Here's Why I Don't Want to Keep Too Much in My Emergency Fund

My emergency fund has six months of living expenses. I do not want to keep even $1 more than that amount in my emergency fund, even though I believe it is really important to be prepared for unexpected expenses so I don't end up in credit card debt.

I'm careful not to keep too much emergency money in my high-yield savings account for a few key reasons. 

My emergency fund is not an investment

One big reason I don't keep a lot of money in my emergency fund is because I would rather invest my money and earn a better return when possible.

I keep my emergency money in a high-yield savings account because I can't afford to risk losing any of it, or having it tied up and being unable to access it. My savings account pays me 4% interest, which is a competitive rate for a savings account. It's still well below the amount I could earn if I had my money in a S&P 500 index fund (which can probably earn about a 10% annual return over the long term), though.

I don't want to keep any more of my money than necessary in an asset providing me a much lower ROI than I could get elsewhere. So, I only keep the money I truly need in there and I divert the rest to my brokerage account so I can invest in ways that will do a better job helping me grow my net worth.

I only use my emergency fund for truly dire emergencies 

The other big reason why I don't maintain a bigger emergency fund is that I have earmarked this money only for truly dire emergencies that are completely unexpected. I do not want to draw from my emergency fund for predictable but surprise expenses, such as for car repairs or home repair tasks or copays for doctors appointments.

See, while you can't predict when these things will happen, you can predict they will happen eventually. So I don't treat them as emergencies, but rather things to plan and save for. I have separate funds for healthcare needs and for car and home issues and I keep money in those accounts, so I am ready when the inevitable happens.

The money in my emergency fund is only there in case someone gets really sick, we experience a major decline in income, or something else really and truly unexpected happens. Since I want to divert money into my other accounts to save for the predictable surprises, and since it's not as likely I'll have to tap my emergency fund for them, there's little reason to sock more money into this emergency account. 

The six months of expenses I have saved should give me more than enough time to recover or make another plan if a true emergency strikes. I won't put extra money in there when it could serve me better elsewhere. Of course, everyone needs to make their own decisions about what they are comfortable with -- but, remember the true purpose of an emergency fund when setting your target amount to ensure you don't end up with too much or too little.