Emergency Savings: Cardone vs. Ramsey

Steven Neeley, CFP® |


“You don’t need savings.”

That’s a quote from an interview with Grant Cardone where he attacks the popular advice of Dave Ramsey. I’m sure we can all agree that neither man lacks confidence.

Here’s Cardone’s argument:

“People save their money because Dave Ramsey said: ‘Save your money, save your money, you need three months of savings,’” says Cardone. “No! What you need is cash flow forever. Because if you have cash flow, you don’t need savings. “Savings are spin. Cash flow can be used.”

Sure. I mean, I guess he is right in that savings is irrelevant if your income exceeds your expenses.

Regardless, Cardone overlooks a crucial aspect of income investing: Income gets cut during downturns. Renters get laid off and stop paying rent, companies default on loans, dividends get slashed, etc.

Professional commercial real-estate investors typically maintain between 3 and 6 months of operating capital in reserve to pay for things like plumbing, a new roof, or vacancies. It’s bizarre that Cardone, a real-estate guru, eschews this advice.

I love income investing. Income is a critical component of total return and it’s essential to ensure a successful retirement, but Cardon’s advice taken at face value could lead to situation which you might not be able to recover from.

One of the biggest mistakes I see income investors make is loading up on high yielding investments while leaving no cash reserves in place for tough times.

When tough times do come around, income investors often experience brutal losses, and because they are living off the income, they have no ability to load up on income producing assets that have gone on sale after a market crash.

They wind up in a death spiral where their income is reduced, which forces them to sell assets to cover their expenses. Even when asset prices recover, these investors can never get back to where they were because they own fewer shares and are stuck in a loop where they are continuously forced to sell more assets in order to cover their fixed expenses.

If you have reserves, it’s unlikely that you will find yourself in this position. Why does Warren Buffett usually hold a large amount of cash? To make sure that he can weather any storm and pounce when assets become cheap. Most investors should follow that philosophy.

But back to the original question:

How Much Should You Keep in anEmergency Fund?

Like nearly everything in personal finance, the answer, of course, is it depends. Very unsatisfying, I know.

What do the experts say? Well, the rule of thumb bandied about on the internet is generally 3-6 months of savings, and I think that is a totally acceptable range.

The idea here is to have enough savings so that you invest the rest of your money for the long-term without worrying about having to tap into it should you lose a job or get hit with a large, unexpected expense.

My general advice for someone who is just starting out would be to have more emergency savings in the beginning, like around 6 months’ worth, and as your investment portfolio grows, you can slowly whittle it down to 3 months.

Top Considerations

If you do a web search on this topic, you tend to see a lot of focus on considering things like job stability, debt, dependents, financial goals, etc. All these things matter, but here’s what I consider more important:

1. The size of your investment accounts

The determining factor here is how much you have in a taxable brokerage investment account with no restrictions on withdrawals versus retirement accounts that restrict your ability to withdraw funds.

If all your non-emergency savings is in retirement accounts like 401(k)s or IRAs, I would tend to keep something closer to the 6 months in an emergency fund for a couple of reasons.

First, you may not be able to tap your 401(k) while you are still employed. While many plans allow for emergency loans, there are plenty that don’t. Even those that do will restrict the total loan amount to the greater of $50,000 or half of your vested account value.

Second, if you are laid off, and therefore able to withdraw funds from your retirement account, you will have to pay a 10% penalty on the distribution amount if you are under age 59.5. Additionally, you’ll pay income taxes on the full withdrawal amount at ordinary income tax rates, i.e., not the more favorable capital gains tax rates.

In short, you should make sure that you only withdraw from retirement accounts as a last resort.

If, on the other hand, you have a decent amount of money in a taxable brokerage account, then you probably don’t need to keep as much in emergency savings. This is where I tell clients, 3 months of savings is probably enough.

And sure, withdrawing from a brokerage account isn’t costless. You may have to pay capital gains taxes if you sell something that has appreciated, and you may pay modest transaction fees, but those expenses will likely be far less than the penalty and ordinary income tax rates you pay on a 401(k) withdrawal.

2.Your psychological disposition

If you tend to get panicky watching the news and worry a lot about how much money you could lose during a severe recession, then keeping more in emergency savings is probably a good idea, even if you don’t make as much money in the long run.

I focus a lot on helping retirees, and for them, I like to keep 6 months to a year’s worth of expenses in savings. Now, 6-12 months for a retiree is not typically as much as it would be for non-retirees given that retirees have guaranteed income like Social Security and perhaps pensions and annuities, but it’s still a decent amount of cash.

Why hold so much? The answer is that retirement is a big transition for people with lots of uncertainty, and I want my clients to feel as secure as possible. If they know that no matter what happens in the financial markets,they always have a year’s worth of cash in the bank, it helps them stick to their investment plan.

Even if you are not close to retiring, you may want to hold more cash if you know that it will help you ride out the ups and downs of the stock market.

3. Passive income

The more passive income you have, the less you need to hold in reserves. This gets to Grant Cardone’s point, though I’m not willing to concede that having passive income means that you don’t need to have any emergency savings at all, rather it means you probably don’t need as much.

Here again, if you are just starting out with investing, you are unlikely to have built a large enough portfolio of income generating assets to justify not having a sizable cash reserve. However, if you have built a sizable income producing portfolio, you probably don’t need to keep as much in an emergency fund. Just don’t keep zero!


Emergency savings serve as a buffer against the unpredictable, a safeguard during times when income streams may dry up or when life throws unexpected challenges. The balance between having cash reserves and generating cash flow is delicate and personal.

While Cardone champions the relentless pursuit of cash flow, the wisdom of Ramsey’s conservative savings approach cannot be disregarded. A hybrid strategy that incorporates the strengths of both viewpoints may be the most prudent path for many. Starting with a more substantial emergency fund and gradually adjusting it as you build income-generating assets is a balanced approach. This strategy accounts for the unpredictability of life, market fluctuations, and personal comfort levels, while also striving for the financial growth Cardone advocates.

As with all financial advice, flexibility and adaptability are key. Whether it’s Cardone’s cash flow focus or Ramsey’s savings strategy, the goal is to achieve financial security and peace of mind. Therefore, regularly reassess your financial landscape, adjust your savings accordingly, and always be prepared to pivot as your life and the economy evolve.



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