Concept Mapping: Actuarial Reserves vs. Emergency Funds

As a recent college graduate who just started out working, when you first save up $10,000, what would you do with the money?

Among my friends, I see there are two extreme cases---The case of spending it--two of my friends, one bought a BMW (this one is a special case, he bought it half a year before he graduated from college because he knew how much he would be making after graduation) and the other one bought a Lexus recently.

On the other hand, there's a case of saving it- another friend is putting her first 10k to a money-market fund and setting up her first appointment to meet with her family financial adviser.

I know each of us have different priorities in life and I can't say who's doing it right and who's doing it wrong.

For me, the first thing I would do (and am actually doing) , is to build my emergency fund. If an insurance company keeps an actuarial reserve to pay off future liabilities, it makes sense for an individual to save. According to this article from, it is recommended that your emergency fund should equal to "at least 3 to 6 months living expenses", in case of any unexpected happens in your life. (Of course you will build your house on rock so it won't collapse, right?). And come on, some of us are working for insurance companies and you know how life can be totally unexpected.

I've been telling my parents about this theory of building my financial foundation. Perhaps they don't really understand it (which I don't really expect they can fully understand it, because I'm living a life they've never experienced before).

Perhaps, this time, they can understand the importance of having an emergency fund (especially since I'm here, all by myself (literally)). For some of us here, your family are just too far away to look after you and you are solely responsible to take care of yourself (physically and financially).


Jessica said...

It's a bit like checking out the haircut of the stylist you pay to cut your own hair. I think the heart of risk management is knowing your own comfort level with risk and being prepared to live with all the consequences.