we have insurance. We are referring to cash-on-hand to deal with any exigencies before the insurance companies pay up.