Emergency Funds

What Is an Emergency Fund?

\An emergency fund is money set aside to cover financial surprises or sudden, large expenses that life inevitably throws your way. Think of it as your personal financial safety net, there to protect you when things don’t go as planned.

For many physicians, the biggest financial shock is job loss. The COVID pandemic was a wake-up call. It showed us that physician jobs are not as immune as we once believed. Clinics shut down, physicians were furloughed, forced to use vacation or sick days, and in some cases laid off entirely.

Medical emergencies are another common reason emergency funds are needed. Even with health insurance, an accident or unexpected surgery can result in large out-of-pocket expenses that hit fast.

Then there are home repairs. You may believe your roof has another 5–10 years based on the inspection when you bought your home—until the first major rainstorm reveals multiple leaks and suddenly you need a new roof immediately. This actually happened to me with a short-term rental I purchased. On the next house, I hired a roofer to assess the roof’s age more accurately before buying.

Car repairs are another frequent culprit. While they may not cost as much as a new roof, they can still be painful. During the COVID pandemic, my husband’s Honda CR-V started making a strange noise while driving. The issue turned out to be the propeller shaft—a repair costing over $3,000. It’s not something that commonly fails, but it can happen at any time. Unfortunately, the car had just passed its extended warranty. This was at a time where the price for new and used cars was super high.

Paying $17,000 for a roof and $3,000 for a car repair wasn’t fun—but having the cash readily available made the situation far less stressful than it could have been.

My mother once told me, “If you have a problem that money can solve, and you have the money, it’s really not that big a problem.”

An emergency fund won’t prevent emergencies, but it can dramatically reduce the stress that comes with them.

Why an Emergency Fund Matters

An emergency fund acts as a buffer between you and financial panic. It allows you to handle unexpected expenses without piling on additional stress or debt.

It prevents you from:

• Borrowing money at high interest rates

• Selling investments at a loss

• Making rushed financial decisions while already under pressure

  
  

When my roof needed replacing, I could focus on calling roofers, comparing quotes, and choosing the best option—not worrying about how to pay for it.

That peace of mind is exactly what an emergency fund is meant to provide.

How Much Should You Have in an Emergency Fund?

Traditional financial advice recommends keeping 3–6 months of basic living expenses in an emergency fund.

This includes:

• Housing

• Food

• Utilities

• Health care

• Transportation

• Basic personal expenses

• Minimum debt payments

This does not mean 3–6 months of your full income. In an emergency, discretionary spending like vacations, dining out, and entertainment can be temporarily reduced.

When You May Need More Than 6 Months

Depending on your situation, you may want a larger cushion:

• If you have variable income (e.g., locums physicians)

• If you’re concerned about an upcoming recession

• If you want added flexibility or peace of mind

• Some people prefer to keep a full year of expenses in cash.

As an employed physician, replacing income can take much longer than 3–6 months. Most physician contracts include a 60–90 day termination clause. If you’re let go and have a non-compete, it may still apply, even if you were terminated without cause, potentially preventing you from working nearby for 1–2 years.

Moving to another state isn’t instant either. Medical licensure can take months, and credentialing with hospitals, surgical centers, and insurance companies often takes 60–90 days or more.

There’s also value in having what some people call “F-U money”—enough cash that if a job becomes intolerable, you can walk away and give yourself time to decide what’s next.

Where Should You Keep Your Emergency Fund?

Your emergency fund is not an investment, but if you can earn some interest without sacrificing accessibility, there’s no reason not to.

The key requirements are:

• Liquidity

• Easy access

• Low risk

It’s also reasonable to keep a small amount of physical cash at home—perhaps a few hundred or a couple thousand dollars—for situations where electronic access may be limited.

Common Places to Store an Emergency Fund

Checking Accounts

• Instant access via debit card or checks

• Easy transfers using Zelle, PayPal, Venmo, or CashApp

• Typically earn little to no interest

Savings Accounts (including High Yield Savings Accounts)

• Higher interest than checking

• Limited number of withdrawals

• No debit card or check-writing ability

• Transfers are usually quick if linked to checking

Online banks such as Capital One and Ally Bank often offer higher-interest savings accounts worth considering.

Money Market Accounts

• May offer debit cards and check-writing

• Typically higher interest than checking

• May require a minimum balance to avoid fees

Many people benefit from keeping their emergency fund in a separate account—not the same checking account used for daily bills or discretionary spending. If the money is “out of sight,” you’re less likely to treat non-emergencies (like a stressful week at work) as reasons to tap into it.

Can You Invest Part of Your Emergency Fund?

While you want at least part of your emergency funds easily accessible, you can consider investing part of your emergency fund (especially if you want a year's worth of living expesnes in your emergency fund).

I Bonds

After holding them for one year, Series I Savings Bonds can serve as part of an emergency fund. They’re indexed to inflation and often pay much higher interest than savings accounts.

Important caveats:

• You can’t redeem them in the first year

• If redeemed within years 1–5, you forfeit 3 months of interest

• After 5 years, there’s no penalty

  
  

Because of these restrictions, I Bonds work best as a secondary layer of emergency savings—not your first line of defense.

Certificates of Deposit (CDs)

CDs offer higher interest in exchange for locking up your money for a fixed term. While early withdrawals come with penalties, the money is still accessible if needed.

A CD ladder can improve flexibility. For example, you might split your emergency fund across CDs with terms of 3 months, 6 months, 9 months and 1 year. As each CD matures, you reinvest it into a new one-year CD. Over time, you’ll have one CD maturing every 3 months, earning higher interest while maintaining access.

Why a HELOC Is Not a True Emergency Fund

Some people rely on a Home Equity Line of Credit (HELOC) as their emergency fund.

While a HELOC can provide access to cash, it has major drawbacks:

• It’s debt—one of the main goals of an emergency fund is to avoid borrowing

• Interest rates can rise

• Banks can freeze or close HELOCs at any time

During the early days of COVID, many lenders tightened credit and closed HELOCs. Unfortunately, that’s often exactly when people need emergency funds the most.

When the economy struggles, job losses increase, borrowing becomes harder, and interest rates rise. That’s not the time you want your safety net to disappear.

When Is It Okay Not to Have an Emergency Fund?

If you’re carrying high-interest debt—such as credit card debt above 10%—paying that down may take priority over building a large emergency fund.

The irony is that emergency funds are often hardest to build early in life, when the opportunity costs are highest.

Early in your physician career, you may be:

• Paying off student loans

• Saving for a down payment on a home

• Paying for childcare and extra help

In that stage, it may not be realistic to have 3–6 months of expenses fully set aside. Try to keep at least $1,000 available for immediate use. An emergency may mean temporarily redirecting money from a down payment or reducing retirement contributions.

In extreme cases, Roth IRA contributions can be withdrawn without taxes or penalties if redeposited within 60 days. Miss that window, and you may face taxes, penalties, and lost tax-free growth.

As you become financially independent, your emergency fund effectively becomes the cash portion of your overall portfolio. The wealthier you are, the less a traditional emergency fund matters.

Final Thoughts

Some people argue that doctors don’t need emergency funds—credit cards have grace periods, paychecks are large and regular, and there’s always the option to borrow or sell investments.

But the true purpose of an emergency fund is to help you avoid debt and avoid selling investments in a down market.

With rising interest rates, market volatility, and increasing economic uncertainty, that protection matters more than ever.

Your emergency fund doesn’t need to be complicated. It just needs to be there—ready to protect you when life throws the unexpected your way.