Updated on 07.09.08

Is An Emergency Fund a Psychological Negative?

Trent Hamm

MundisI was recently reading How to Get Out of Debt, Stay Out of Debt and Live Prosperously by Jerrod Mundis, an interesting book that sorely needs an updated edition (it was originally published in 1988 – I’d happily review an updated edition), but has at least a good handful of interesting concepts inside.

One comment that really intrigued me was Mundis’ rather negative take on the idea of emergency funds. On page 217 of the paperback edition I have, he writes:

Saving money for a rainy day is a bad idea.

Surprised? Many of us were taught early on that we’d better sock money away toward catastrophe or for our old age. But that kind of “saving” has destructive consequences. It builds a poverty mentality. It tells you that there’s not much now, and that there will be even less in the future. Or that while things may look fine today, you’d better be careful, you never know when disaster will strike. Don’t be a grasshopper singing in the sunlight, we’re told, be a busy ant storing up for the lean times ahead.

People who put all of their money away toward catastrophe live in an increasing fear of catastrophe. That very fear is likely to create such an event – just as a driver who’s nervous and apprehensive about an accident is more likely to cause one than is a confident and relaxed driver who’s enjoying his trip. […] Whatever the outcome, hoarding leads to a sense of restriction, privation, and the idea that there is never enough.

When I first read this, I thought it was utter nonsense. I generally feel better and more confident when I have adequate retirement savings and a nice, fat emergency fund. I sleep better at night, feel more confident about my day to day life, and actually feel the opposite of what Mundis describes in this passage.

One of my closest friends is an intense saver of his money, only spending a significant amount on gifts for others. Yet, for him, I don’t think it’s a psychological negative, either. He’s just a realist about what his needs are and knows that the money will likely be better used at another stage in his life.

As I reflected on it further, though, I realized Mundis may in fact have a point. What Mundis is actually talking about is the hoarding mentality. Much like people who keep as much stuff as they possibly can, eventually to their own detriment because they can no longer find what they need in all of the stuff they’ve hoarded, there are people who do the same thing with money.

I’ve never had this problem, nor have most people who struggle with debt. Right now, I’m spending far less than I earn, but I do it looking forward to a future where I will spend it in some fashion. I intend to someday build a house in the country with some wooded space and a giant garden. I want to be able to stop working when I’m fairly young and get heavily involved in local politics and volunteer work. My motivation to save and save right now is to give me security in the short term and enable these dreams in the long term.

If this doesn’t sound like you – if you instead feel more nervous the more you have saved because you imagine bigger and bigger disasters – I suggest addressing that condition as a separate problem. It’s not your savings, it’s the way you perceive those savings.

Does an emergency fund “draw” negative experiences? From my experience, it’s actually the opposite – it prevents bad experiences. It only creates bad experiences if the foundation is already in place to make that happen – if you’re predisposed to hoard, for example, or you already believe you’re destined for bad things.

In short, financial stability is a good thing in that it frees up your choices. If you’re saving money in anticipation of ever-worse disasters, that may in fact be a psychological concern, not a need to save more money.

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  1. Eden says:

    I would have to avoid that book based on the quoted advice.

    I think not having an emergency fund and relying on a credit card or some other loan for an emergency would build the ‘poverty mentality’ that this author is so afraid of.

  2. Kacie says:

    I think having an emergency fund is one tool from avoiding a catastrophe (and poverty!).

    Having one in places keeps my blood pressure at a healthy level.

    I can see how hoarding money and possessions could be a dangerous thing, but there’s no reason why a person shouldn’t have an emergency fund.

  3. Moneymonk says:

    As with any personal finance advice- “to each it’s own”

    My parents never had an emergency fund, However they manage to get and save for things they wanted. At most I keep 3K in my EF. no more. After that I invest!

  4. Trent Hamm Trent says:

    As with any personal finance advice- “to each it’s own”

    Yep. I think that quote – and my reflections on it – show that no personal finance advice is perfect for everyone. The key is to look at the good tactics and find your own path.

  5. K says:

    Just curious, you’ve said before that you spend “far less” than you earn. What does that mean? Do you spend 90% of your take home pay? 50%?

  6. Trent Hamm Trent says:

    It depends on how you calculate that, K. I usually figure it in terms of net worth growth divided by amount filed for income tax and subtract that from 100%. If that’s the case, we spent about 56% of our income in 2007 (according to my last calculation – I had it at 49% before that, but I was figuring my net worth wrong). Most of that excess was rolled into debt repayment, retirement savings, and our house. We’re hoping for even lower in 2008.

  7. Jeff says:

    If Mundis is suggesting have no liquid assets (and I don’t THINK he is) in case of an “emergency”, then it’s asinine advice that is sorely outdated. My “emergency fund” is in place in case I lose an arm in a freak accident tomorrow and my wife and two children need easy cash for the next three months. In no way does that make it more likely I’ll lose my arm. Sorry for the blunt example.

    My brother is 20, attends community college, lives at home, and has a paid off car. His emergency fund is next to nothing compared to mine.

    Planning ahead does not make you the ant.

    *goes back to singing in the sunlight*

  8. Carrie says:

    I’m glad to read this. I do know someone who could be considered a compulsive “Emergency Fund Stasher”. It gives idea’s for a conversation about de-stashing.

  9. jb says:

    For someone who does (or can) have a significant asset level, having an “emergency fund” is very important. That said, many will say that it should be your “number 1 priority”. There’s a case to be made for that, but if you have no outstanding “bad” debt and some reasonable way of getting through an unexpected job loss or financial hit, that might be ok. For example, a significant amount of money invested in stocks or even a 401k. Worst case, you sell stocks or pull money out of your 401k.

    I’m not saying pulling money out of your 401k is a good thing, but if the alternative for an emergency fund would never be getting the money into a 401k then you’re not that much worse off.

    I would *not* rely on either credit cards or home equity as an emergency fund.

  10. ReddH says:

    Honestly having just been through a situation where my emergency fund saved my tushie, I would say that there is no good reason not to have one. I understand that there may be perils in over-saving, but having something to use as a safety net in case the worst happens is just smart thinking in my opinion.
    I actually just wrote about this in my last blog post here:


  11. Adam Lehman says:

    I just wiped out my emergency fund to pay off all my credit card debt. Bad move. maybe.

    However, I am really happy when I look at my finances as I have no debt. So I sacrificed some stability – which i don’t care about very much as a single male – and decided I’d rather not have the credit card debt looming over head. That was much more distracting to me than anything else.

    It’s all about priorities. There are those who hate hoarding (me) and having thousands of dollars sitting around. Instead, i’d rather owe nobody and do as I pleased. but again, it’s all about priorities.

  12. Jen says:

    Hoarding based on fear and anxiety? Reactive and negative.

    Planning based on goals and aspirations? Proactive and positive.

    Side note: The point of “The Ant and the Grasshopper” is that the ant was prudent and the grasshopper foolish, not unhappy vs. happy. I don’t think this particular analogy supports Mundis’ argument as he intends.

  13. K12Linux says:

    I’m looking forward to actually having an EF again. I had started to building one since February but then one of those emergencies that it is meant for came up. I was sure glad I had it and miss it.

    For me the difference between having some kind of EF and none is the difference between lying in bed until 1-2 AM trying to get to sleep and falling asleep soon after my head hits the pillow.

  14. Jeff says:


    You know, I didn’t even think about that. The grasshopper found himself starving in the winter and asking the ant for food. Excellent side note.

  15. Chris says:

    He seems to be talking about the same things that “The Secret” talks about with self-fulfilling prophecies. “What you think you create in your life.”

    But I don’t think that is something you can really measure or test, which I why I largely think the Secret is mumbo jumbo. What you CAN measure is your empty bank account the next time your car breaks down!

    On the other hand, it seems like good advice (separate/distinct from your actual financial plan) to suggest that you cultivate a mindset of wealth as opposed to one of fear of being poor.

    Trent, I think you are bang on when you say “I suggest addressing that condition as a separate problem. It’s not your savings, it’s the way you perceive those savings.”

  16. Concierge says:

    You should have access to liquidity for emergencies. But these days that short-term liquidity can be accessed without having a low-interest bank account. A great idea is to have a no-fee credit card set aside for emergency use only. Besides improving your credit score (having untapped availability of credit improves your score) you immediately have access to funds.

  17. Jim says:

    From the quoted excerpt it seems to me that they are arguing against hording all your money rather than saying you shouldn’t save at all.
    He refers to putting away “all” of your money and “hording” specifically.

    What does the author say you should do instead?? Is he advocating putting money into investments or what?


  18. Brent says:

    That is why I drive with out insurance, so I do not cause myself to get in a wreck!

    (For the humor impared I do have insurance.)

  19. George says:

    If your emergency fund is large enough, there’s little reason it has to sit in a savings or checking account. In my experience, stocks are liquid enough and/or a margin account. Less volatile than stocks, but equally liquid and still capable of beating money market accounts are bond funds, also available through your friendly broker.

  20. "Mo" Money says:

    In life you must expect “unexpected financial events”. I think it is good planning to have an emergency fund.

  21. If someone is saving so much money away that because they are that terrified of catastrophe, then they need therapy for anxiety and a better insurance plan.

  22. This is a kind of “law of attraction” thing that is so popular nowadays (and has been around, like, forever). If you think negative thoughts (and prepare for a negative event) than negative things will happen to you…you’ll lose your job, you’ll get sick, get divorced, need car repairs, have children (wait, that’s not necessarily negative).

    If the law of attraction was so foolproof I’d be thin, debt free and rich (and I’m not).

    Fate favors the prepared. Having an emergency fund is simply being prepared for the unforeseen.

  23. I don’t think it’s a negative at all. I’m like you Trent. Knowing I have a little put back helps me breathe easier throughout the day. Before we started our turnaround, I used to lay awake at night and “what if”. We had no savings, and even though the hole wasn’t growing, we were pretty deep in debt.

    We have some savings now (equal to a couple paychecks) and are making gains on the debt. Knowing that I have an emergency fund helps me I think. Without it, I would be even more scared to send the last $100 in the checking account off to the CC companies.

  24. Bill says:

    Maybe he means you should spend the money if your home is in disrepair, your car is broken down or your kids have one meal a day.

  25. I personally have found that after I have created an emergency fund and paid off debt, that I have less ‘hunger for success’ than I did when I was one paycheck away from being on the streets. Before, I had been working very hard, but now that I have something to fall back on, I don’t have that passion. I just don’t care that much. I’m the type of guy who is motivated by worry, so I can understand the author’s point.

  26. Frugal Dad says:

    We save for both rainy and sunny days – with the sunny days meaning the good times, when we want to vacation or buy something the whole family will enjoy. I don’t live in fear of a catastrophe, but I think having an adequate emergency fund in place certainly helps when riding out a financial storm.

  27. Stephanie says:

    I think sometimes I get this panic/fear that I’m going to somehow run out of money. I think a few times when money was tough in my family, my mom would joke (but with a sense of panic) that “we’re all going to starve!”. So that’s probably where that fear comes from. When I got laid off, I was immediately thinking about how I was going to get by. Luckily, I had the emergency fund sitting there to make me a little less afraid of running out of money.

  28. Kristiine says:

    If I recall correctly- this excerpt was in the context of comparing saving an emergency fund at a lower interest rate than your debt was costing to service. While I do not proscribe to the self-fulfilling prophecy aspect of the advice- I do agree with the practical aspect.

    I divorced, leaving with shirt on my back, enormous legal fees in a custody battle, and a surprise 52,000 IRs debt. I used this book (on audio cassete as I folded laundry), to climb out of that hole and become solvent. I strongly recommend the book to anyone starting debt reduction. It is insightful and useful.

  29. Meri says:

    I’m with Trent, I’m sleeping much better knowing that I have that cushion in place. My chosen career in the public service is very stable, very reliable, and I’m good at my job so I know I won’t be losing my job any time soon. With that in mind my emergency fund is equivalent to only three months of expenses. It’s just the peace of mind that I need, along with being free of debt.

    Now I’m onto the next of Dave Ramsey’s steps, increasing my contribution to my retirement account and getting my home paid off. I will admit, I’ve loosened up a bit on the rigidity of every spare dime going into the plan. I lived extremely frugally during the getting out of debt phase and building the emergency fund phase, but they were incredibly important to me.

    I’ll never be without an emergency fund again.

  30. “If you think it is going to happen, it eventually will.” That is what my wife would say. Hoarding for a rainy day sounds prudent and smart, but I actually think Mundis has this correct.

    It is when we are presented with an apparent impossible task that we tend to rise to our best. We always find a way. Instead of using the emergency fund money when that proverbial “transmission blows” or the often favorite “refrigerator dies”, look for terms from the supplier. Look for alternatives to your temporary money dilemma and they just might present themselves as a MUCH better alternative that the hoarding, emergency fund!!!

  31. Jessica says:

    Actually, I think there’s plenty of people in debt who could have a hoarding mentality. They buy and buy more stuff but never let it go. Larry Winget’s show is a good example of this. Not to mention the people who think it’s “frugal” to buy things on sale even if they don’t need it and can’t actually afford it (put it on credit). I think there’s probably a healthy population of people who buy and hoard things they can’t afford.

  32. marie says:

    I LOVE this book! i’ve read well over 150 pf books and this is one of my top 3. i didn’t realize i was hoarding till i read this book. I was putting “all” of my money in savings thinking something bad was going to happen. and something bad always did happen!

    I don’t think of it as “the law of attraction” so much as a self- fulfilling prophecy. i was so worried about not having enough that i was constantly stressed and forgot to change the oil and the engine blew.

    Then, as soon as i said, screw it, and started paying down the debt instead of building back up the emergency fund to 3 month’s salary (I had about $500), i started to relax and was able to prevent the preventable bad things from happening. After than, i allowed myself spending money and a slightly better lifestyle while saving for a better emergency fund. I now think as dave ramsey does: that the emergency fund protects me from murphy’s law. my thinking is no longer clouded so i’m able to prevent the preventable mistakes. :)

  33. Sara says:

    I’m with you. It’s easier to get over a poverty mentality than actual poverty.

    Not having an emergency fund would make me panicked all the time. While I understand Mundis’s point, I think having an emergency fund actually cuts down on any “stuff” hoarding tendencies that lurk around.

  34. Sam says:

    I can only agree. However, one thing to remember is to keep this emergency fund in a place that will fairly liquid so that you can get to the money quickly in the event of an emergency. You also don’t want to have this money tied into stocks or mutual funds because the volatility of the market could cause you to lose money over the short-term.

  35. Worrier says:

    I think the book rings somewhat true, as far as the mentality of hoarding leads you to not be able to enjoy the money you’ve saved up. Probably this doesn’t get mentioned a lot because the nervous worriers like me don’t have money/debt problems, so there’s no news to report.

    I’ve had an emergency fund since I was 16 because I’m always afraid some unexpected disaster will happen and I won’t be able to take care of myself. I majored in engineering in college, even though I didn’t necessarily like it that much, because it was too much risk to major in something I liked (what if something happened to me? How would I take care of myself?)

    Even though I had no debt and was saving about $1,000 a month out of college, I compulsively browsed personal finance sites to make sure I knew everything and could plan for every possible contingency. I quicken’d compulsively and tracked every penny of my spending. I would look at the people around me and wonder how people earning less than half of what I did could afford things I couldn’t – and realized we had a different idea about what “afford” meant.

    Now, having good money habits (even if somewhat apocalyptic and possibly a bit neurotic) has always helped. There is no emergency that cash can’t smooth. But what’s that quote? I’ve worried about a lot of things in my life, and some of them have even happened.

    I have that “life is hard, something bad is around the corner” mentality that can make it hard for me to live in the present and enjoy the things that I’m working for the money to have. I work on this in therapy, though, and not typically on the personal finance websites I still spend too much time on. :-)

  36. almost there says:

    My spouse and I are wrestling over this. I have a year of income in savings and want to use about 36K to pay off life insurance debt instead of paying over the next 20 years saving about 20K more in payments and dropping $247 in payments per month. She is against it. I say that the money won’t be worth it in the future due to inflation and to get the debt paid off now. Thoughts?

  37. TParkerson says:

    Interesting post,Trent, and one that I find especially timely. Recently, my younger brother and I have been having a very heated discussion about our aging parents. He was beyond angry that they cashed out one small 401K to put a new manufactured home on their property. While some of his points are valid (Mom has been retired for years and Dad is about 1 year away, down market, downtrend in the neighborhood, etc.), he was most adamant that they should have “saved” the money for some unforeseen rainy day.

    Here’s my problem with that…we live in Hurricane Alley and my parents were living in a 32 year old mobile home with roof issues, floor problems and constant worries for their safety. What little insurance they could get only barely covered the contents of their “box” but would in no way go towards replacing a home. My perception was that it was absolutely stupid to “hoard” money for a rainy day and sacrifice your peace of mind on this sunny day.

    Which leads me to this: it is all about what makes YOU comfortable. There are some tried and true formulas we can all use but it doesn’t mean we will all be okay with using them. I sense that most of your readers and posters are very comfortable with an EF, thank you very much, because we have all struggled with our debts/ financial disasters and understand that the highest cost we can pay is lack of freedom. I agree with you that an EF will make most of us sleep better and feel more freedom in the long run.

    It’s all about BALANCE! Have a great, profitable day!

  38. Stephanie says:

    I think this advice dates the book back to 1988. My grandparents (part of WWII generation) had this problem, big time. They have done very well, but always lived like they were one step away from the poor house. Grandpa has passed on, and grandma is sitting on a very, very large sum of money. There’s nothing wrong with that, except that she’s still afraid she’ll need it for an emergency. The only emergency she is unprepared for is the estate tax!

  39. getagrip says:

    One aspect of the quote caught my eye.

    “People who put all of their money away toward catastrophe live in an increasing fear of catastrophe”

    I’ll emphasize the word “all”. If you are “hoarding” all your money into a fund to take care of catastrophes, you won’t risk it by investing it for your future, you will avoid spending it even for emergencies (because you are waiting for the “catastrophe”), and you will feel fine making minimum payments on credit card or other debt at a high interest rate because you are collecting a big pile of cash to keep close at hand and give you comfort versus the realatively small payment amounts. In other words, you will not truly better your overall position because your focus is solely on building a “catastrophe” fund, not on improving your net worth and eliminting debt.
    This warning to me is one of being penny wise but pound foolish.

  40. getagrip says:

    @ almost there You are claiming you have life insurance “debt”?

    Is this some type of whole or universal or other life insurance “product” that is supposed to pay you if you die and be worth some lower amount (compared to the payoff) if you live?

    I don’t know your situation, but frankly, I’d be concerned you’re throwing 36K at a potentially crappy investment. Check out how much a 20 year term policy for the same amount would be for fixed payments, how much you could make investing the rest putting it in an stock index fund at 7-10% and see how that stacks up to this insurance “debt” and it’s payoff. Chances are you will be better off dumping this policy and going term and investing.

    They’ll (insurance agents) tell you you are throwing your money away on term. However, most insurance products essentially take your payment, pay a term policy for you, and invest the difference anyway. Oh, and they charge you a nice fee for this. You don’t need to pay them to do that on your own if you have a reasonable amount of discipline. Additionally, if you die, they pay the set amount of the policy, and *keep your investment*. If you have a policy for $200K, die in 20 years, and have paid them 40K over that time, your beneficiary gets $200K. They don’t get $240K. They don’t get $240K plus what your investment earned in interest. On the other hand, if you live (which is what they are really betting on), you might get your 40K plus whatever interest it generated *above the costs of paying the term policy* back.

    It may be possible that both you and your wife are right. Putting the money towards a term policy and investing the difference will hopefully self insure you (the ultimate goal) and it won’t be tied up in an emergency fund, but potentially accessable in a long term emergency.

    Finally, don’t take my word for this. Please check a number of the PF sites and their opinions.

  41. I think saving in any form is generally better spending, but the author was getting at something there. He got close and then perhaps failed to communicate it or didn’t realize it himself. It’s not about how much you save, and you certainly should have funds stashed away: it’s about about your relationship with money and how that affects your motivations for saving.

  42. Ocean Skater says:

    Interesting! My “emergency fund” is basically unnecessary now that I have a spending plan. Instead, it has become part of my regular savings.

  43. Danielle says:

    I read this Mundis book as well and largely agree with the content of the blog post. I do think that Mundis’ issue with the “Emergency Fund” does go back to the concept of hoarding. If you read the book he’s certainly NOT advocating having no savings (to the contrary he’s a big advocate of building assets) but he does want people to break the mentality of always being in “doomsday” mode. His premise is that if you’re always planning for doomsday, it can become self-fulfilling prophecy because somewhere in the back of your mind you’re planning to fail along the way. His book is much more about conscious, positive planning.

    I found 95% of the content in the book pretty darn interesting and reasonable and would recommend the book. As a personal finance educator, myself, I even modified some of his ideas and applied to my own finances.

  44. Jessica says:

    To a certain extent this does feel like me. I feel very good having a pocket of emergency money, but I do feel that I will never have enough. It’s not that I feel that the impending doom grows in correlation to how much money I have saved, but growing up in financially challenged household has left me with the impression that there will always be money problems.

    We live well below our income right now, have our emergency fund, and other fairly liquid investments. We have been saving for a house down payment and now that we are closing in on having accrued the minimum amount we decided we would need before we started the real mortgage approval/house hunting process I worry that we need to save just a little bit more. Just a bit more for house stuff, just a bit more for the emergency fund, just a bit for into the mutual fund, etc. It’s not that I have trouble spending money, but I do fear that I will never have a big enough cushion for all the things that could come my way.

    Interestingly I do also have some physical hoarding issues. I hold on to things far past their usefulness, especially if I can attach a memory to them. I lost a great deal of my possessions in a house flood when I was 15, and I know this has something to do with it. I’m working on trying to adjust how I think about things though, and am hoping to be making a big Goodwill donation soon. :)

  45. luvleftovers says:

    There’s a differenct between saving and hoarding. I hope the author meant that hoarding is a bad thing.

    Speaking from experience – several times over – not having an emergency fund is outright stupid! I was unemployed and uninsured for over a year. I had nothing in the bank to speak of. Halfway through, I needed $1200 worth of emergency dental work. The Dr. wouldn’t touch me until I gave him every dime. My parents lent me the money.

    That was only one instance in that 13 months. I’m probably still paying off the debts that I had to put on a credit card to survive that period of time.

    Now I have about 4 months of living expenses and am paying down debt. I may put a little more away, but I think this will be enough to prevent a similar disaster. I don’t ever want to go through that again!

  46. I think Mr. Mundis is treading dangerous ground here. I can see possible negative effects from hoarding an emergency fund, but a reasonable emergency fund is absolutely necessary, and I would argue that a too-large emergency fund is much better than none at all.

    I had a bad day on Sunday and ended up dipping into my fund to the tune of $180. I’m not complaining about the $180 because it could have been much, much worse.

    First, we had a flat tire while traveling, which ended up only costing us time, but if we’d had to have the car towed and then replace two tires because the flat couldn’t be repaired (and you’re supposed to replace tires in pairs), that could have cost $500 or more.

    Second, we came home to a dead air conditioner. That ended up costing $180 to fix. If it had been beyond repair, it would have cost more like $2,000 to replace.

    Knowing that I could write a couple of checks to cover the worst case scenario if necessary made that day a whole lot less stressful.

  47. Anything can be taken to extremes. I think it’s important to have a savings cushion–I need to be able to pay rent, buy food, and survive if I got laid off. However, keeping more than a few months’ worth of savings in low-return investment options “just in case” is just as foolish as keeping nothing in savings. If I were really unable to bring in income for longer than a few months, I’d need to investigate other living options–moving in with family or friends, getting disability payments or something like that. I might as well invest any money saved past those few months and start building a nest egg for the future and/or upping my standard of living now.

    You could also look at the argument from a disaster-preparedness standpoint. The person who doesn’t even have a fire extinguisher in their apartment is just as foolish as the one who builds a bunker in their backyard and stocks it with a decade worth of MRE. Both are refusing to live in reality.

  48. Sam says:

    Having an emergency fund no more invites emergency than wearing a helmet invites a motorcycle crash.

    I too think Trent is closer to the mark than Mr. Mundis. To save excessively while fretting about myriad looming disasters simply isn’t a healthy psychological state. The hoarded money is a symptom, but not the problem.

    Common sense and my own experience tell me that a moderate buffer against the unforeseen is immensely beneficial to someone’s overall wellbeing. Rather than “build a poverty mentality” it allows you to feel some control over your destiny and not feel so blown about by the inevitable ebbing and flowing of luck and circumstance.

  49. HebsFarm says:

    We did a really creative thing with our emergency fund: we loaned it to our church. They used it to reduce interest payments on a construction loan by paying down principal, and we get to request that money back at any time. If I had kept that money in my own account, it would have been spent long ago because I would have PERCEIVED some problem as an “emergency.” Yet, I have the peace of mind from knowing that any time our family would have a TRUE emergency, we could access that money. It’s pretty unconvential, but it works for us.

  50. almost there says:

    @getagrip, I would normally wholeheartedly agree with you. I had the universal life insurance that you described and dropped it after a few years due to the very reasons you stated. (the agent got $50 per policy (3) per year commission until policies paid out. Also huge surrender fees Like AL Williams used to recommend I went with term and invested the diff. However, I have a 330K policy on me, worth $335k DB now, cash value (payout) over $54K and Tax basis (what I paid $32.5k). I took it out instead of paying 6.5% of retirement pay towards survivor benefit that would have paid 35% of what I was receiving at death. I figure that if I pay it off, the tax basis (what it cost me) would be $60.7K. In 20 years it would be worth well over $400K and if I survived my wife I could cash it out. If I expire she can draw 5.4% interest off it for 30 years before taking the value of policy.
    I took out a $250K policy on my son that is worth $250.8K now, cash value (surrender) $10K and tax basis $8.4k. If I paid $8.6K to pay it off It would cost me (tax basis) $17K total. Being that he is 20 now it should grow to quite a bit by his old age. Over 7.4% crediting rate on invested premiums now. I would save over the next 20 years by paying off early another $20,000. This is not a scam. Ins Co: Navy Mutual Aid Association. Compared to regular Universal Life policies this is almost too good to be true. My Bank USAA wanted to interest me in their term and Univ policies but being a for profit compay they couldn’t even come close to what I get for my premiums. Army and Air force Mutual Aid has similar policies as NMAA that covers the 5 sea services. (No-they are not government subsidized). Hope the above clarified things. Thanks.

  51. MakingChanges says:

    I think the man is reaching on the definition of hoarding. Hoarding is simply stashing away out of fear or compulsion. An emergency fund is a tool to regulate ones finances and allow for plannign and execution of strategies. One is nothing like the other.

  52. If “What Mundis is actually talking about is the hoarding mentality.” then perhaps he should have called it ” the hoarding mentality” instead of saying saving for emergencies is a bad idea. ;-)

  53. Sharon says:

    Before you blithely tell people to cancel life insurance policies, you need to know if that person CAN get another. Many of us become uninsurable, and anyone who does not think it through and decides to quit “throwing good money after bad” and cancels can end up with NO life insurance.

    Someone who has had a universal life policy for decades may be in for a rude surprise when they go to cancel and get term.

  54. Carmen says:


    When calculating how much of one’s ‘earnings’ one spends, I’m sure most people assume this is in relation to income, and not changes in asset values (i.e. net worth). Although I can see a grey area potentially.

    So I had assumed you meant that you spent less than your family earnt on a ‘monthly’ basis, not that you would incorporate how much your house value had risen or goodwill from TSD for instance in this calculation. The reason, as you found out, (“figuring my net worth wrong”) is because most of this data is firstly subjective in nature, plus it could also be more volatile.

    Additionally a net worth figure could seriously lull one into a false sense of achievement. But perhaps not in the current economic climate and predominantly falling asset values!

  55. Kurt says:

    Then everyone driving a car with a spare tire must also have a catastrophe mentality. Or perhaps it is because we are just prudent and wish to have the flexibility and options to deal with events (money can be used to buy options, time, flexibility, etc.) in a way that will ultimately cause us less stress.

  56. Laura says:

    I agree that Mr. Mundis was probably referring to hoarding for hoarding’s sake. Hording is partly a psychological thing, and is loosely linked with addictive behavior – hence his subtitle of the book referring to Debtors Anonymous. I’m with you regarding most people save for the same reasons you do. Most people won’t have wierd saving issues because most people most people don’t have the psychological issues that might be in the background of his book.

  57. Lenore says:

    I’d rather be addicted to saving than spending. If having an emergency fund makes you a catastrophist, does installing a smoke detector turn you into a pyromaniac? I wish books like this and “The Secret” would get chucked into the bargain bin. It’s tempting to believe that our thoughts alone can affect anything outside of ourselves, but in truth it is only through action (including communication) that we impact other living things and the rest of the universe.

  58. Cate says:

    I think it’s dangerous to judge an entire book based on one paragraph. What I’m reading in the comments are people judging the paragraph without knowing what comes in the prior 216 pages.

    This book isn’t geared towards everyone. This book is primarily geared towards the individual who has taken debting to an extreme, much like an alcoholic (and, it’s based on the principles of a 12-step group – hence the spiritual concepts). People living on those extremes (and I can say this, because I have been there, and charged the t-shirt) often need more than “just suck it up and stop using your credit card”. That is what this book offers.

  59. Bob says:

    I love my emergency fund. I lost my job (it was seasonal and I expected it) but was unable to find another one. I built my emergency fund to supply exactly one more month than the “off-season.” I keep looking for work comfortable that I can survive until the season restarts.

  60. Jason says:

    During the dotcom bubble bursting, my wife and I were laid off within a week of each other. At that time we rented, had no children and scarcely had an emergency fund. Luckily she found a job in two weeks, so we had health benefits, and I did get unemployment and some severance (as did she). But it also took me 7 months to find a new job.

    Now, with two children and a mortgage, the stakes are much higher. Add to that an economy that’s in various stages of failing, rising fuel costs, grocery costs and so on, anyone living without an emergency fund is quite honestly waiting for financial disaster.

  61. There is a lot of validity to that whole concept…it was an eye opener to me; I never looked at it from that perspective, but that does make sense. On the other hand, saving money may not always mean that you’re anticipating bad things happening…you can save money in anticipation of a good opportunity coming your way (i.e., good real estate deal, investment, etc.). Excellent post.

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