Tony Wolski

Emergency fund


The COVID-19 pandemic has highlighted how important it is to have an emergency fund. It has also demonstrated how advantageous it is, and how easy it can be, to live simply and to be content with the basics. So much can be taken away so quickly, as we have all experienced in recent times, and the more changes we have to adapt to, the more difficult it is to do so.

Personally I can’t understand people who spend all of their disposable income each month with so little thought to the future. Anything left over is there to be spent. Yet time and again they need to borrow money when ‘unexpected’ things crop up. The washing machine, boiler or car brakes down. A leaky roof. A failed attempt to gamble their way back into the black. It’s as if there’s a belief these are truly random, never-to-occur-again events. Just bad luck.

Yet they do, and they will. Failed cars, failed electrical goods, health emergencies, recessions, depressions, pandemics. They have all happened before, and they will all happen again. How unexpected are they, really?

I find there’s still a stigma attached to being frugal. I often feel as if I’m in the minority by living (relatively) frugally. The norm and the lifestyle endorsed by our society is one of spending. Saving for the future doesn’t help the economy grow, as we’re all told is the key indicator of success, spending does. Spending is the path to an enjoyable life.

However I’ve also found that people are enjoying lock down. They’re enjoying the simple life. A number of people have told me how nice it is to spend time with their families, go on long walks together, watch movies, cook, play games together. This is the simple life, it is enjoyable and it costs very little.

I’m getting a little off track…

Whether we know it or not, we’re all running our own little micro-business. Like governments and ‘regular’ businesses, we too have to raise revenue, manage spending, invest in improvements, and plan for the future. We have a population (our families) to feed, house, educate and keep happy. It’s important we manage our micro-business vigilantly and efficiently.

We also all have our own little micro-economy in which we operate, which is affected by so many external factors. A recession can hit our micro-economy at any time, regardless of whether there is a ‘real recession’ going on in the wider economy. We can lose our sources of revenue (our jobs), a natural disaster can strike (health issue), we can be hit with large unforeseen expenses. It’s important we insulate ourselves from these events.

A recession is a significant decline in activity across the economy, lasting longer than a few months.

We have to prepare our micro-businesses for times of recession within our micro-economies. This means having enough stashed away to get us through at least a few months when things go bad. And they will go bad. A recession can strike at any time.

Are you prepared for that? Will you sleep easy at night safe in the knowledge you have a little time on your side to sift through your options and work your way through it? Or will you be panicked, have no time or options and be forced to take whatever you can get in order to keep your micro-business (family) afloat. Will you need a bailout?

Of course, we can’t prepare for everything. We can’t prepare for the pandemic that will last for years. But we don’t have to. We just have to be able to weather the storm in the short term and buy enough time to work out what our next moves are. We need to be able to cut back, pivot, be flexible and adapt. We want to give ourselves options, enough breathing room to make the right decisions: to work out where to cut costs to make our budget stretch a little further, to find other sources of revenue (jobs), even if they’re not what we’re trained for or want to be doing. We don’t want to be in a position where we have zero options thrust upon us.

You could argue that no one saw this pandemic coming (though some people warned us, Bill Gates’ 2015 TED talk is fascinating in hindsight). But that’s beside the point. The truth is there is always something coming. Throughout history there have been pandemics, many much worse than this one. Man-made and natural disasters have occurred right throughout history, and will continue to do so forever and ever and ever.

An emergency fund is one way to prepare. Enough to cover six months or more of (reduced) expenses to help you sleep a little better, and to help you get your micro-business through your micro-economy’s recession.

Your thoughts? I'd love to hear them. Please get in contact.