Comments on: Emergency Funds, Doing Okay?

By: JFTDMaster

JFTDMaster — Thu, 29 Sep 2005 01:47:35 +0000

One could use EmigrantDirect.com’s 4% savings rate for some of that cash, better than the below-inflation-rate “savings” rates at most banks.

By: mbhunter

mbhunter — Sat, 17 Sep 2005 01:55:24 +0000

Boss, good job recovering!

It’s good to hear that blogs are talking about havinig an emergency reserve now. I’m not sure what it will take to get people into action, though. The article mentioned here (I posted on this one also) really is an invitation to take the easy way out. Debt only goes so far. “Flexibility” in this article is a euphemism.

Instead, pay off the CCs and save the money! Don’t expect Uncle Sam or the kindness of strangers to bail you out.

By: Caitlin

Caitlin — Fri, 16 Sep 2005 23:03:59 +0000

“emergency cocktail” … I like it :)

seriously though this is what I’m aiming for…a smallish amount of cash to buffer the unexpected but not so much tied in cash that I am missing an opportunity to use cash to grow itself.

I guess i tend to think everything will be ok in the long run, so I”m willing to take some chances…I’ve been there and survived ;)

ex. I didnt technically use my HELOC for monthly expenses, but I did move about $5k of a 7% auto loan to my HELOC which was a bit over 4% at the time. which cut my monthly expenses by about $400. I paid (slightly) more than each month’s interest on the HELOC and the interst was deductible so it really helped us out (we had no emergency funds)

By: Boss

Boss — Fri, 16 Sep 2005 19:32:19 +0000

Just last year I unexpectandly lost my job. Luckily I had an emergency fund for 3-4 months of expenses. Thinking back, I couldn’t imagine I’d want to tap into a HELOC not knowing when I would find another job. Knowing that you aren’t creating more debt while paying bills is a peace of mind I wouldn’t live without. I now have the efund built back!

By: Canadian Capitalist

Canadian Capitalist — Fri, 16 Sep 2005 15:37:54 +0000

I don’t have an emergency fund because:

1. Our net worth is many times our annual expenses.
2. We have a lot of equity in our home, so we have a credit line at prime that can easily cover one year of expenses.
3. We are very disciplined to tap our credit line strictly for investment purposes or dire emergencies (No vacations charged to the credit line).
4. I can either earn taxable interest or pay off our mortgage (and indirectly save interest tax free). The spread is something like 4%.

I made two posts on this issue:
http://canadiancapitalist.blogspot.com/2005/09/emergency-funds.html
http://canadiancapitalist.blogspot.com/2005/03/are-emergency-funds-for-everyone.html

Some caveats:
1. The strategy may not be suitable for everyone even if they can afford to. Sleeping well at night is more important that earning a few more basis points in interest.

By: Flexo

Flexo — Fri, 16 Sep 2005 04:50:08 +0000

Good thoughts — the most effective way to have money available is to combine choices for a cocktail of a portfolio.

By: Jerry Kindall

Jerry Kindall — Thu, 15 Sep 2005 22:04:53 +0000

Assuming you are eligible, a Roth IRA can make a good backstop. Keep a couple months’s living expenses in savings, and in the face of a real emergency that exhausts this cushion you can draw on your credit cards or home equity in the short term. If the emergency becomes prolonged or overwhelmingly large, then you can always withdraw your Roth contributions without penalty. It is a last resort, but assuming it’s not your only retirement account (e.g. you have a 401(k) or pension) and have been contributing for a few years it shouldn’t be TOO painful.

By: Marcus

Marcus — Thu, 15 Sep 2005 21:03:32 +0000

Like most of these decisions, it’s possible to play multiple hands.

I keep barely 3 months in penalty-free accounts, wagering that if I had to pay the penalties to withdraw funds from other accounts, they will have grown more than the paltry interest in my bank accounts. Since “emergencies” aren’t common, I’ve already made more than enough to compensate for any penalties (While I’ve had to tap into my 3 month fund from time to time, I’ve never had to tap into the 4-6 mo. fund in the ten years I’ve had it.).

I have a HELOC at the ready, too, and could opt to use that rather than pay the penalty, if the need arose.

By: Lauren

Lauren — Thu, 15 Sep 2005 20:43:12 +0000

As a 22-year-old, the opportunity-cost issue is a major factor. I do have 6 months of living expenses in an account (barely beating inflation), but that money sure would be nice in my retirement account, considering how long it has to grow. 6 months of expenses now could become a lot of money over the course of 43 years…but I’m too much of a chicken not to have it saved.

By: Hazzard

Hazzard — Thu, 15 Sep 2005 19:26:05 +0000

I’m with you. No takes better care of me financially, than me. I’m not going to put my trust in a credit card company to cover me if a major disaster happens. I have a pretty large emergency fund (probably too large at this point) which gives me piece of mind. I also have a HELOC with a zero balance just in case. (It was a zero cost option)

Hazzard