Hat tip to Consumerism Commentary for pointing this out, as I hadn’t seen it before. I’m sure it is relatively common knowledge, but I just hadn’t come across it. Anyhow, check this out:
So what’s that (other than a really old letter)? It’s a letter from Warren Buffett’s grandfather to his uncle’s family, which was written in 1939, advising them of the importance of an emergency fund. Very cool. To put it in context, although I wasn’t around back then, from what I understand, in 1939 the US was in just about getting out of the Great Depression. If you know anything about the times, people were pretty conservative. They just got slammed for a decade and money was a premium. So my guess is there are a few letters like this lying around. There also are probably a few letters like these being drafted today!
If not, there should be. Who knows, it could influence the next Warren Buffett! We’ve talked about it many times before here. The emergency fund, along with the budget, are two of the most important tools to build and grow wealth. That’s right, two of the least sophisticated financial tools are probably the most important. The budget makes you focus on how much money is coming in and out and the emergency fund gives you a little cushion so you don’t get knocked off track if something unexpected comes up. Warren Buffett believed in it enough to put it in a letter to shareholders. He’s a pretty smart guy. I don’t agree with everything he’s done or that he says. But with this one (and many others) he’s spot on.
Do you have your emergency fund yet? I love the idea of the starter emergency fund, too, a la Dave Ramsey’s $1,000 baby emergency fund. If you’re paying off debt, having a small (yes, only a small) emergency fund to cover most emergencies is a good idea. Even $1,000 is decent, but I don’t think there’s a one-size-fits-all baby emergency fund amount. But something small for a tire blowout or an oven repair or something.
There’s no excuse not to have an emergency fund (well, I guess, unless you’re in the emergency and the fund has been dwindled). It’s not a new concept. And it’s not complicated. Oh yeah, and check out what Mr. Buffett says to do with the emergency money. That’s right, he didn’t say “buy gold” or “invest” it. Just let it sit in an online savings account or something like that. I have most of mine in Ally Bank 5-year CDs that return close to 3% (now they’re 2%) and have only a 90-day interest penalty if I need to withdraw it. So there’s no risk of loss of principal and I’m earning a decent return with a very small penalty. The rest of it is just in an online savings account.
Until next time, put your credit card down and slowly step away from the mall!
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