I talk a lot about the importance of having an emergency fund and how it is a necessary ingredient to a sound financial plan. But, I thought we should step back and ask the necessary question, “Would Jesus have an emergency fund?”
In trying to answer this question, the first verse that came to mind was Proverbs 27:12 (NLT) ”A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.“
The whole purpose of having an emergency fund is to be prepared for when the inevitable “trials of life” hit. Christians are not exempt these trials and struggles that seem to pop up unexpectedly.
This reminds me of the parable of the foolish virgins in Matthew 25:1-13. From what I can tell, the foolish virgins brought enough oil for their lamps had the bridegroom showed up on time. Well the bridegroom was probably playing football with some friends and showed up a little late. (And he didn’t even call to say he was going to be late!!)
What separated the foolish from the wise was their preparation for the unexpected. The virgins forever known as foolish, didn’t plan for the unexpected by bringing extra oil. Those who were labeled wise brought extra oil in preparation for the unexpected.
Jesus knew the balance of what part He played and what He should rely on God to do. We have a part to play, but it is foolish of us to think higher of ourselves than we ought and think that we have a more important role than we actually do. Ultimately God is the one who supplies all of our needs (Philippians 4:19).
But Jesus also said “Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where neither moth nor rust destroys, and where thieves do not break in or steal; for where your treasure is, there your heart will be also.” Matthew 6.
I get convicted by this verse when I have a temptation to think that if I can save enough money, I can insulate myself from any and all problems; thus not needing God. I have to fight against the tendency to trust in myself and depend on my abilities rather than God. The truth is that we can never make enough smart financial decisions or do enough things right that we will not need Him. He designed it that way. We are imperfect beings who are dependent on God.
So, as far as Jesus’ emergency fund goes, if He were walking the earth today, I think He would have one, but He would still trust God for His daily bread (Matthew 6:11).
There are a bunch more verses that would point to suggest yes or no to the question, so I would love to hear what your take on Jesus’ emergency fund is in the comments below…
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Do you need an emergency fund?
I previously wrote about how to make more money from your emergency fund, but I decided to take a step back and explain the purpose for an emergency fund. I used to think of an emergency fund as robbing myself. It was essentially the same as paying taxes in my mind. All I knew was that money was coming out of my pocket going somewhere else. Obviously, 
this was completely untrue, but it was how I felt at the time. Thankfully, I learned how beneficial an emergency fund is to my long-term financial well being.
If you had a $500 unexpected expense come up right now, how would you pay for it?
If you could come up with the money and NOT have to use a credit card, you are doing much better than most Americans. Life happens, and unexpected expenses are to be EXPECTED. If you prepare for them you will be able to better avoid a financial crisis, if not, that is what they call "learning the hard way." Lets say (for sake of discussion) that emergencies happen, on average, once every year (everyone’s definition "emergency" is different, so the frequency may be more or less for you) and cost an average of $500. The truth is that just about everyone does have an emergency fund. The only difference is that they are either earning interest or paying interest.
Paying Interest
Let’s look at the typical American response to an emergency (costing our assumed average of $500). Emergency #1 happens and they don’t have an emergency fund, so they borrow the $500 from a credit card (17.5%). This solves the short term problem of paying for the emergency, but now they have to start making payments to the credit card company. Things are tough enough, they didn’t have the money to pay for Emergency #1 to begin with, now they have to try to find $20 each month to pay the minimum payment and to add insult to your injury the credit card company is going to charge them a huge percentage rate on the amount borrowed. When emergency #2 happens they will likely be:
- Still trying to pay for Emergency #1 (they will still owe $350)
- They will still be paying the interest to the credit card for Emergency #1
- It is probable that they were not able to save up for emergency #2, since they were still spending extra money to pay for emergency #1, therefore they will have to borrow again to pay for Emergency #2
- Now they are paying back both Emergency #1 and #2 ($850 total), paying interest on both amounts borrowed, and in even a more difficult place to start saving for emergency #3 since their minimum payment increased to $35.
This is only the beginning of the vicious cycle: it only gets worse from here. You can imagine what their financial lives will look like in 5 or 10 years.
The prudent see danger and take refuge, but the simple keep going and suffer for it. -Proverbs 27:12 (NIV)
Earning Interest
Let’s assume you are one of the few (but extremely wise) Americans who decided to start an emergency fund (because some equally wise 
blogger told you it was a good idea). If you were able to find that $50 a month now (before emergency #1 happens) and start saving it to prepare for it, you would likely (and hopefully) be here when emergency #1 happened:
- Have more than enough money saved for emergency #1 ($600 saved)
- Will have earned interest ($15) on your savings which will have just increased the size of your savings even more ($615)
- You will have a head-start saving for emergency #2, because you saved more than enough for emergency #1 ($615-$500=$115)
- You will be earning interest on what you still have saved after paying for emergency #1 ($115), and you will be saving and earning interest on the amount you are saving for emergency #2.
When emergency #2 rolls around you will have $735 saved up to pay for the $500 emergency. Just repeat the process again and again and you can imagine what this will look like after 5 or 10 years.
How much should I put in my emergency fund?
I think $50 a month is a good ballpark to get started for many people. Obviously if you are making six figures, you may want to increase the amount or if you are making four figures, that may be too much. If you are having trouble finding the extra money, you may need to quit spending everything you make or learn what to do with a raise.
Where do I start an emergency fund?
I recommend ING Direct for a high yielding savings account. The most important part is getting started, no matter where it is. But, look for something that you can direct deposit into so you do NOT have to think about it.
Before I get a bunch of comments arguing about the frequency of emergencies or how much the average emergency costs, let me just say these assumptions are based on how things have worked out for me. I am sure some will have "emergencies" every 6 months and some every 4 years, but I am basing this off averages in my life. My intention is only to show the long-term benefit of building an emergency fund rather than using a credit card.
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Your [tag]emergency fund[/tag] should be for an EMERGENCY! Not, “I really, really want to go to this concert,” or, “I really need a diamond studded dog-collar for Tinkerbell.”
Everyone’s definition of an emergency is different. But, if you want it to be of some use to you, you need to have a strict definition of an emergency.
Your emergency fund is what you should turn to when “life happens.” It will be what you turn to rather than your credit cards.
Leverage your emergency fund
Also, your emergency fund should put more dollars into your pocket once it has been well established. Here is how:
- You start putting $100 a month into a high-yield savings account. This will not generate much income, but it will do a whole lot better than spending the money.
- After a five months, barring no emergencies, you will have $500 in your high-yield savings account earning a nice interest rate. Now you can call your car insurance company and ask them to raise your deductible from from $100 to $250. Since you have $500 set aside for an emergency, you will now be able to afford the $250 deductible.
- The good news is that when you raise your deductible, your insurance bill goes down. Now that you are saving $120 a year on your insurance bill, you can add that to your emergency savings. Instead of saving $100 a month, you can now save $110 a month ($120/12 months=$10) with no extra money out of your pocket.
- Now that you are adding $110 a month to your emergency fund each month, it will grow even faster. In a few more months, you will reach $1000 balance. You can call the insurance company again and ask them to raise your deductible to $500. Again, this will lower your insurance bill even more. Add the difference to your emergency savings and keep this cycle going.
- As you can see doing this over and over again will save you money, while expanding your safety net. Your bank account will be growing at a faster pace and you will have more peace of mind.
The figures used are hypothetical and I would suggest raising your deductible only to a level that you are comfortable with. But remember, you are paying a lot of money to the insurance company to have a low deductible.
Keep letting your emergency fund grow larger and larger and shoot for a dollar amount that would cover 3 months of your living expenses. Once you get to that point, then you should start looking at investing in mutual funds or stocks to get a better return on your money.
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