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Why are so many people saying to putting money into an emergency fund and 6 months of expenses in savings when I could put that money in a taxable investment account and let it grow and use a credit card or HELOC for any emergencies?

There is nothing wrong with that as long as:

you have access to a credit card which you can use to pay all your living expenses for a prolonged time without a need to pay it back every month (for example, if you lose a job or have an accident and can’t have a job and have no income until you find a new job, which in recessions can take 6 or more months) so you will have no income but you still have to pay monthly bills and credit card (or HELOC credit line).
You credit card or HELOC interest rate is smaller than what you can make with your investments. If for example, your credit card is 16% annual interest but your investments make only 6% then it w ill be a bad idea to use a CC. On the other hand, if your HELOC rate is only a 3% but investments bring in 6% than it is fine to use HELOC rather than touch your investments.

Note, that the “6 months of expenses” funds advisers are talking about is for your loss of income and not small emergencies like when your car breaks and you need 400 bucks to repair it. The emergency fund is meant for your job loss or job transition (for example, you want to start your own business, but you cannot do it while full employed, so you need to save your monthly income, then quit your day job, and while building up your own business you will use your emergency fund to pay your bills. Once your business is up and running and generating income, you stop using your savings, rebuild your emergency fund, and your business pays your bills now.

If however you have a passive income for which you do not have to work, then you do not need an emergency fund as you have a stream of income. In that case, it is OK to use credit cards or HELOC for your sudden emergency expenses (as long as you still have means to pay it back in the grace period before interest and penalties kick in).

If your investments bring that passive income without a need to actually liquidate your investments (for example dividends) then it also makes sense. If however you have to sell your stocks (or any other type of investment) in order to generate income to pay your HELOC or CC off, you may end up selling during panic or recession and in fact lose money.





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