[Editor's Note: This post discusses an important topic- the back-up plan. Just like when you go to intubate a patient, you've already thought through the possible scenarios where things go wrong and what you will do if those things occur. That way if you run into a “Can't intubate, Can't Ventilate” situation, you've already got the scalpel and a cric hook ready to cut their neck at the bedside. In this post, WCI Network Partner Physician on FIRE discusses financial back-up plans. Hopefully as your financial life progresses, you have more and more options in case something goes wrong. ]
On a frigid winter morning, I woke up to a cool house. Not the “hey man, cool house!” type of cool (well, actually, yeah, it is) but I’m referring to the air temperature in this instance. It wasn’t ice cold, but rather chilly, so I put on another layer and waited for the furnace to do its thing. The furnace did not do its thing.
It was 10 a.m., the thermostat was set to 69° F, and it was 61° in the house. Air was coming out of the registers. Cool, 61 degree air. The furnace was out.
I didn’t freak out. First, I called my Dad to see if he had any quick and easy troubleshooting ideas. He had some thoughts, but there was nothing I could really do safely on my own. Then I called a professional heating and cooling place.
Five hours after I was told “one of the guys would give me a call,” none of the guys had given me a call. I wasn’t too concerned, and I figured I’d call again in the morning if I hadn’t heard anything by then.
My wife suggested I might want to call back yet today. That’s her way of saying “Call now or I’m gonna freak out!”
So I called.
Plan Bs, Redundancies, and Contingencies
I was pretty nonchalant about the no heat in January thing because we had already implemented our first backup plan. After I called the pros, I started fires in our two woodstoves — one on the main floor, and one in the basement. By mid-afternoon, the house was 71°, and I have enough wood stacked alongside the house to heat the place for a couple weeks. That’s right; we have redundant heating options.
We also have contingency plans. If we ran out of firewood, couldn’t get more, and the furnace was still out, we have friends and family nearby. We could stave off frostbite and stay with someone else if necessary. We could also start running the handful of electric plug-in heaters we’ve accumulated over the years.
Well, we didn’t have to do any of that, because the furnace was fixed the next day. It was a simple fix. But even if it hadn’t been, it would not have been an emergency, because we’ve got our Plan Bs.
There are many aspects of life that benefit from redundancies and contingencies. Since this site is first and foremost a personal finance site, I’d like to address two that fit nicely and are frequent topics of discussion: emergency funds and early retirement.
You May Not Need an Emergency Fund
Do I have an emergency fund? Not in the traditional sense. A standard emergency fund is three to six months worth of expenses sitting around doing nothing, earning next to nothing, waiting for the day when I might need to access $20,000 to $30,000 pronto.
I don’t have that. I keep $1,000 to $2,000 in checking and savings at a local bank branch, and at least enough to cover a month’s worth of typical credit card bills in an online saving account with better interest rates.
How do I plan to cover a money emergency? You guessed it — we’ve got redundancies and contingencies, including:
- Plenty of headspace under our credit card spending limits
- Biweekly paychecks that exceed our monthly spending
- A taxable account with 15+ years worth of expenses that can be easily accessed
We could also take out a home equity line of credit against our paid-off homes. The bottom line is, although we don’t have a pile of cash languishing in a savings account, we do have redundancy (taxable account) and contingencies (credit card, next paycheck) that would help us come up with the need funds in an emergent situation.
I’m in good company. A number of my comrades have weighed in with similar thoughts on why several months’ worth of cash may be overkill for people like you and me.
- Biglaw Investor asks, Is an Emergency Fund Necessary?
- Cardiologist EJ @ DD&D similarly asks, For physicians, is an emergency fund really necessary?
- Dr. Big ERN explains why Our Emergency Fund is $0.00.
The cool kids think along the same lines. By kids, I mean millennials. Sorry, kids.
- Millennial Money sings the virtues of Investing Your Emergency Fund.
- My Money Wizard challenges the paradigm in Emergency Funding Like a Pro.
You Don’t Need the Perfect Plan to Retire Early
If you’ve been reading half as much as I have about early retirement, you’ve probably come to some of the following conclusions:
- Better have at least 25 years of expenses. 33 years would be better.
- You’d best know how much you’ll be paying for healthcare.
- Fund your children’s future education or know how you’ll do it.
- Know how much of your money is actually yours.
- Figure out how you’ll be spending all that newfound free time before you have it.
Frankly, there’s nothing untrue there, and I’m doing my best to check all the boxes before checking out. But that doesn’t mean I’m doing so without redundancies and contingencies.
First, I’ll address redundancy. When I do step away, I won’t go around telling everyone I’m 42 years old and retired. I’ll treat it as an extended and potentially permanent sabbatical from clinical medicine.
My redundancy, and part of what I’ll be “retiring to” is what you’re looking at.
While it was not necessarily the crux of my plan when I launched this site, it appears more and more likely that site revenue will provide some meaningful income, while allowing me to donate many dollars. Writing for you also gives me a different sense of purpose and way to occupy some of that newfound free time.
I’ll have contingency plans, as well. In the year that I resign, I plan to update my ACLS, BLS, and PALS certifications, which will remain in effect for two years. I’ll continue to earn enough CME to maintain a medical license, and might even consider a little locums work early on to see how it feels to go back to work after many weeks or months away.
I also need to consider contingency plans for the rest of my family. While a life of adventure appeals to my wife and me in theory, the reality might be that we’re natural born homebodies. It’s easy to focus on the positive aspects of family travel and discovery (the Facebook version of life), while not giving enough consideration to the challenges that a partially nomadic life will invite.
We’ve got boys to think about, too. I don’t know how they’ll respond to an abrupt change in lifestyle. They’ve been resilient and excited to travel so far in their young lives, but we need to ensure their intellectual stimulation and overall contentment remain a priority. If our plans don’t work for them, we can go to Plan B and revert to a more traditional existence.
I’ve only scratched the surface.
It would not be difficult to compile a more comprehensive list of topics in personal finance and life where a little preparation and flexibility can go a long way. I try not to make too many definitive statements regarding our plans, our beliefs, or our future. It’s best not to be too rigid.
Plan for the worst, hope for the best, and enjoy the ride.
What are some of your best financial Plan Bs, redundancies, or contingencies?