Defense Wins Championships. So Do Emergency Funds

A good defense is just as important as a good offense, and as the author illustrates, this applies to personal finance as well as football.

In sports you hear the old adage all the time, defense wins championships. Although offense is what sells the ads, what sizzles and what grabs the headlines, it’s the boring old defense that matters most.

Coaches know this, players know this. Fans forget this.

Leading up into the 2021 Super Bowl we heard the hype about the prolific offenses of the both the Tom Brady lead Tampa Bay Buccaneers and the defending Super Bowl champs, led by Patrick Mahomes. In the entire history of the NFL, only 3 quarterbacks had ever thrown for more than 50 touchdowns in a season. Two were playing in this game.

After all was said and done, and Tampa Bay triumphed by a shockingly wide margin, 31-7. After the game was long over, the commercials were played, and Tom Brady received his MVP (again) the real story began to emerge.

Tom Brady wasn’t the reason the Bucs triumphed. The Buccaneers defense was the real reason.

Don’t think so? Take a look below.

As in football, when it comes to financial planning, most people limit their conversations to the offensive side of the ball, investing, stocks and the next “hot tip.” (GameStop anyone?)

We love to obsess on what is the market going to do; where will it will go next? These are offensive weapons, and like sports, offense sells.

But what about our defense? Things like an emergency fund, life insurance and CDs? Well, these tools are fundamental staples of a plan that aren’t flashy and frankly can be downright boring. They can also be the difference between winning and losing.

Just like in football, if you don’t have a good defense, or any defense at all, it doesn’t matter how good your stocks or “offense” is playing. You’ll never consistently win.

The Importance of an Emergency Fund

I believe there is one area where Feds need to shore up their defense more than any—their emergency funds. 

Since it happened two years ago, it might be a distant memory for many folks, but do you remember the shutdown? It lasted from December 22, 2018 to January 25th 2019. 35 Days in total.

How did you weather it? Why did so many federal workers panic during the shutdown? 

During those 35 days I often thought of the quote below:

You only find out who is swimming naked when the tide goes out.”

Warren Buffett

The shutdown was tantamount to the tide going out, and many were living in the style of “swimming naked” or paycheck to paycheck.

What follows next may seem insensitive – but we thought 30-45 days without a paycheck for most people should not have been a death sentence. College savings withdrawals, GoFundMe pages, and family loans were wildly reported due to the delay in paychecks. The hardships endured were so widely reported on that it created the then famous hashtag: #ShutdownStories.

For certain, many of these were real hardships and could not have been prevented. I’m not speaking to the people who, due to life’s circumstances outside of their control, are forced to live paycheck to paycheck. But what about the others? Could they have been better prepared?

The “tide” that went out in this case was the 2019 shutdown. But “tides” go out all the time in the form of leaky roofs, car accidents, shoddy furnaces, medical bills and more. We never know the exact form these unexpected bills take; we just know that they come. 

In the two years since the shutdown have you made any changes? Did you shore up your “defense?” We can turn to our Super Bowl champs again for guidance because they recently had to learn some lessons the hard way as well.

We may have forgotten that Chiefs and the Buccaneers have played twice this year. Before the Super Bowl last week, the Chiefs beat the Bucs 27-24 in week 12 of the NFL season, a game where the Tampa Bay defense got torched by Mahomes. He threw for over 500 yards and three touchdowns. The top wide receiver for the Chiefs, Tyreke Hill had 267 receiving yards, by far the biggest game for a receiver all year and the 14th biggest game of all time.

The Bucs defense was awful that day. Even Warren Buffet would have agreed they found themselves “swimming naked” and changes needed to be made. Fast. 

Like a good defense, the purpose of an emergency fund is to ensure we have resources set aside to counter life’s financial curveballs (e.g., the other team.) Robust emergency funds provide your team a much-needed margin of safety. You never hope you need it, but you’re glad to have it. They ensure you don’t have to get loans from friends, take early TSP withdrawals, or suspend funding your other financial goals to respond to the current crisis, whatever form it takes.

A good emergency fund also provides something much greater: peace of mind. Enough money set aside and you can read the headlines and say to yourself, “We’re going to be ok.”

So, now that we know we need an emergency fund, the real question is how large does it need to be? The advice on that remains varied but typically falls into one of two categories:

  1. You should have at least 3 months of bills saved up in a bank account.
  2. You should have 6 months of bills saved up in a bank account

I believe following the three to six-month rule is simply scratching the surface. Your strategy needs to be specific to you, your goals, your personal exposure. This differs from family to family and should not comply with some hard and fast rule found on the internet. 

I don’t think Todd Bowles, the defensive coordinator for the Bucs, designed his Super Bowl winning defensive strategy based on the football equivalent of a Dave Ramsey article he found by googling, “How do I stop Patrick Mahomes?”, nor should you with your defense.

So what next? Here are the key takeaways:

  1. Defense wins championships. Build your emergency fund.
  2. Given enough time, we will forget defense wins championships. Start building your fund now.

Don’t wait. Take the very recent lesson afforded by the Super Bowl champs and take a look at your own defense. Ask yourself the questions, what would I do if any of the following happened?

  1. I didn’t get a paycheck for 2 months.
  2. I lost my job.
  3. Had to take a 10% pay cut.
  4. I needed 10,000 to pay for a furnace
  5. I was asked to cover 10,000 in medical bills for a relative.

What is your exposure? Where would you get the money? Are you swimming naked? Is your emergency fund up to it? Do even have an emergency fund?

Remember, without a good defense, it doesn’t matter what kind of offense you possess: a great stock picking ability, the perfect TSP market timing strategy, or a ton of Robinhood Redditt friends giving you advice. You won’t win.

Just ask the Kansas City Chiefs.

The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.

Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Mission Point Planning Group and Securities America are separate companies

About the Author

With over 17 years of experience as a financial planner, author and educator, Anthony Bucci helps Feds ‘cut through the noise’ and make retirement decisions free from opinion, emotion and conjecture. Find out more about Anthony by visiting Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.