The Real Value of an Emergency Fund

Welcome to Financial Fluency - a newsletter designed to boost your understanding of financial terms and provide you with investment ideas for long-term financial success.

In today’s newsletter:

• A Look at the Markets: April Performance

• The Real Value of an Emergency Fund

• Quote of the Day: Morgan Housel

• What I’m Watching: What is an Emergency Fund?

• Collocations of the Day: Fund

• Whenever you are ready, here is how I can help you

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A Look at the Markets: Performance April 2025

Vanguard FTSE All-Word ETF (Accumulating)

Another red month for the FTSE All-World index this month. It should be noted that the index did recover slightly after Trump announced a 90-day pause in tariffs.

iShares Core S&P 500 UCITS ETF USD (Accumulating)

As expected, the iShares S&P 500 ETF performed slightly worse than the global index (the tariffs affect the USA whereas other countries can still trade between themselves).

Vanguard EUR Corporate Bond ETF (Accumulating)

Finally, some green with the Vanguard EUR Corporate Bond ETF. Note that, unlike bonds in Europe, US bonds were significantly down this month putting pressure on Trump to alter his tariff strategy.

Bitcoin Monthly Performance $BTC.X ( ▲ 0.29% ) 

This may be a surprise to some investors - Bitcoin increased by over 14% in April while the stock markets generally lost value.

We discussed ‘decoupling’ in last week’s newsletter:

The Real Value of an Emergency Fund

It's Not Just for Emergencies — It’s for Peace of Mind

The smell was terrible. Fresh milk in my fridge had gone off (turned sour).  It was clear - my fridge freezer had broken. Apparently, it could not be repaired.

None of us want to live without a fridge freezer for many days. Fortunately, I have an emergency fund. This meant that I could buy a new fridge freezer and have it delivered and installed within 24 hours.

Importantly, I did not have to sell any investments to do this.

What is an Emergency Fund?

Firstly, let’s reexamine the meaning of ‘fund’.

A ‘fund’ is an amount of money saved, collected, or provided for a particular purpose. The particular purpose of an emergency fund is to cover unexpected expenses or an unexpected fall in income.

For example:

• Car or home repairs (including my fridge freezer)

• Medical bills (these vary depending on your country of residence and any private insurance cover)

• Job loss or inability to work

• Unexpected travel (e.g. family emergency)

Why is an Emergency Fund Important?

As we saw when my fridge freezer broke, I was able to replace it quickly without going into debt.

Additionally, I did not need to sell any of my investments. At the time of writing (April 2025), the markets were down due to uncertainty with the tariffs in the USA, so in most cases, now would not have been the optimal time to sell.

Having an emergency fund allowed me to separate my financial decisions from need.

An emergency fund isn't just money sitting idle - it's buying the freedom to make separate rational decisions from decisions made out of necessity.

How much do you need?

Personal finance is personal, so it largely depends on your personal circumstances and risk tolerance.

As a guide, many advisors recommend 3-6 months of expenses. However, things to consider are:

• Being self-employed - business owners and the self-employed are more susceptible to changes in the financial climate and perhaps they could consider increasing their emergency fund

• For the employed - how safe is your job? This will vary between sectors and between public and private jobs.

• How many dependents do you have? If other people are dependent on you for housing, food, and education, you may consider increasing your safety buffer.

• Whether you have a partner or parents who can act as an emergency fund for you. For example, if you are a student working part-time.

Because I am self-employed and have three dependents, including two teenage children, my emergency fund is larger than 3-6 months’ expenses. However, in the future, when my children are working and I am drawing a regular pension, I will be comfortable reducing the size of my emergency fund.

This example shows how the size of your emergency fund changes with your individual personal expenses.

Who should have an emergency fund?

Everyone who has expenses. In other words, almost everyone should have an emergency fund. Emergencies, or at least unexpected expenses, will almost certainly happen to all of us.

Where should it be kept?

An emergency fund should be instantly accessible and not invested (i.e. subject to market conditions). An instant access savings account is ideal.

Conclusion

The true value of my emergency fund wasn't the replacement fridge; it was the sleep I didn't lose worrying about how to pay for it.

Have you got an emergency fund? If not, will this newsletter encourage you to get one?

You never know when your fridge freezer may stop working!

As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.

Quote of the Day: Morgan Housel

This quote perfectly sums up the need for an emergency fund, in my opinion.

What I’m Watching: What is an Emergency Fund?

Collocations of the Day: Fund

Note: a collocation is a group of words that are commonly used together, forming natural-sounding phrases. The examples below show words that naturally pair with "fund" in financial contexts.

Definition of fund (noun - countable)

A 'fund' is an amount of money saved, collected, or provided for a particular purpose.

Types of Funds

• Emergency fund (money set aside for unexpected expenses)

• Mutual fund (an investment vehicle that pools money from many investors)

• Exchange-traded fund (ETF) (a type of investment fund traded on stock exchanges)

• Pension fund (money set aside for retirement)

• Trust fund (money legally held by a third party for a beneficiary)

• Hedge fund (an investment fund often for high-net-worth individuals)

• Sovereign wealth fund (state-owned investment fund)

• Index fund (a fund that tracks a market index e.g. S&P 500)

• Money market fund (a low-risk investment fund)

• Endowment fund (investment fund established by a foundation)

Common Collocations with "Fund"

• Build a fund (to gradually save money for a specific purpose)

• Set up a fund (to establish a new fund)

• Contribute to a fund (to add money to an existing fund)

• Deplete a fund (to use up the money in a fund)

• Manage a fund (to make decisions about how fund money is used)

• Access a fund (to withdraw or use money from a fund)

• Allocate funds (to distribute money for specific purposes)

• Drain a fund (to use up resources quickly)

• Replenish a fund (to add money back to a fund that has been used)

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Disclaimer:

This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.

Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.