An emergency savings fund is a must have. That being said, many times people lose out on a whole lot of cash value because they don’t look at their money the right way. They don’t put a future value on their money.
How does this apply to an emergency savings fund? Well, you might be surprised how much money you could be earning over your lifetime.
Now, the purpose of an emergency savings fund is clear–you want to have a stack of easily accessible money to use when and if you need it. If you do use the money for an emergency, you want to build it back up again.
So, we have 3 time frames in this scenario.
1. Building the emergency fund
2. Taking money out in an emergency
3. Replenishing the emergency money used
What is the downfall of this cycle? Well it’s not the cycle itself, that is completely necessary, the problem most people will have is this…
They put this money into a bank account and lose out on ALL THE GROWTH THEY COULD HAVE EARNED.
And over your life, that’s a huge chunk of money.
This is a huge loss in opportunity cost. People get the impression that in order to have safe money, they have to exchange that for little to no growth.
But with competitive growth rates in whole life insurance, this isn’t the case.
Just like in the car example (you can read about buying cars with a whole life insurance policy here), we showed a 40 year old with 25k in his life insurance policy.
That 25k could also represent his emergency savings fund.
He can borrow and pay that money back as often or as little as he wants, however, in the end, just by letting that money compound, he ended up with 100-125 thousand dollars in his life insurance policy.
Not to mention tax-free, buying him a death benefit, and safe money.
If he had this money in a bank account, he would (at 1%) have around 33k at the end of his life. Not to mention it would have no death benefit and grow with no tax advantages.
That’s a 70 thousand dollar difference. And the way things have been in our country recently, I know most if not all retirees could use another 70k right about now.
Now, I am not saying take risk with this emergency savings fund. The entire point is to avoid all risk on this money. So if you are unclear about whole life insurance still, and all the benefits and advantages, then signup for our tool kit on the home page and read the books / watch the videos. It will give you a clearer understanding of why this is a safe option.
I’m also not saying you should put ALL your money into whole life insurance.
However, when it comes to your emergency savings fund, you want it to be somewhere safe and accessible. Well, if you are going to put it somewhere safe and accessible, you have the choice between a bank account, cd, bond, or whole life insurance. So, the question really is do you want 1%, 2%, 3%, or 5% earnings over your lifetime?
Do you want those earnings to be taxed? Trust me you’ll feel the pain when you go to efile
Whole life insurance, as I said before and I’ve said many times, fits everyone differently. However, when it comes to an emergency savings fund, whole life insurance is going to be unmatched.