The calendar invite notification chirped. There it sat in my mailbox. A 9:00 am meeting appointment for three days from now with my boss. No subject. No agenda. No explanation. Despite having just completed my summative evaluation where I earned the highest rankings, I automatically assumed I was about to be fired or transferred or transferred and then fired. I ran through the past day, week, month, and eventual year in my mind. Had our budget been torpedoed? Had I angered a parent? Had I forgotten a commitment? Had I offended someone with something I reheated in the microwave?
Actually, I know I’m not about to get fired over anything that is cooked or spilled in the teacher’s lounge. How do I know? I have seen cleaner frat houses. In fact, I am fairly certain that the multitude of stains inside the microwave are akin to annual growth rings, some of which predate my birth. Despite my coworkers’ culinary Animal House proclivities, we are a talented staff. Nonetheless, four of them will not be returning to work next year. Though popular lore and rantings on my NextDoor feed would indicate otherwise, it is actually fairly easy to fire a teacher—tenure or not—under the new evaluation system.
As an anxious person with a serious perfectionist streak, my default mode is worst-case scenario. But instead of spending 72 hours in agony or sending a no-so-subtle inquiry about the meeting’s agenda (“Looking forward to our conversation. Could you give me a brief overview of the agenda so I can be as prepared as possible? I know how valuable your time is.”), I mostly let it go for a change. I’d like to chalk it up to a decade of practice in the professional, but really it’s something else. No, I’m not talking about an emergency fund. I’m talking about income streams.
When I hear people advocating for emergency funds that have $1,000 in them, I think about that time I lost my job within 24-hours of signing a contract for the following school year. What would I have done with $1,000? Dry my tears with it and not much else. To say that I am in favor a more robust emergency fund is an understatement.
We have an emergency fund. Sort of. We have close to $75,000 of savings in mostly liquid accounts. I mentally earmark about $30,000 worth of it for an emergency fund. Another $20,000 or more is the money pit fund. (Oh, I’m sorry. That’s not what you call your house? You must not have owned one for very long then.) The rest of it is a combination of property taxes, insurance premiums, and general anxiety. Oh. And daycare. Since we can mostly cash flow our child care now thanks to our side hustling, but we are astutely aware that it may not always be the case.
So why isn’t an emergency fund solace enough when one of these cryptic emails or agenda-less emergency morning meetings hits? Because funds are limited. Of course, our limit is quite large by design. But there is a finite amount of money in any emergency fund or savings account no matter the size.
By contrast, extra income streams, or emergency income streams if you will, are limitless. Despite my unapologetic dislike of side hustles, I see the value in them. In fact, I cannot fathom a point in my life where I will not keep that income stream pump primed. Knowing that a three- or four-figure monthly freelancing side gig could be grown exponentially should I ever lose my job offers much more solace than any finite fund could.
While it is entirely reasonable to assume that I would be able to find another job before our emergency fund ran out, I am also incredibly aware of the fact that emergencies don’t happen in vacuums. There is no reason to assume that someone won’t lose their job and their roof in the same month. Is it unlikely? Sure. But honestly, this is about whatever it takes to sleep at night. Plus, as much fun as I have checking the balance in my savings accounts, I enjoy writing even more.
So Tell Me…Do you use an emergency fund, extra income, or a combination of both to sleep at night?
Wow. You have a big cash fund. I use side hustles as more of a “if I lost my job I could ramp up this side hustle quickly” contingency. I’m not an anxious person, and despite the fact that we have lived through two layoffs in a single year (when we were relying on a sole income and had debt), we’ve always found new jobs incredibly quickly, so I just don’t worry about dried up cash flow perhaps as much as I should. But I agree that traumatic experiences like losing your job early on can shape the way you think about money for the rest of your life. There’s no doubt that we’re on the path to FI that we’re on because of those layoffs.
We do! And after writing this post, I was so tempted to send a chunk of it to our mortgage. But then we just had a wind storm that ripped off two panels of siding.
Britt @ Tiny Ambitions
This is a really interesting distinction, and not one that I’ve thought alot about (this is how you know I’m not really a personal finance blogger). I’m working on my emergency fund right now, it currently has .15c in it. Definitely a work in progress. I would like to develop extra income streams (like writing), but I honestly don’t know how someone gets into that.
I think my situation is a bit different, as I’m 20-30 years further down the road than you. The Oldsters keep 5 years of living expenses (the basics, not the lavish) in cash or cash equivalents. We do this not so much to smooth out employment issues, rather to smooth out market bumps and sequence risk.
A healthy portion of our fund has been put to use recently in having some updating done to our recently purchased house. But we’ll be replenishing the stash as soon as we can. There is a freedom in knowing that if push came to shove our needs would be met for years without having to dip into retirement accounts.
That is so important, Oldster. And I love how you know you will have to dip into it occasionally but don’t seem to make a big deal out of it. I am working on that piece.
Gary @ Super Saving Tips
You make a good point about the limitations of emergency funds. Back in my working days, I often had side hustles before side hustles were a thing. But in my retirement (and my poor health), I’ve settled for an emergency fund and a small amount of extra income. I wish now that I had cultivated some more passive streams of income, but hindsight is 20-20.
“Side hustles before side hustles were a thing.” That’s the best, Gary!
SO MUCH YES TO THIS. I work a ridiculous number of jobs/side hustles at any given time – so much so that if I lose one or don’t get a class for a semester, it is barely a bump in the road. Side hustles and personal growth and development are SO MUCH more powerful than an EF (although I am a bit jealous of your hefty EF as well!).
It’s definitely stressful in the day-to-day, I think. And sometimes I overcommit to my side hustles. But I think I’m getting better at it. In general, though, it’s such peace of mind. I love how you have cultivated so many options that you can just reroute so seamlessly.
Emergency fund. Any side hustles I have come to me rather than me seeking them out and they’d probably completely disappear if I lost my main job, since the main job is what gives me credibility.
That’s really interesting! Do you not think that you could use your current side hustles for credibility? I know I run into issues with that sometimes because a lot of my “portfolio” is anonymous.
$50,000 cash EF at all times. That’s about 8 months expenses here, including Cobra…slightly more than unemployment benefits would last. Used to be 6 months expenses, but I ramped it up after the 2008 recession and kept it as-is during the recent economic boom.
I’ve been side hustling since I had working papers in my teens. I always believed in multiple income streams. One dries up, I don’t panic, I ask for more hours where I am still working. I’ve been laid off (company folding or moving) 4X. I don’t freak out, I just keeping moving on.
I LOVE THIS! And I think it’s so important to consider COBRA. Holy moly is it expensive!
Little Miss Fire
I’m exactly the same as you – everytime I got an invite with my boss I assumed the worst. It usually was but the emergency fund of £1000 would have done very little to ease the pain of being fired (unless 24 hours flat out drunk would ease pain)
We dont really have an emergency fund as we are more focused on paying down the mortgage (not really doing that yet either) I do think a nice fund of FU money sounds good but unless your already making shed loads more than you earn, its not a reality.
HA! Yes. $1000 at a local watering hole. Well, that could come with it’s own set of problems now, couldn’t it? 😉
Currently in the process of moving, after which I will unpack my jewelry studio and get to work. Hoping it will become a nice income stream.
I currently have a $2000 federal tax refund sitting in one account and a $7000 beginner down payment for a house sitting in another. I won’t be using that $7k for at least 2 years (if at all, I may continue to rent) and I’m debating on using the two lumps of money to fill out both my Roth and my EF. On one hand, I really like the security of it sitting in the accounts. It’s easily available and a nice cushion. On the other hand, sitting in a savings account at 1.4% interest, it’s not helping me at all. I just can’t seem to push the button….
I would love to know more about your jewelry studio, Jody! That sounds very promising. Will you let us know when it’s up and running?
I put $3k in a taxable account with Vanguard. I’ve slowly gotten braver and grown it to about $5. It’s our house window fund. I know we won’t need them for years, but that they will be grossly expensive when we do. It’s hard to push the button, and it might not be the right thing for you.
Revanche @ A Gai Shan Life
BOTH. And you know what gets me? Knowing that I’m smoothing the way with our side income and therefore feeling MORE anxious about the loss of the extra income which my brain now insists is part of status quo because it has a job like absorbing the costs of unexpected situations that don’t merit tapping the emergency fund.
Being out of work for almost a year in the GRecession, with a family to support, really did a number on my psyche!
I thought we just do one, and then I realized we do both… I don’t think about most of our side hustles as income, because we tend to enjoy them 🙂 Both is definitely best, but having a good nest egg of FU money makes me feel more powerful at work. I’ve managed to release that meeting with the boss fear.
My fears are mostly rooted in scars from trying to find a job at the height of the recession. It was hard, and though I’ve since transitioned jobs, and the second search was a lot easier I still have the fear of not being able to find alternate employment. FU money helps with that too!
Both an emergency fund and earning some extra income. We have about $55K in EF but it’s always great to have multiple streams of income because you don’t to dependent solely on your main income because you’ll never know when your going to lose it by being laid off/terminated.
My current EF would barely cover 1 month of absolutely necessary expenses at this point. Once I up the income, I want to grow it faster than I grow other things. First up to 2 months (roughly), then taking turns buying assets, paying debts, and adding another 2 months to the EF. In the end, before I have a mortgage, I’d like to have at least 15K as a minimum in the EF. It would still be “small,” in part, because I won’t be at that point until I’m earning double or triple what I’m earning now. That sort of gig would actually allow me to do more location independent work and work in an adjacent field. Thus opening up some better side-hustle opportunities. None of them truly passive, but not needing much more than my brain and access to a computer and the internet.
I doubt that I would ever quit that side-hustle even with wanting to do my business closer to FT than I do now. That side-hustle would relief so much of the pressure to succeed in big $ ways. I could just do the type of work that brings me satisfaction and let the side-hustle be my sugarmomma.
FIRE in the hole
Great post, Penny! We had money in an emergency fund, just sitting there in cash, and eventually I decided to invest it in stocks, held directly through an online brokerage. I can’t get my hands on it immediately – I’d have to sell the stock, wait for that to clear, transfer it to my checking account – probably at least a week total. But that risk was worth it to me, since my EF has doubled in the last 7 years. I would have left a lot on the table if my EF was just sitting in cash. Of course, I know I also got lucky with the timing and that at other points in history most of my money could have been lost.
Now, like commenter Oldster above, I plan to have plenty of cash reserves once we have actually FIRE’d, to guard against sequence of returns risk.
We are much older than you and had many years in our 20’s and 30’s with no EF at all, but luckily we both stayed employed and socked away the max in our 401k’s. That was more important to me than having ready cash. We were also extremely fortunate to have parents who could (and did) loan us money at a very low interest rate, if we had a sudden need. Such a safety net can be huge, when it comes to taking financial risks, and I’m very aware and very grateful to have had this.
I just read an article yesterday about a ‘side hustle’ involving Bird charging. Birds aren’t in my city yet but this side hustle is kind of intriguing. Right now though, no side hustles happening in our house.
I’m so glad you shared so much insight. Thank you! Now I’m off to go Google Bird charging. Hmm…