A Message to Young Readers: Your Crisis Is Coming.

Humble Dollar is a hangout for a lot of people who’ve managed to navigate their way to a comfortable retirement. I’m sure we have younger readers who come to the site for financial education. I thought a short article illustrating the importance of the emergency fund concept would be of interest to that demographic.

For many people trying to build their financial foundation, a basic tenet is establishing an emergency fund. In the hustle and bustle of everyday life, down in the trenches of your early career, it can seem a bit theoretical and remote. There are many other seemingly urgent calls on your hard-earned cash. Surely putting it off until you’re in a slightly better position isn’t a bad thing? I beg to differ.

In my late twenties, I had the opportunity to buy into a junior partnership with a long-established company in my industry. The senior partner was eyeing retirement and wanted someone young with a good reputation to come onboard alongside his daughter, who was also a partner. Financially it was a big stretch, but just about doable for our family. I left my employer and jumped onboard with bright-eyed enthusiasm, thinking my future was looking bright.

Six months into my new adventure, the relationship with my partners had turned toxic. Our ways of thinking and doing business were dramatically different—old school meeting new school, and neither side was willing to compromise. I was in a pickle. Financially I was “all in,” and extracting my investment to walk away would take time. Over the Christmas break, after much soul searching, I made the difficult choice to walk away from the partnership at the start of the new year.

This is where the importance of an emergency fund came into play. Although my wife Suzie and I had stretched ourselves to breaking point to fund my partnership buy-in, our one-year emergency fund, built up slowly over the years by prioritising savings over spending, was always ring-fenced and available. Without this resource, I don’t know how I could have extracted myself from that business without extreme financial stress.

With the emergency fund providing a blanket of reassurance about our next year’s spending, I was able to step back and think about the future without pressure or stress. Within four months, I’d started my own business that provided a livelihood for my family for the following thirty years. For you it could mean the difference between grabbing the first job that presents itself and being able to be more selective. It gives you optionality.

Build your emergency fund. Although I had a year of spending, three to six months is an easier target to achieve by automating your savings. Don’t let anything distract you from this foundational task. It’s probably the most important thing you can do in your early career. Your crisis won’t look like mine, but when it comes, and it will, you’ll be glad you built that fund.