The most recognizable personal finance mavens are almost unanimous in their advocacy of the emergency fund as a vital part of any common-sense financial plan. (See Why You Absolutely Need an Emergency Fund.)

Their recommendations differ only on size – three months’, six months’, perhaps eight months’ worth of living expenses are enough to accommodate whatever misfortune might befall you. But to what end? And do people really listen, or are these just empty dicta written to take up space?

Do the Math

First of all, exactly how much money are we talking about here?

Looking at the most recent statistics, per capita income in the United States was $55,836.80 in 2015 according to the World Bank, and the personal savings rate of disposable income was 5.3% in August, 2016, according to the Bureau of Economic Analysis.

Assuming an effective tax rate of 20%, and using the conservative recommendation to sock away eight months’ worth of living expenses, that means it’d take about $30,000 to create a sufficiently stocked emergency fund. Even using the three months’ figure, you’d still need $11,000 for an emergency fund that passes the muster of convention. If those numbers sound high, or even if they don’t, understand that in the U.S. the average household credit card debt was $16,048 in March, 2016. Americans are also carrying a cumulative $1.32 trillion in student loan debt, which dwarfs the credit-card debt on a per-borrower basis.

In other words, the math doesn’t come close to working out on emergency funds. If the experts are going to issue a blanket recommendation to millions of people that they should all create a buffer to tie them over in unforeseen circumstances, it would make far more sense to say, “Instead of amassing an account that pays you 0%, or a few basis points above that, maybe you should focus on closing out an account or two that’s costing you 15%.”

Clear Debt First

It’s easy to insist that emergency funds are crucial for everyone, while ignoring just what position the average household’s finances are in. If you’re carrying credit card debt, student loan debt, or both, then building cash reserves for the purpose of anything other than paying down those debts should be the last thing on your mind. Of course, the more economically you live and the more money you make, the better positioned you are to create an emergency fund. But this is where the irony lies. Because, as a rule, the folks who are diligent enough to live without consumer debt usually pay their bills on time. They do not impoverish themselves so they or their offspring can attend college, and they do not spend extravagantly. They are also the ones who are going to be least prone to emergencies, and thus least in need of any emergency fund.

Perhaps you’re worried about the transmission falling out of your car, which would necessitate a $3,000 repair. If you feel that the prospect of this problem warrants creating an emergency fund, but you’re already carrying enough debt to cover three or four transmission replacements, the sad news is this: Your emergency has already begun. It began several thousand dollars ago.

If you’re going to minimize risk for yourself or your family – a noble task in and of itself – society has already developed several methods for doing so, any of which you can use to your advantage. Worried about a debilitating illness or injury? We have health insurance for that. Not only will a comprehensive health plan cost less than a regulation emergency fund, the former is earmarked for a specific purpose. The same goes for the fear, however irrational, of a cataclysmic car accident. Again, we have auto insurance. If you’re really that concerned about worst-case scenarios, spending a few dollars raising your coverage limits to the maximum makes far more sense than does spending thousands more on an emergency fund.

But What If I Lose My Job?

Well, what if you do? There’s this thing called unemployment insurance. Your employers pay into it and it's for your benefit. We also have a workforce in which (overall, if not in every individual case) 95% of those who want jobs have them. Chronic unemployment, or underemployment, is not the province of that class of people who have the wherewithal to defer spending long enough to save up several months’ of living expenses.

The call to create an emergency fund strikes undue fear, convincing people that the lack of such a fund must precipitate financial ruin. One prominent financial authority, Dave Ramsey, once even cited “unexpected pregnancy” as a reason to build an emergency fund, leaving open the question of whether there exists anyone on the planet who is simultaneously a) responsible enough to set aside six months’ of living expenses, yet b) not so responsible that they don’t know how to prevent a pregnancy. (It's not in the current version of his advice.)

If you’ve already built an emergency fund and are torn over whether you should dip into it to

    buy a plane ticket to interview for a promising new job,
    replace your dying car with something more reliable, or
    remove your old carpet that’s shredding to bits and lay over the underlayment with tile,

understand that those aren’t emergencies. Those are merely life.
The Bottom Line

Should you be among the subset of the population that enjoys positive net worth and has taken steps to reduce the possibility of being impacted by an emergency, congratulations. But understand that that’s all the more reason not to create an emergency fund. Because an emergency fund is supposed to be easily accessible and liquid, the recommended vehicle for it is usually a savings account. Savings accounts don’t even keep pace with inflation, meaning that an emergency fund is a money-losing proposition over the long term.

Take the money you’d otherwise devote to an emergency fund, put it in something even as humble as a short-term certificate of deposit (CD) – that should give you FDIC protection. You can also pick a higher-risk blue chip stock or bond fund – which adds to your risk, but gives you instant access to your funds if you need them. Either way, you’d be building wealth instead of watching it methodically diminish. Taking the time to build an emergency fund, and forgoing consumption for months while doing so, is a staggeringly inefficient use of the precious and limited resource that is your money.