The financial fallacy “Your job security is your emergency fund” stems from the mistaken belief that your employment will always be steady, reliable, and sufficient to cover all future emergency expenses. This thinking is financially erroneous for several reasons:
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Job Security can be volatile: There are no guarantees in employment. Your job security might be rock solid today and volatile tomorrow due to economic downturns, company restructurings, layoffs or health issues that prevent you from working.
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Emergency expenses can outstrip income: In case of major unforeseen events such as a health crisis or urgent home repairs, your regular income may not be enough to cover these expenses.
It’s comforting to believe that as long as we’re employed, we’re financially protected. Believing that a job equals security allows us to avoid facing the uncertainty of the future. This desire for certainty is a common human trait which can lead to mistaken beliefs.
An effective financial strategy is to build and maintain an emergency fund with enough to cover 3-6 months of living expenses. An emergency fund provides an extra layer of financial security and allows you to meet unexpected expenses without having to resort to loans, credit card debts, or compromising your savings or investments.
Additional resources:
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“The Total Money Makeover” by Dave Ramsey. Book Link. It emphasises getting rid of debt and building an emergency fund.
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“Your Money or Your Life” by Vicki Robin and Joe Dominguez. Book Link. This classic book discusses various perceived financial truths, including the fallacy of job security.
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“The Index Card: Why Personal Finance Doesn’t Have to be Complicated” by Helaine Olen and Harold Pollack. Book Link. It speaks on the importance of saving for emergencies.
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“Emergency Fund: What It Is and Why It Matters” - NerdWallet.
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“56% of Americans can’t cover a $1,000 emergency expense with savings” - CNBC.