If you needed to leave a toxic job, relationship or other situation, would you have the money to make that possible? For many Americans, the answer is a resounding and unfortunate no.
A 2015 GOBankingRates.com survey of 5,000 Americans found that more than half of those surveyed had less than $1,000 in a savings account. This amount doesn't factor in retirement or other accounts, though other studies show many people aren't putting away enough for retirement either. A 2016 analysis conducted by the Economic Policy Institute based on data from the Federal Reserve Board's Survey of Consumer Finances showed that retirement savings have stagnated over time.
New terms for this type of savings account -- for instance, the Get Lost Fund -- have become popular buzzwords among personal finance bloggers in recent months. But it's not an entirely new concept.
Three decades ago, when Aaron Crowe, now a freelance writer covering personal finance and a former U.S. News contributor, was graduating from college, a journalism professor advised him and his classmates to build a Get Lost fund (with a more colorful name) in case they needed to leave a bad job or other situation. "He said we'd all probably need to use it someday," Crowe says. "I couldn't add much money at first because of my low income, but I slowly did and used what little I had about three years later when I found another job and wanted to quit," Crowe adds.
Crowe used the seed money he'd saved to set himself up in a new apartment in a new city, Fairfield, California, before starting a new job. "The price of housing was higher where I was moving to so I had to pay more for rent, come up with the first month's rent and I think there was a security deposit," he explains.
Crowe, who still lives in California, says his fund has morphed into an emergency fund for things such as car repairs or replacing a broken air conditioner. "But if you can afford to have both, then great," he adds.
Financial planners say reframing the emergency fund in more stark terms could help people who are new to personal finance understand the importance of saving. "Emergencies are what happen to everyone else," says David Metzger, a certified financial planner and senior advisor at Plante Moran Financial Advisors in Chicago. "A 'Get Lost Fund' is something we can all relate to. Focusing on building a reserve fund first and reframing the discussion about emergency funds into a metaphorical escape hatch from a less than ideal situation can be incredibly empowering," Metzger says.
Metzger recommends that clients save up reserve funds equal to three to six months of living expenses. "[This savings] enhances one's bargaining position and provides the means necessary to walk away from a bad deal, a bad relationship or otherwise take risks and pursue opportunities they would not otherwise be in a position to take without one," he adds.
Jennifer Harper, founder and director at Bridge Financial Planning in Chattanooga, Tennessee, has seen firsthand what can happen to people, especially women, who don't have sufficient savings. "I once had a friend that was in an uncomfortable harassment scenario at work, but she felt she 'couldn't' leave because she didn't have an emergency fund," Harper says. If that friend had had a decent-sized Get Lost Fund, she could have left that job and covered her living expenses while she looked for a new one instead of remaining in a bad situation indefinitely.
For those in abusive relationships, the need for this kind of lifeline is even more important. "Often the abuse takes many forms, including control of finances," Harper says. "The ability to maintain a Get Lost Fund is a very real pathway to independence and freedom from their abuser," she adds. "Unfortunately, that scenario often precludes the ability to maintain one [because the abuser may take control of the other person's finances]." The person who's experiencing abuse may feel financially strapped due to a lack of savings or credit in their own name or because they've been isolated from those who might be able to provide financial or emotional support.
[See: How to Live on $13,000 a Year.]
Still, for more typical situations, not all experts see a need to reframe the emergency fund or rainy day fund as something more colorful. "In my experience, most people understand the importance and flexibility associated with an emergency fund," says Daniel Frankel, a certified financial planner and founding principal of financial planning firm WealthCollab LLC in Seattle. "Unfortunately, people don't save because it is easier to prioritize today instead of planning for the future," he explains. "It is very unlikely that this will change that behavioral dynamic."
However it's framed or named, Frankel agrees with the importance of savings. "We could all do a better job demonstrating that an emergency fund increases your flexibility and autonomy," he says.
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