Emergency fund: a good idea with a suboptimal name

Shakespeare famously wrote,

What’s in a name? That which we call a rose
By any other name would smell as sweet.

This may lead us to think that names don’t matter. But reading more lines surrounding these two gives us more context. Juliet starts by lamenting Romeo’s name, saying “O, be some other name!” Then she thinks and says the more popular “what’s in a name?” verses, and finally finishes off saying,

So Romeo would, were he not Romeo call’d,
Retain that dear perfection which he owes
Without that title.

Essentially, it’s a lover making peace with a suboptimal name given to her man. Juliet knows what kind of a person Romeo is, so she decides to ignore the name and look past it.

However, good names can be of a huge help when learning about new ideas and techniques. This post is the story of how I got thrown off by the name ‘emergency fund’. That name, emergency fund, is misleading.

image via Peakpx

You see, an emergency is a high bar. I am of the opinion that real emergencies are rare in life. A typical person may have half a dozen emergencies in their lifetime. I can think of 3 emergencies in my ~42 years of life. Of these 3, only one was solvable by money. So the idea of maintaining a liquid emergency corpus sounded bizarre to me.

If I am almost never going to need this money, I used to think, why not deploy it in equity and let it grow? Isn’t keeping this money liquid a wasted opportunity? I eventually made peace with maintaining a nonvolatile emergency corpus, but I never got comfortable with the name ‘emergency fund’. It sounded like an inaccurate description for what it is.

What would be a better name, then? I think something like ‘safety buffer’ is better. I like Safety Buffer because:

• It is surplus liquidity we maintain for navigating unforeseen circumstances. Calling it a ‘buffer’ makes it clear that we are allowed to use it as/when needed, even when we are not facing an emergency.
• The word ‘safety’ implies that we start to live dangerously if we deplete this corpus. Hence the need to replenish it every time after we dip into it.

So Safety Buffer is what I am going to call it when I think about it. You may not agree with this name; you don’t have to. But always maintain a sufficient cash buffer to help you navigate unforeseen challenges life may throw at you.