Emergency Fund Thoughts

I've had two unconnected thoughts about emergency funds recently, neither is enough for a full post so, enjoy.

Emergency Funds and Leaving Diet Culture Behind.

Diet culture is really on my mind currently! Specifically as I've been reading Profit First (affiliate link so if you buy from there I get a bit of money) and realising how that whole concept is based on diets.

Anyway. This is inspired by something I read in there, although it's not exactly the same so I don't feel too bad about paraphrasing...

Having an emergency fund is the opposite of diet culture

This links in with debt payoff very nicely too. Did you know I've got some freebie debt payoff trackers? Sign up here!

So, especially when you're starting out with investing, but also when things start to get interesting and you're earning money and even when things start to get boring and your brain is telling you to do something drastic even though stuff is working because you need some excitement (ADHD? Me? Never...) - it can be tempting to forgo the emergency fund.

In the same way as when you've made a decision to pay off debt it can seem like an unnecessary drag to spend time building up the fund before just getting going.

But it is absolutely essential for building the correct base. Essential.

The exact same thinking will have you starting a diet on January the 1st and then falling headfirst into the biscuits on January the 3rd. Going all in, changing everything, having something to fixate about - crisis plans only work for so long. As soon as something unknown or unexpected turns up, you're off-plan and therefore everything has gone to shit.

Taking the time to build the emergency fund slows you down, makes you consider what's actually necessary, builds a saving muscle, creates a safety net for when things do go off-plan and proves that you've got your own back.

You don't need panic, you don't need excitement and you don't need every last penny to be in your investment account. In the same way that you don't need to starve yourself, follow strict and impossible rules or chop off bits of your body.

Opportunity Costs and Emergency Funds

This is a more advanced thought. It requires you to have a solid amount of money set aside (which will in all likelihood be your emergency fund - I'll talk about that in a mo) and be comfortable that you can trust yourself to follow plans through over multiple days.

This is based on a post from Shifting Shares which you can see here about how to make the most of your ISA allowance before the end of the tax year.

ISA Recap

We know that there's a limit of £20,000 that you can put into an ISA each year and generally, you can't then take that out again (or rather you can, but it won't add back onto your allowance). Flexi-ISAs however, allow you replace the amount you withdraw within the same tax year.

Not all ISAs are flexible, and platforms don't have to offer them, so make sure you check because this trick only works based on that. You can get flexi cash ISAs and flexi Stocks and Shares ISAs.

The ISA Hack

So, if you have unused allowance this year that you want to carry over into the next tax year, and some spare cash, you simply put the cash into the flexi ISA account, allow it to roll into the next tax year when you can take it out again. In that way, you can reinvest the new year's £20,000 and the amount you put in to take out again - you've bought yourself extra time.

The tax year ends on Sunday 5th April - to be safe, aim to have your money in by Friday the 3rd. The new tax year begins on the 6th, at which point your new allowance kicks in and you can take out that spare money according to the rules of the account.

You don't then have to use the extra allowance of course. But if you're perhaps self-employed so your income is unstable, or you know you're about to receive an inheritance but it's not here yet, or maybe you hope to get a higher paying job in the next year - then it could be amazing to have that little extra wiggle room. There are many reasons why you might not have the money to invest now, or have had it this year, but this little trick means you won’t lose out if you do get some extra.

Buying Opportunities!

Having an emergency fund then, not only does what an emergency fund is supposed to do, but it is also buying you opportunities!

This only works if you have spare cash. If you had the money to just put into the ISA and leave, then it would be in there wouldn't it? So ultimately, it's going to be your emergency fund or part of it that you put in there and that's why you need to be pretty careful and sure of yourself before you do it.

Ideally, I suppose, you wouldn't be using your emergency fund for stuff like this, the idea is that you pick as high an interest account as you can and then forget it. In reality though, there aren't many emergencies which would need your full emergency fund within a single day.

We don't have to be using the whole of the emergency fund for this, but we also could well have credit cards on standby for if such an emergency did occur.

Good personal finance is like a web that you build to support yourself. Lots of different layers and connections, where one single strand should not be the be all and end all.

Obviously, this isn't financial advice so think carefully and consult the t&c's of your accounts.

Love Eleanor. xxx