The Importance of Having a Contingency Fund
March 30, 2011 3 Comments
This letter was written in 1939,ten years into the Great Depression, by Warren Buffett’s grandfather Ernest, to his youngest son (and Warren Buffett’s uncle) Fred, and his wife. Warren found it in a safe in 1970 while executing a will of a family member…along with $1000. I believe I will gift a copy of this letter and cash for a contingency fund to any children I might have.
Dear Fred & Catherine,
Over a period of a good many years I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash. I have known people who have had to sacrifice some of their holdings in order to have money that was necessary to have at that time.
For a good many years your grandfather kept a certain amount of money where he could put his hands on it in very short notice.
For a number of years I have made it a point to keep a reserve, should some occasion come where I would need money quickly, without disturbing the money that I have in my business. There have been a couple of occasions when I found it very convenient to go to this fund.
Thus, I feel that everyone should have a reserve. I hope it never happens to you, but the chances are that some day you will need money, and need it badly, and with this thought in view, I started a fund by placing $200 in an envelope, with your name on it, when you were married. Each year I added something to it, until there is now $1000 in the fund.
Ten years have elapsed since you were married, and this fund is now completed.
It is my wish that you place this envelope in your safety deposit box, and keep it for the purpose that it was created for. Should the time come when you need part, I would suggest you use that you use as little as possible, and replace it as soon as possible.
You might feel that this should be invested and bring you an income. Forget it – the mental satisfaction of having $1000 laid away where you can put your hands on it it, is worth more than what interest it might bring, especially if you have the investment in something that you could not realize on quickly.
If in after years you feel this has been a good idea, you might repeat it with your own children.
For your information, I might mention that there has never been a Buffett who ever left a very large estate, but there has never been one that did not leave something. They never spent all they made, but always saved part of what they made, and it has all worked out pretty well.
This letter is being written at the expiration of ten years after you were married.