E137: Do You Need an Emergency Fund or is there Something Much Better?

In this episode, we discussed the question, “do I really need an emergency fund?” Not only do we get questions on this topic, but we also find out that there are still some misconceptions having to do with this ingrained bank account mentality in all of us. So we dive into emergency funds and ways that money might actually be put to more productive and protective uses.

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Topics Discussed:

  • What does an emergency fund really cost?
  • How many months worth of expenses should an emergency fund cover?
  • Is a bank really the best place to hold your fund?
  • The most expensive money in a bank
  • How to use Whole Life instead of a bank
  • Illustrating the gains from using IBC for emergencies
  • Why policy payments are really deposits in your own bank

Episode Resources:

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Podcast transcript for episode 137: Do You Need Emergency Fun

Nate: In this episode, we discussed the question, do I really need an emergency fund? She is Holly. And she helps people find financial freedom.

Holly: He’s Nate. He makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Nate: All right, well, welcome back everyone. We got a cool topic today. One that we have hit before on the show, but it is something that continues to creep up, Holly, we get questioned on it. Not only do we get questions on it, just by working with our clients, we find out that there’s still some misconceptions having to do with this bank account mentality that we’re all just ingrained with. So we wanted to dive in and kind of talk about an emergency fund and where should that money be? And do I even really need one? I guess. Holly.

Holly: And I think too, the reason why we have emergency funds, Nate, and the reality of, it costs you something to leave your money in a bank versus the Infinite Banking System and how it actually works in a life insurance policy. Which, if you had never thought about it, most of us will never ask that question. If you ask somebody, does it cost you money leaving your money in the bank? Like, does it cost you anything? Everybody, I think, 100% would say no. And if you actually don’t understand the numbers, then you won’t realize it actually does cost you something over a period of time to leave it in there.

Nate: Yeah, 100$ of people would say, no, it doesn’t cost me anything. And 100% of the people would be wrong. I guess, to answer the initial question, do I need one? If you listen to almost any financial entertainer, financial guru, Dave Ramsey, Suze Orman, all those types of people. Everybody seems to recommend the fact that you do need an emergency fund. And they’re saying that you do need some liquid money in order to take care of unexpected expenses or job losses or different things. Some people say you need a whole bunch of it, like 12 months-

Holly: Mm-hmm (affirmative).

Nate: Some people say six months, some people say at least three months, or maybe how far along you are. All that to say, everybody seems to agree that you need one. And I would be in the same boat, I guess, that it is extremely wise to have liquid money. I would maybe use the term opportunity fund as opposed to emergency fund. I would say, yeah, I think we all need money to take advantage of opportunities or to cover emergencies. But certainly if you have enough money to take advantage of opportunities, then you have enough money to handle an emergency, as well. But all that to say, I do think having liquid money puts you in a powerful position. The problem is that most of us have only been taught to keep money instead of a bank account to house the emergency fund.

Holly: Yep.

Nate: That’s it.

Holly: It’s the only place it can go.

Nate: Is the only place, is what we’re trained to believe. I mean, ever since you’re a little kid, your mom and dad opened you a checking account, savings account, you store up some money in there and we get put on this track. And so we use the bank account to solve this need. So we all say, “Yep, I need to have money in case something happens to me. I need to have money to take advantage of opportunities that come along my way, investment opportunities and other things.” So I need to have money. And the only tool that we know of to solve that problem is a bank account. That leads to problems, though.

And so I ran some numbers before we did this to really see, well, what is it costing somebody to use that bank account as their source for this emergency fund or this opportunity fund? What is it really costing people? If I was to meet a 30 year old individual, and I’m just going to put out some hypotheticals and just say, he’s hoping to have maybe $30,000 inside of his emergency fund, opportunity fund, whatever it is. Which I kind of felt was a little low from a lot of people I talked to, but that’s fine, if you’re in that same boat, I’m not trying to say 30,000 is a lot or a little, necessarily, everyone’s in their own boat. But if you find a 30 year old who has $30,000 inside of an emergency fund, and maybe he dips into it and builds it back up and dips into it and builds it back up.

But over time, he just averages about 30 grand of a balance in there, as he’s dipping into it, paying him back up. Over his lifetime, the amount of money it’s going to cost him to hold that 30 grand inside of a bank account is right at $230,000 is what it’s going to cost him to leave the money side of that bank account. Now people be like, “Well, Nate, it doesn’t cost me anything to leave it there.” Well, of course it does. Opportunity cost is a legitimate expense on anybody’s books. In other words, by moving that $30,000 emergency fund, opportunity fund into, let’s just use something that’s very similar. Which we would say is the Infinite Banking Concept, a dividend paying whole life policy, which can fit all of the requirements for a tool that solves the need for emergency fund.

If I was to move that $30,000 on this 30 year old and just play with that as my opportunity fund and my emergency fund, as I said, that account would grow to be worth $260,000 by the end of his life. If he does it only with the bank account, that’s $230,000 of profit. That means it costed him $230,000 to leave it there. And what’s interesting, this is what Infinite Banking teaches all the time about the whole becoming your own banker situation. Is that money, that 230,000 of profit, that actually exists.

Holly: It does.

Nate: And even if he was to leave the account the bank, it exists. It’s just not going to his account. It’s going to the owners of the bank. They can afford to give you a free checking account with no cost to you. Not because they’re good people. That’s because they make all their money by lending your money out and keeping the profit, we all know this. And I did the same numbers, by the way, for a 50 year old. And for a 50 year old having that same $30,000 account emergency fund, opportunity fund, dipping into it, putting it back, dipping into it and so forth, but just averaging around 30 grand. That’s going to cost him about $90,000 over the course of his life. So in other words, that 30,000 could be worth 120,000 to him, if he would become the banker that holds the emergency fund.

In other words, we’re not talking chump change anymore, people. The amount of money it costs you to hold an emergency fund or opportunity fund, or just have cash stored up in somebody else’s bank that you’re planning on leaving there, just in case you need it, over your lifetime. Is hundreds of thousands of dollars, very easily. That money should be yours. However, we’re freely giving it to the owners of the bank by using their accounts, letting them lend it out, letting them profit from it.

So where we want to take this conversation from this point is, well, what makes us think that we need a bank account to solve my emergency fund solution? Why are we using the tool of a bank account to hold my just in case of money or my opportunity money, my emergency money, whatever you want to call it. As opposed to using a different tool. Of course, with us, we would believe that the tool that has all the same characteristics would be dividend paying whole life. But even just anything else would end up being better. So either way, we’ve been conditioned to believe this. So Holly, let’s dive in. What-

Holly: Yeah.

Nate: Makes us think that bank accounts are the best tool? Or that we need to have money in a bank account to survive?

Holly: One, it’s insured, it’s easily accessible. We’ve only been taught the only place to have an emergency fund is in a bank account. Nobody’s ever told you, you could put an emergency fund in some other vehicle other than a bank account.

Nate: I agree. I agree. We all get started with a bank account in life, we’re on that track. It feels good to have money sitting in the bank. But the problem is, is that this is a conditioning that’s occurred. Because it actually costs us a ton of money. This is a bank marketed conditioning program that’s been going on for generations-

Holly: Mm-hmm (affirmative). Yep.

Nate: That banks are the place to be. And for a long time, they did solve a great need. In other words, it was not easy to deposit or invest in any other way than banks. Because there wasn’t electronic anything. So, I mean, you just had your little local bank and you’d deposit there and they’d lend out to the community and you get some interest on it and they’d keep the rest, and we’re all just cool with that.

Well, that has changed now. But we’re bringing that same conditioning it. So yeah, we’ve been conditioned that it’s the place to do it. Though, it cost us hundreds of thousands of dollars over a lifetime easily to have it there. So I do think there’s a need for it. And I agree, Holly, it’s a conditioning thing. I also think, as you mentioned, that we really are looking for a safe place. So until Infinite Banking rolls around, we’re like, “Well, I can’t put my emergency money inside of the stock market. There’s no guarantee it’s going to be there.” And that’s the only other like super liquid area that it can go for most people. You wouldn’t want to have your emergency fund necessarily in real estate because those prices can go up open down, it can be a pain to get money.

And try to get money whenever you’re in a financial emergency, using a bank loan or something like that. They will be quick to deny you whenever-

Holly: Yeah.

Nate: You actually need money. They like to lend money to people who don’t need it. Once you have like a real need for money, that’s when it gets a little harder to do. The tool is out there though with dividend whole life. Designed, especially to practice into the banking. It’s a way for us to get out of the banking world and into a world that profits us. But the problem is, Holly, even though people have … are our clients right now. And they’re believers in this system, we still carry this baggage, this banking world baggage with us that it’s still so hard to wrap your head around the fact that the policy is my bank account. The policy is my bank.

And so almost everyone comes into here, they still keep this just in case of money, this emergency money, this opportunity money, whatever you want to call it. Outside their system. And it’s costing you hundreds of thousands of dollars over your lifetime to do it that way. There’s some sort of mental hangup, I guess. Maybe we could delve into that for the last few minutes of our episode.

Announcer: Are you still stuck in insecurity and uncertainty? Do you want to feel like a financial genius and confident about your future? Holly and Nate have prepared something exclusively for Dollars and Nonsense listeners. It’s called the Secret Banking Masterclass. You can gain free access to this course by visiting livingwealth.com/secretbanking. That secretbanking, all one word.

The course will share with you how the conventional system stacks the deck against you. And exactly how to break free from their system. We believe in challenging the status quo. We believe in defying conventional wealth tools while maintaining traditional values. After all, most of those conventional tools only ever seem to make someone else on the inner circle rich. Visit livingwealth.com/secretbanking. That’s secretbanking, all one word. Ease your worry, and start your journey towards security today. Visit livingwealth.com/secretbanking. Now back to the great episode with Nate and Holly.

Holly: We have this false sense of security that if it’s in a bank, it’s better than if it’s in some other vehicle or avenue. And yet, because we have the belief of it’s insured, so if something happens to the bank, I’m still going to get my money. When in reality, that’s not actually necessarily true. And you might get a portion or all of it. But the other thing is, if you don’t change where that rainy day fund goes, then really, what you’re doing is saying that you’re going to give it to somebody else to use and make money, and you’re not going to touch your money.

And just the 30,000, like you use that example and you put it in a life insurance policy. You not only have cash, you have death benefit. Both of which can be used in this lifetime if something happened to you. You want to talk about rainy day fund, medically something happened to you, you can access the death benefit. But you leave your family better off because you have cash and death benefit. Both of which is guaranteed and gross tax free for you. But in a bank, we don’t see the money, Nate, most of the time. We just transfer it in and we just leave it there. You don’t actually see it as costing you anything to leave it in the bank.

Yet you see it costing you something to put it into a life insurance policy, because you see that as a payment, not as a deposit. And so until you can change that, you’re not going to make a difference. Because it really is an opportunity to put it somewhere else to do more than one thing. But we have just been taught to park our money, leave it in the bank, let them do it. And we make a little bit of interest.

I mean, I have really good clients and the wife was really, really hung up on the bank account. Like, no, we’ve got to leave it in the bank account, we’ve got to leave it in the bank account. And the husband did something I’d never thought of doing, but he actually pulled the bank statements for the last year of their money, their rainy day account in there. And the most they had made in one month, Nate, was like 44 cents. And I said, “Look, if we just put the money in here, we get this in dividends in one year. And the growth and the benefit that it has.”

So I think the reality is, is that we have to look at it as an opportunity to actually make our money do more than one thing. But that it actually is growing for us and we’re not giving it to somebody else to use. It is not a payment, it’s a premium deposit. You have to look at it as if you were putting money in a bank, it is a deposit. Just like what you’re putting in the life insurance policy is a deposit. And I always say, the worst thing you can do is leave it in the bank. The best thing you can do is put it into a life insurance policy.

Nate: Yeah, it’s kind of like when we had a banker at one of our workshops, we had a guy who owned a bank. He said the most expensive money at the bank is the money that sits inside the teller’s drawer.

Holly: Yep.

Nate: That’s the most expensive money because it’s the only money they’re not allowed to move. It has to just sit there. And that’s the same thing for us individuals, I believe that essentially the most expensive money, the thing that cost you the most is to have money sitting in the bank. It’s like having money sitting in the teller drawer, doing nothing. And there’s a real cost for that. And the banks see that. And so they’ll just go say, “Yeah, the most expensive money to us is the money that’s sitting around not doing anything.” And they literally use the term, expensive.

It costs us money to leave this cash in the tellers drawer. Because we’d rather have it working. And that’s really the same model we hope to get across for people is that, the bank account money is expensive. It’s expensive to let it sit there, just like it’s expensive for banks to let money sit in the tellers drawer. 

So there’s definitely reasons though, and I’m not trying to shoot down people’s concerns. You have to do what you’re comfortable with. But the problem is, in the Infinite Banking world, a lot of the people’s concerns are not really based on reality. Maybe they’re fearful about something that honestly, they probably shouldn’t be. That’s what people get hung up on though. As Holly already brought up, some people don’t want to move money into policies out of their opportunity costs because they think of it as payments anyway. And they’re like, “Well, I’ve already got a policy. Why would I want to get another one?” Or I don’t know. Somehow they get this idea that if I put money in, I’m missing out on money. And I’ve said this many times, people don’t really like to have money to leave their bank account. Because people are conditioned-

Holly: Mm-hmm (affirmative).

Nate: To believe that anytime money leaves my bank account, I have less money. It’s the hardest thing to get across. That whenever you move money out of your bank account into a policy, you don’t have less money. Now, maybe early on, as the policy is just brand new. You may make it a premium payment and not have all the money back for that premium. But that quickly changes after just a couple of premium payments that suddenly now you could actually write a check for $10,000 to pay a premium and have $11,000 of cash value. But we still carry this conditioning that anything that causes money to leave my bank account is a payment and I have less money after I do it. That’s false.

So, we’re bringing in some of this baggage. But I think at the end of the day, there’s also some confusion on how money can be pulled out. Like in other words, they say, “Well, if I build up this money inside of a policy and then I have an emergency, then I have to take a policy loan out to get the money. And I got to pay that back.” Which once again, no, you don’t. No, you don’t. It’s based on this faulty premise, once again. First off, you don’t have to repay a policy loan until the day you die. Now, we would suggest that you choose to repay it because it’s in your best interest. But once again, it’s a faulty premise. Because if you have an emergency fund, which we would suggest you have, liquid money that’s available. If you were to dip into a bank account to cover an emergency, would it not make sense to go ahead and build the account back up to the level that you’re hoping to keep it at?

If I had $30,000 in an account and I had to go spend 20 grand on an actual emergency or taking advantage of an opportunity. Wouldn’t I want to build that account back up over time to get back up to the level that I think that I could feel comfortable with, of at 30,000? Well, that’s all that repaying a loan is. It’s just rebuilding, putting the money back where it came from. Very simple. So most of the time, people who are kind of shy away and keep all this money on the sideline, they do it … Holly, we’ve already mentioned. If we kind of wrap up with this. They don’t realize how much money it costs them to have it sit inside the bank account. So, they’ll leave it there. It’s fine.

Number two, they do it because they think of policy premiums as payments. And so they don’t really want to move it in because they have this payment mentality. Lastly, they also have some sort of weird relationship with the concept of policy loans that has not been resolved yet. I think there’s another three big reasons. If you’re practicing IBC, it just does not ever make sense to have your just in case of money, your rainy day fund, your opportunity fund, whatever you want to call. It just does not make sense.

Now that you’re no longer ignorant. You know there’s another way. It really just doesn’t make sense to leave it inside of a bank account. Somebody’s going to get that money, it is going to be in existence. The reason they’re offering you free checking accounts is not because they’re generous. They do it because they make a ton of money off our deposits. And so we would just recommend you change who you work with, to a place that actually provides you, we know where we can get that. Inside of the Infinite Banking Concept with dividend paying whole life insurance from mutual companies. And suddenly we’ve made a transition, similar tool, similar strategy, just a lot more profit. So anything else, Holly, before we close it down?

Holly: I’m going to say, just be willing to try something new with no risk. Because you’ve got to change the cycle that you’re in. And as long as the bank is making all the money, you’re the one giving the bank the money to make it.

Nate: Yeah. Free bank accounts are not your best friend. They’re still most likely your most expensive place to put money. It’s like a hidden fee. Hundreds of thousands of dollars over your lifetime of hidden fees, we could call it. There’s better ways to do it. Infinite Banking is one of them. You do need an emergency fund, you do need an opportunity fund. I believe strongly that having liquid capital to take advantage of things and to protect you against bad seasons of life, that is extremely important. But just don’t choose a place to put it that’s going to cost you hundreds of thousands of dollars, when there’s another opportunity available to you.

Holly: Well said.

Nate: All right, well, thank you guys so much for being on the show. Again, this have been Dollars and Nonsense. If you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/e137.

Announcer: Dollars and nonsense podcast listeners, one more thing before you go. Ease your worry and start your journey towards security today. Visit livingwealth.com/secretbanking. You’ll gain instant free access to the special one hour course Holly and Nate made for you. Again, that’s livingwealth.com/secretbanking.