2 times you might not actually need an emergency fund, according to a financial planner (2024)

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• Generally, people whose income is much more than their expenses don't need an emergency fund, says a financial planner.
• If you're in this position, and you have investments in a taxable portfolio, you can withdraw from that account in case of emergencies.
• At the end of the day, having an emergency fund is a personal preference based on what makes you feel safe.
• Check out Vanguard Personal Advisor Services® to get the investment advice you need to help build the life you want »

After witnessing a global economic collapse during the pandemic, it might be hard to imagine that some people don't need an emergency fund.

An emergency fund is a stash of money set aside in an easily accessible account in case of emergencies. Traditionally, financial planners suggest keeping 3-6 months worth of living expenses saved in a high-yield savings account, depending on your household size.

However, financial planner R.J. Weiss says that if you have a large gap between your monthly income and expenses — that is, you bring in much more than you spend — you might not need an emergency fund. No one is immune to emergencies, of course, but Weiss says that in this case there might be better uses for your money than letting it sit in a high-yield savings account.

If you're in that position, here are two scenarios where you might not need an emergency fund.

1. You're still paying off high-interest debt

People who have a large gap between their income and expenses and high-interest debt are better off paying down that debt first before saving an emergency fund.

For example, a recent grad with a new job who still lives with their parents or roommates may earn significantly more than their monthly expenses. Weiss says it's common for recent grads in this situation to still have credit card debt to pay off.

Let's say you've got an extra $1,000 each month and you're debating whether to put it in a savings account or to pay down that credit card debt for the next 12 months. Putting $12,000 in a high-yield savings account with an annual percentage rate (APY) of 0.4% will only yield an extra $26.03 at the end of the year.

On the other hand, paying $12,000 in credit card debt, which carries an average interest rate of about 16%, in that same time period can save you thousands of dollars in interest.

Plus, paying down credit card debt can improve your credit score and give you access to other types of credit. If your income changes and you need access to emergency funds, it'll be that much easier to get approved for personal loans, emergency loans, or more credit if you need cash in a pinch.

2. You have a large taxable investment account

A taxable investment account, like a brokerage account, has fewer withdrawal restrictions than tax-advantaged retirement accounts like an IRAor 401(k). In an emergency, you can easily withdraw funds from your investments without paying any extra fees.

You'll still be on the hook for short-term capital gains taxes, which you'll have to report on your tax return. But your money can grow more in stock market investments than fixed high-yield saving account interest rates.

Again, Weiss says this only works if you're making significantly more each month than your monthly expenses. Otherwise, it's safer to open a traditional emergency savings fund.

"All in all, how large of an emergency fund someone carries is a very personal decision," says Weiss. "I know people who prefer keeping 12 months worth of savings. Others are okay with one month, knowing they have access to emergency cash such as a credit card, taxable portfolio, or a home equity loan."