Paycheck Chronicles

The Most Dangerous Word In Your Financial Plan

I spend a lot of time talking to people about their money. Most of the time, I’m talking to them because they are in some sort of financial trouble. One way or another, the conversation comes around to the word emergency. Either we’re looking over their finances, and talking about their (lack of) emergency fund, or they’re explaining about how they are broke/in debt/in need of help because of an emergency.

9 times out of 10, the “emergency” doesn’t really fall into my definition of emergency. Now, you don’t have to agree with my definition, but at least hear me out. In my definition, a financial emergency is something you could not have reasonably anticipated:

Damage to the foundation on your house.

Job loss that came completely out of the blue.

A wildfire.

Major health crisis in an otherwise healthy, young person.. Now, I know I’m being a little extreme, but let’s compare those definitions of emergency with the emergencies that I commonly hear about:

I needed new tires.

My dog ate a sock.

My daughter didn’t have enough money for her textbooks.

My best friend got married.

My property taxes were due.

We moved.

This second list includes important financial priorities. Of course, you need safe tires on your car. And you can’t see your dog suffer. However, the only thing that makes these financial priorities fall into the emergency category is that you weren’t prepared for them. Because every single thing on that list is somewhat predictable. Cars need maintenance. Pets need medical care. All of these things would ideally be handled with designated savings so they aren’t emergencies. And yet these are the things that emergency funds get used for, and then folks don’t have any cushion when a true emergency arises. As with almost everything, there’s a wide range of gray area here. There are some things for which you can prepare, and yet still end up in the emergency category. Job loss is a great example. Most of us know that we won’t keep our job forever, and we should have some safety net for when that job change occurs. But layoffs can be a surprise, or you may have some external situation that causes you to quit your job unexpectedly, or it may take a lot longer to get a new job than you anticipated. In a perfect world, you’d have some advance notice and be able to build up a “job change” savings account, but in the real world it might actually be an emergency, or it may start as a manageable transition and then become an emergency over time. It’s hard, when you’re just starting or re-starting your financial journey. You can’t possibly have enough savings for all the world’s possibilities all at once. But you can shift your thinking. Yes, you still might have to dip into that emergency fund for new tires, but you can be thinking, “You know, someday I’ll have that money set aside.” Progress doesn’t happen overnight, but it never happens at all if you’re not thinking about where you want to be in the future. And a long-term plan that keeps new tires in the “emergency” category ensures that new tires will, in fact, always be an emergency. And that’s no fun.

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