#60: Why I Don’t Have an Emergency Fund

Foreign welcome to the Passive Income MD podcast where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now let's get on with the show. Hey, everyone. I know that the past year or so has created so much uncertainty for everyone. Obviously your financial life, your career, just your health, all these things kind of added up to kind of a feeling of not feeling settled and feeling secure. And when we talk about like an emergency fund, that's what it's there to provide a buffer for unexpected things that happen in, in life. Now, before I start talking about it, I want to make sure that I include the small disclaimer, everybody's situation is different. And what works for me may not work for you, may not work for everyone. And even though you hear blanket financial advice online or in books, I actually think that whenever you hear these type of things, don't just take them at face value, make sure they make sense for you, you, your family, and it's practical. So when it comes to an emergency fund, I think this is a topic that's personal to everyone. When you read certain books out there, they might talk about having three to six months of full expenses sitting there in a bank account which they call their emergency fund. And these are there again to smooth over any bumps that might occur. You know, there are unexpected costs that tend to come up for everyone, whether it's health issues, car issues, house issues, pet issues. Right. Which honestly quite expensive. And maybe something with your job, whether it's job loss or like we've seen in over this pandemic, job reduction in terms of time reimbursements and things like that. And obviously there are things that come up that are you cannot account for in life. And that's why we have insurance. We have things like that to cover those periods so that we can make sure that we are secure and stable. Now I read the book Dave Ramsey's Total Money Makeover. I think there are a lot of good things in there and I think there are things that don't make sense for me. I think the things you listen and read there are good for a majority of the population when it comes to saving. Because as you know, Americans these days have a horrible habit of spending more than they make. And so they live in debt and they don't save money. And so that when things unexpectedly happen, they end up dipping into more debt to pay for these things. And it's just like a cycle that they can never break out of. And so for me, that's how I was, you know, when I first became an attending. It's just kind of how I always thought I should be doing. I used to have an emergency fund. And it's just money set aside for those expenses, like monthly. You know, how much you spend for the most part on mortgage or rent or food. You have a basic idea. I think maybe you don't have it budgeted down to the exact dollar. I never did. But you kind of know how much you need in case a catastrophic issue happened. And so I used to save some money in a savings account. Now back then the interest rate on those savings account was a bit higher. I still remember the days when you could get 5 or 6% just by having it on in an online savings account, which whereas right now you're probably seeing, I don't know, 050.75. I have to see what it is. But in looking at my current situation over the last few years, and I did a deeper analysis personally, I decided against having an emergency fund. And just so you know, this is why I felt that I didn't need an emergency fund. These are the considerations that went into my decision. My wife and I were a dual income family. You know, we both now at this point work part time in medicine and we both have ventures and other streams of income outside of it. And I know that for both of us, we could work more in medicine if it came down to it, and we would be able to create income that way. Even as times right now with everything going on pandemic things have kind of come back. Right? I don't know if it has for you, but in fact, there's a lot of catching up that needs to happen. My wife is getting asked more than ever to come in and pick up additional shifts to catch up for the lull that happened over last year. I know that in my line of work, as well as an anesthesiologist, per diem, work part time, work additional shifts. These kind of things are right now honestly readily available because they need help. You know, there's a backlog of surgeries and these kind of things. So we know we're a dual income family and both of us could work more if. If we need it. That's one factor. Number two, I know that when I work, for the most part in terms of billing, we're paid on a lag. So you get money, you do your case or you work and then reimbursement comes through and it gets paid a couple months later. So there is that lag between service, billing and collection. So if something comes up, I know that finances and money are still coming in every couple months. Right? And it's still coming in. So that's another factor. Number three, I have disability insurance for myself and my wife. And I would hope that everyone out there, depending on your situation, if it makes sense, but for the most part, it seems to make sense that we need to protect our careers and our health. You know, as doctors, we are the greatest producers of our income and we're directly responsible for that. So for many of you that are in technical type fields, and if you lose the ability to, you know, do some technical type work, then it affects your ability to make money. And so having disability insurance just protects against that. I also have something called a partial disability rider which states that if my income is drops more than 15% due to disability or injury, of course there's a waiting period, mine's 90 days. But my insurance company starts to pay me to compensate me for the difference. So I've put some safeguards in place in case I do get injured in a, you know, more like a full or partial capacity, and so that helps. I also have other streams of income, passive income, and that's, that's obvious to everyone who listens to this. This is a big one for me. I'm earning passive income from my real estate investments, from my businesses and these kind of things which cover my expenses, to be honest with you. So we're in a good point right now where we've got other streams of income that are able to cover us in case we, you know, we decide not to work in medicine or if all these other things come up. And obviously that is the hugest benefit to having passive income, that regardless of the time you put in, you know that you're going to get paid at the end of the day. Now, obviously everything that happened with the pandemic with rents and a lot of it are my own rental properties or these kind of things, there were some ups and downs. But you know, with all the, the stimulus checks with the plans, honestly, we have not noticed a drop at all in terms of our income, in terms of the passive income. In fact, things have actually done better, which is kind of crazy. During this time, many of you know, the housing market is going crazy. Rental prices have still gone up in places, and the government is just printing money right now. And so to be honest with you, that has still done fine for us. I'm in the process of. Actually, while you're listening to this, I'm moving to a new home. But what I typically do, and I did before, is I usually have a home equity line of credit set up. Now for those people who don't know what that is, it is essentially a line of credit against your home, meaning that you can pull from it to pull out cash if you need. Now this could be used in a pinch. Now this is something that you can use or you can not use. And it's just an ability for you to have that opportunity. For me, I remember when I had my home equity loan line of credit, it was like a $75 fee to maintain a year. But I remember I had several hundred thousand dollars of home equity in there that I could pull from in a pinch. And this could cover, honestly, it could cover 10 to 12 months of expenses if necessary. And I knew that I had that backup just in case anything would happen. Now I also knew that, you know, we've bought and accumulated some things in this house, meaning that we have some things that are, you know, are of worth and we have our cars and things like that. So, you know, if worst case needed, could we sell some of our assets? Sure, we could. I've got money in stock accounts, I've got money in my retirement accounts. You can pull from these things again in a worst case scenario. This is just disaster scenarios, right, that we're thinking about. And that's what usually emergency funds are for. You know, if you need an extra 5 or $10,000 in a worst case scenario, then you probably have other places to pull from in case you absolutely need that. I mean, I'm hoping that you have put yourself in a financial situation where you are actually have money to invest every month that you have that buffer in case you need. And then the other thing that I've always been thinking about is what else could I be doing with the money that would be sitting in an emergency fund? Let's be honest, today in a high yield savings account, it's not making money at all. I mean, it's making very, very little interest. And in fact it's not keeping up with the rate of inflation. Inflation, as we all looked, is relatively tied to the consumer price index. I don't know. The most recent report that I saw showed the index rise about 4%. And many people think that we are in a period where there will be some inflation for sure, meaning that the cost of goods will go up over time. So the cash that's sitting there at a rate of 05 to 0.75% interest, whereas, you know, inflation is sitting there at 3 or 4%. Honestly, it's kind of like that money is losing its power or value just by sitting there. And so for me, I always feel like I want my money working for me. So where else could I be putting that money to create growth and create value and income for me? So the question is, what do you do with that money instead? I mean, again, I just choose to invest it. I put it into private real estate investments, some crowdfunding platforms, investment properties that I have. Even my, my retirement accounts, right? Or even my taxable stock account. I have a few stocks in there. Or maybe you invest in some other businesses. I do all of these things with my funds so that when something unexpected does occur, it's usually a smaller amount that I can usually cover with the income that I create each month. I also, just so you know, I pay off my credit card every single month so I don't have that debt burden hanging over my head. And so it, I'm not at the point where I live paycheck to paycheck. Now I understand life is completely unpredictable. I do remember last year when our group was told that we were going to get paid 30% less and for over a given month or a couple months. And that's pretty jarring for anyone. And I don't think many of us put in a buffer of 30% per month. Maybe we do, but most don't have that option. The good thing is it was short lived and I hope many of you got through it unscathed. You know, we were given options with the PPP loans. Many were able to draw from their taxable accounts, which fortunately were at some of the highest levels in terms of stocks that they've been in years. Many people were able to draw from their helocs temporarily and pay it back. Many had just been saving up for other investments and so had funds to weather the storm. So when I talk to a lot of people, it sounds like many people did not necessarily have to dip into their emergency funds even in what can be considered a once in a lifetime pandemic event. It was probably a stress test for many people to find out how well prepared they were in terms of their own finances, in terms of setting themselves up for secure footing and at least just preparing for the future. So in thinking about all of this, I'm still not planning to have a so called emergency fund. I'm saving money for investments. And as I find those investments to invest in, I'LL invest. But again, I'm not keeping money intentionally aside, locked up away for a time that I may need it because again, I have other options for that now. I don't know if you've thought about it, you know, or thought about where your sources of income would come from if there was an unexpected event for you. What did you do during this period in Pandemic? I'm just curious, do many of you have emergency funds and has this time made you think differently about it? I'd love to hear about it. By the way, these podcasts do get posted on our blog. There's an opportunity for you to drop some comments there if you'd like. Hope you have a great week and we'll talk again next time. See ya. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Are you part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. 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