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In one of the answers to this question, it was mentioned that the primary cause of bankruptcy in the US is related to health expenses, and this is one reason to keep an emergency fund.

Since most of the advice I've seen is targeted toward people in the US, this makes me wonder how important an emergency fund actually is when healthcare expenses are not taken into account (i.e. if one lives in a country where these things are paid for collectively; healthcare is not dependent on your employer, etc.).

It would be especially interesting if someone has good statistics on, for example, the probability of an emergency requiring $x occurring per year in both the US, and economies like the UK or Canada. I realize that the definition of "emergency" is somewhat subjective, but if the question has been answered with any reasonable definition, that would be a great starting place.

Edit: To be clear, I'm not asking whether or not one still needs an emergency fund. I have no trouble imagining situations where one might be needed. What I want to know is how the risks of large financial shocks change, so I can make an informed decision about how big a fund is needed. I've asked the question generally, because my risk tolerance is likely different from other people's. A general answer that quantifies the risks involved would thus allow any person to assess them individually.

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    It means you don't have to include cost of possible necessary medical care when estimating the reserve you should maintain. Otherwise, no difference... as far as I can tell. – keshlam May 6 '15 at 1:00
  • As the author of that answer, I would say it doesn't really change the thought process at all. Medical is just one possible emergency. People who have nationalized healthcare aren't all that different from people who have really good health insurance in the US. Likewise, single people don't really need to plan for an unexpected pregnancy, people who don't have a car don't need to plan for emergency car maintenance, etc. – Nick2253 May 6 '15 at 16:48
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Unanticipated unemployment is usually the triggering factor for drawing on an emergency fund. Ask yourself: what happens if I lose my job tomorrow? Or my spouse becomes unemployed? What happens if I become disabled and can't work for x amount of time?

Sure, you can discount your chances of needing such a fund if you have free health care. But having health insurance doesn't change the fact that an emergency fund is a good idea. There are many ways to go broke!

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    I'd argue that countries with strong nationial healthcare system typically also provide an unemployment insurance. So the zero-income scenario is highly unlikely at least for short term unemployments. So a cash EF would mainly cover unforeseen expenses (like broken home appliance, broken car). This of course assumes that everyday living could proceed with that reduced supplemental income (which might not hold true for everyone). – Ghanima May 6 '15 at 9:24
  • @Ghanima You'd have to know the individual's situation. How much would he get in unemployment benefits and for how long? If you're used to living on $40,000 a year and unemployment gives you $20,000, you might manage. If you're used to living on $1 million a year and are suddenly cut to $20,000, that's going to feel like grinding poverty -- and realistically, if you haven't set something aside, you might lose your house, your car, your yacht, etc. – Jay May 7 '15 at 16:45
  • If you're used to $1M the discussion about EF should not be of irrelevance. Either you know how to handle money or you will certainly not deserve my pity. – Ghanima May 7 '15 at 17:15
  • If someone who was making $1 million a year suddenly finds himself broke, let's say I won't be at the head of the line to make contributions to bail him out either. But that's exactly why someone in such a position should have good financial planning -- because few will feel sorry for him if he screws up. – Jay May 7 '15 at 21:03
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The issue is how likely you will have zero income for six months, and what are your monthly expenses.

If you know the maximum medical bill you face that may allow you to save a smaller amount. But you still have to protect for that loss of income. The interuption could be because of job loss, medical emergency, or other family crisis.

If I told you that the chances you would face a crisis dropped by 50%, would you decide that the need for an emergency fund went away? Or would you still create a fund? I think the need still exists just to avoid the downside if you aren't prepared.

  • To clarify my question (I'm going to edit it), I recognise that reduction of risk probably isn't going to mean no emergency fund is needed at all. My question is about how much smaller one might reasonably decide to make it in light of the reduced risks. – John Doucette May 5 '15 at 18:16
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There are, of course, many possible financial emergencies. They range from large medical expenses to losing your job to being sued to major home or car repairs to who-knows-what.

I suppose some people are in a position where the chances that they will face any sort of financial emergency are remote. If you live in a country with national health insurance and there is near-zero chance that you will have any need to go outside this system, you are living with your parents and they are equipped to handle any home repairs, you ride the bus or subway and don't own a car so that's not an issue, etc etc, maybe there just isn't any likely scenario where you'd suddenly need cash.

I can think of all sorts of scenarios that might affect me. I'm trying to put my kids through college, so if I lost my job, even if unemployment benefits were adequate to live on, they wouldn't pay for college. I have terrible health insurance so big medical bills could cost me a lot. I have an old car so it could break down any time and need expensive repairs, or even have to be replaced. I might suddenly be charged with a crime that I didn't commit and need a lawyer to defend me. Etc.

So in a very real sense, everyone's situation is different. On the other hand, no matter how carefully you think it out, it's always possible that you will get bitten by something that you didn't think of. By definition, you can't make a list of unforeseen problems that might affect you! So no matter how safe you think you are, it's always good to have some emergency fund, just in case. How much is very hard to say.

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