Stewardship and the Emergency Fund

The Emergency Fund. Is it a crucial component of financial freedom or an evidence of lack of trust in God? How do we create it? How and when do we use it? Does it provide any important benefits?

Shouldn’t we just trust God?

Some Christians believe that having an emergency fund is a sign of lack of faith in God. They might point to the widow at the temple, who gave all she had and held nothing back (Mark 12:41-44) or the widow at Zarephath who faithfully used her last flour to bake bread for Elijah (1 Kings 17:7-16). Certainly these two instances highlight the importance of faith. And if this were all that the Bible had to say on the topic, we might reasonably conclude that saving isn’t Biblical.

Biblical anecdotes provide instructive examples, but they aren’t the same as Biblical commands or principles. We instinctively know this – we don’t follow the example of the widow at the temple by giving all that we have each week when we go to church. That’s not the point of the story. Rather, Jesus uses the example of the widow to teach the disciples that generosity isn’t just about numbers and amounts.

And if we’re honest, most of us don’t under-save so that we can give more. Instead, we save less so that we can spend more.

The Wisdom of Saving

The wise store up choice food and olive oil,

but fools gulp theirs down.

Proverbs 21:20

Scripture repeatedly encourages believers to save wisely (see also Proverbs 6:6-8; 30:25). Joseph illustrates the wisdom of saving in his advice to Pharaoh about preparing for the coming famine (Genesis 41). Of course, most of us don’t have such specific knowledge of coming crises. But we can be certain that such crises will occur – we just don’t know what or when (or how much they’ll cost!).

Saving isn’t easy. We can all think of other ways we’d like to use money – spending on current needs or wants. And, we can convince ourselves that it isn’t necessary – after all, if an unplanned expense arises, we can just put it on a credit card. But this kind of thinking creates bondage and robs us of the peace that can come from being prepared.

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Building the Emergency Fund

The first place to start with saving is the Emergency Fund. This is a fund that we set aside in order to cover unplanned expenses, such as a car repair or an unexpected medical bill. We don’t know when these issues will occur, but we can be sure that sooner or later, they will occur. Having emergency savings helps us prepare for these unpleasant surprises.

To begin, let’s define what we mean by an Emergency Fund.

• What it’s not: An Emergency Fund is not available balance on a credit card! Available balance is simply another way of looking at potential debt. Using that balance plunges us further into debt, which is exactly what the Emergency Fund is trying to prevent.
• What it is: An Emergency Fund is an amount of money set aside for the purpose of providing resources to respond to an emergency without going into debt. By “set aside”, we mean that it’s not part of our normal checking account or debit account used for paying expenses and bills. It’s in a separate, easily accessible account that we can draw from on demand (not a typical investment account). The point of the Emergency Fund is not to generate earnings but to be quickly available.

How much?

A good recommendation for an Emergency Fund is at least 2% of annual gross income. In most cases, this is an amount that can be saved relatively quickly, while also being enough to cover most unexpected expenses.

In some cases, it’s prudent to set aside additional emergency savings due to greater likelihood of needing them. For example, a large family is likely to have more children’s accidents or illnesses. Known health conditions may necessitate additional savings. Older cars and appliances are more likely to need repairs than newer ones (but don’t use that as an excuse to run out and buy a new one!).

Of course, there are longer-term situations that require more savings than the Emergency Fund. A job loss, for example, often results in a loss of income that can’t be covered just by emergency savings. And while emergency savings may be sufficient for a car repair, they won’t likely cover a car replacement.

As a result, emergency savings is not the only type of savings we should have. We’ll need additional funds to cover the larger, less frequent occurrences. The idea behind emergency savings is to be able to cover most normal (but unplanned) issues.

How quickly?

As we mentioned above, the emergency fund should be set aside quickly in order to prepare us to cover unplanned situations. This isn’t something that should be simply added into the monthly budget and accumulated over time (that’s for other types of saving). Ideally, the emergency savings fund should be fully funded within a month or two at most.

One exception: for anyone with negative cash flow, the obvious top priority is to stop the bleeding. Getting to positive or neutral cash flow is a must, as negative cash flow is unsustainable and plunges us deeper into financial crisis. But once we’ve stabilized cash flow, setting aside emergency savings is the next top priority.

How achieved?

In some cases, setting aside emergency savings may require short-term adjustments that aren’t sustainable over the long term. Funding emergency savings should be thought of as a sprint rather than a marathon. Some examples of adjustments that could be made include:

• Selling some assets
• Temporarily pausing retirement contributions or accelerated debt repayment
• Temporarily halting some subscriptions like cable or streaming services
• Postponing some planned and needed purchases
• Taking on additional work

Remember, these don’t have to be permanent or even long-term solutions; the idea is to get to the finish line of 2% of annual gross income quickly. Beyond that, additional saving can be balanced with other financial priorities as part of the Spending Plan.

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Using the Emergency Fund

When an emergency arises, we shouldn’t be reluctant to use our emergency savings – after all, that’s why we saved that money! But there are a couple of important considerations to weigh as we make that decision.

1. Define “Emergency”

First, not everything qualifies as an emergency! For example, a big sale on something we’ve been wanting to purchase should not lead us to dip into the emergency fund. Lack of planning and saving for seasonal expenses like vacations or Christmas shopping is not a reason to use emergency savings.

When considering a purchase like this, the place to look for the money is not the emergency fund. Instead, it’s other categories in our spending plan. Do we really think that sale is important enough to take advantage of, despite not having the funds for it? Then it’s important enough to postpone other purchases, such as clothing, or to dial back on discretionary expenses like eating out. We need to identify appropriate trade-offs for these unplanned expenditures rather than rushing to the emergency fund.

2. Consider Alternatives

Sometimes, we can cover an unplanned event in other ways for a period of time. For example:

• If the washer or dryer breaks down, is there an option to use a local laundromat for a period of time to allow saving for a repair or replacement?
• If the dishwasher breaks down, can dishes be washed by hand for some time in order to save for a new one?
• If the car breaks down, is there an option for public transportation for a period of time?

These options won’t always be available and, of course, there are emergencies that don’t allow for the same types of alternatives (we might be able to postpone fixing or replacing a dishwasher, but postponing a refrigerator would be more difficult). But it’s important to take a minute to consider other possibilities before diving into the emergency fund.

3. Use with gratitude

There will be times when we just need to use the emergency fund. And that’s OK – that’s what we set it aside for! These situations shouldn’t discourage us. Instead, they point out the wisdom of having the fund set aside in the first place. Think of it this way: It’s life saying, “You were right!” We can be grateful for the Bible’s teaching on the wisdom of saving and for God’s provision of the resources for the emergency fund.

4. Replenish quickly

And, of course, we then need to replenish the fund! We should think of this in the same way that we thought of initially creating the fund – it’s a sprint. That means that once again we need to make whatever short-term adjustments are needed in order to re-establish the fund quickly. We’ve already proven that we need the emergency fund; now is the time to capitalize on that wisdom by building it back up.

The thought of replenishing the fund can also help us decide what situations to use it for. Perhaps going to the laundromat is inconvenient and we’d rather just buy a new washing machine with our emergency savings. But are we willing to sell other assets or take a part-time job (if that’s what we did before) to get the fund back in place? Analyzing the cost and benefit can provide an important input into the decision to use the emergency fund.

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The Benefits of an Emergency Fund

The Bible doesn’t arbitrarily declare something to be wise. There are reasons why saving appropriately is wise and why emergency saving is especially important.

Financial Benefits

Having emergency savings available to cover an unexpected expense can prevent us from going further into debt to cover that expense. Especially if we’re struggling with debt in the first place and paying interest on our credit cards, this is an important financial benefit. If our cash flow is near the edge, avoiding additional debt can be the difference between making ends meet each month and getting into an unsustainable cash flow situation.

Additionally, the emergency fund can be thought of as a form of self-insurance. When we purchase anything major – appliances, electronics, furniture, etc. – the seller will often try to sell an extended warranty on top of the item we’re purchasing. This may make sense in some cases, but sellers do this because these warranties make money for them, not because they want to protect us. An emergency fund can preclude the need for such additional expenses by providing the money for a repair or replacement if needed.

Emotional Benefits

If you’ve ever worried over finances (and who hasn’t), then it’s easy to see how an emergency fund can provide peace of mind against an unplanned event. Instead of worrying over what the expense will do to a credit card balance and wondering if we can make the increased monthly payments, we can have peace that we’re covered.

This is especially important in a marriage, where one person tends to worry more over finances than the other. By reducing that worry and the stress that accompanies it, the emergency fund can be a great marital counselor!

Spiritual Benefits

As we’ve said many times, Biblical stewardship is really an important part of discipleship. So it shouldn’t surprise us that wise stewardship has spiritual benefits. Among the benefits associated with emergency savings are:

1. Discipline – As we allocate resources to saving rather than spending all that we make, we establish patience and perseverance through waiting to purchase our wants.
2. Protection from materialism – Similarly, postponing purchases in order to save for emergencies helps protect us from the consumer mentality that pervades our culture.
3. Contentment and gratitude – Related to materialism, “going without” for a period of time in order to save for emergencies teaches us to be thankful for what God has already provided, rather than constantly grasping for more.
4. Financial freedom – The emergency fund frees us from the worry and stress of living without margin.
5. Spiritual growth – Postponing purchases in order to save is one way that we avoid serving money and direct our hearts to serving God (Matthew 6:24)

All of stewardship is for God’s glory. Setting up an Emergency Fund is no exception. How does an emergency fund glorify God?

• It serves as evidence of God’s provision.
• It frees us from financial worry and bondage, allowing our hearts to be more devoted to God.
• It gives evidence of the transformation that the Gospel brings, as we prioritize our finances differently from the world.

It’s not just about numbers in the bank. It’s about finances and lives transformed by applying Biblical wisdom.

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