I have always believed in the idea of having emergency funds. With $15,000 I could run my household for several months in the case of a job loss. With $30,000 I can pay for small disasters without having to liquidate any investments. Not enough emergency funds is not something you wanna catch yourself realizing when it’s time to pay for some unexpected expenses.
Unfortunately, I never thought I’d be in the situation that I’m in now. And isn’t that what everyone says when they are in a new situation? Damn, I wish I had a bigger stash in emergency funds.
Now that I am facing a legal battle regarding my medical license and not covered by medical malpractice, it’s on me to come up with my layer’s $300/hour.
“Well, I’ll try to delegate some of the work to office interns or junior attorneys who bills at $100/hour but you know, they have a little less experience.”
Not Enough Emergency Funds
I started out the year solid with a goal of $25,000 in my emergency funds account. Yet somehow I talked myself into lowering that down to $15,000. Kinda like when you tell yourself “nah, I don’t really need a condom with this person!”
Yes, you needed a condom and you needed that $25,000 as a healthcare professional. The purpose of emergency funds are to decrease your stress, get you safely through tough times, and prevent you from needing to raid your retirement accounts.
I mistakenly assumed that because my monthly overhead was low that I needed less access to cash. But just because I am spending less doesn’t mean that my lifestyle risk is decreased.
I am exposed to the following risks unique to me:
- my profession as a physician
- practicing urgent care medicine
- practicing telemedicine
- owning a condo
- being single and dating
- working as a per diem
- having a high net worth
Clearly I don’t understand risk. If I did then I would have paid more attention to covering my risk whenever possible.
During my working days with my previous employer I never called up my employer to get a written copy of my malpractice contract. I never discussed the worst case scenarios with a lawyer, a financial adviser, or an older uncle.
I don’t even have umbrella insurance.
When my condo insurance came up for renewal I paid that bill as soon as it hit my mailbox. The idea that “I’m self insured” is fine and dandy until you have to dig into your investments to pay for shit.
Sure, I may have enough cash to pay for my condo in case something goes wrong. But would I want to? Hell no. And what if I damage not just my own unit but someone else’s or the whole building?
The risk of not having emergency funds is that you would have to access your investments prematurely. Liquidity lowers your chance at higher profits. Therefore, if you keep raiding your investments it’ll be less likely for you to profit from compounding rates of return.
The Reality Is Different From The Math
I never thought I’d get laid off by my employer. I’ve always been a hard worker, a solid employee, and I assumed that my many years of commitment to my employer would afford me some immunity.
Even if I had $200,000 sitting in cash to cover my legal costs in case of a lawsuit or a medical board investigation, would I want to spend that money? Or would I rather have paid $500/month during my working years to cover that risk?
Now that this situation is happening to me I gotta tell ya, I’m in the latter camp. I would have much rather paid for risk mitigation on an ongoing basis than face liquidating my investments to cover the expense.
I thought only shitty doctors get investigated by the medical board. I’m definitely not a shitty doctor but I’m not perfect either. Assuming that I was immune from medical board investigations was excessively optimistic.
And if it wasn’t a medical board investigation it could have been some random unexpected lawsuit.
I should have protected myself against such risks. At the very least I should have had adequate sums in my emergency funds.
How Much Emergency Funds Is Enough?
It’s silly that I’m finding myself asking this same question again. It’s like reliving 2012 all over. That was the year I first decided that I would take charge of my finances and the first time I saved for an emergency fund.
It’s important to constantly revisit our savings goals, our emergency fund goals, our asset allocation, and assess any change in our risk exposure.
In my case because I was no longer working full-time and was still having the same risk (if not higher), I should have had more in my emergency funds and not less.
I think $30,000-$50,000 would have been a good number for someone who was working just enough to cover his overhead.
A Formula For Emergency Funds?
There is no general formula but based on your unique circumstance you can make some guesses as to how much you will need to stash in your emergency funds. The following should be considered when determining how much you should hold in emergency funds:
- number of dependents
- a working partner
- number of sources of income
- number of jobs that you hold
- funds available in CD’s and bonds
- security of your job
- your job’s risk exposure
Consider Financial Emergencies
I have a post somewhere on this bloated blog about playing out the worst-case scenarios to prepare for them. So let’s consider all the potential shit that could happen which could affect our finances:
It doesn’t have to be a medical malpractice suit. It could be a sexual harassment suit or you running over some dude in a wheelchair.
Unfortunately, if you do get sued for a medical malpractice case and you lose your job while the investigation is going on then you are left without an income. I actually never considered this. Did you?
2. Job Loss
You could get fired for watching porn at work. You might be fired for recklessly ordering EKG’s on strangers off the street. And you might lose your job because you’re just plain ugly.
Hopefully you can recover quickly and replace your job but sometimes it’s not as easy when the circumstances pile up.
3. Death Of A Loved One
I read somewhere that a common time for people to experience financial disasters is during the death of a loved one. It’s not that the funeral costs tap them out but that it creates a lot of stress.
You might be too upset to return to work. You might become reckless with spending or be too emotionally exhausted to save.
4. Major Health Event
Hopefully you have disability insurance but I have readers on this blog who don’t have disability insurance who earn some fat dough.
But what if your disability refuses to pay or the fine print excludes coverage for whatever reason? It’s worth considering.
5. Substance Addiction
Funny how an obese person with hypertension is considered to have a disease but a person addicted to a substance is just reckless. Let’s face it, substance addiction is a disease and it’s hard to say who will be immune from it.
That glue you’re sniffing every morning before work, yea, that might be a problem in the future.
6. Going To Jail
Well, anything is possible so why not jail? It could be something unexpected like an unfortunate MVA but it could be a DUI. It could be a domestic issue or being in the wrong place at the wrong time.
Is burnout a disease? Is it a disability? I don’t know what category it would fit under but it can be incredibly disruptive. And it can really creep up on you. One day you’re having a blast laughing it up with colleagues and the next day the walls are closing in on you in the OR.
Laura from Charlie recommends to automate your savings in order to accumulate your appropriate emergency fund. Open a savings account and create an automatic transfer to that account once a week until you reach your goal.
Automating finances are a great way to get rid of financial stress. Set it and forget it. Once enough money accumulates you’re done and you’ll have this massive piece of mind – it’s hard to describe. It’s a great feeling.
High-yield online savings account are the perfect place to keep your emergency fund. Everytime you need money then you transfer that amount to your checking and spend accordingly.