Tag Archives: emergency fund

Get Rid of My Emergency Fund? Everyone Says “No” — I still think yes.

My earlier post on how I want to get rid of my emergency fund and instead invest the money into stocks led to a few commenters practically saying that’s the dumbest idea in the world — after all, an emergency fund is for, well, emergencies, and should be available in case something bad happens.

I don’t think I’d want to put the entire $8k into stocks, but at .35% or even 1% interest, it’s just a wasted investment opportunity, esp with the market still probably at a lowish point. I could be wrong and the market could collapse again at any moment, but I’m confident that I can find a way to earn enough per month to pay my basic necessities (probably $1000 / month total including rent if I get desperate and need to cut back.)

This is why I prefer to invest with my savings then buy a house/condo. My rent is cheap and if it so happens I can’t pay rent, it would really suck, I’d have to move out and crash with a friend or find an even cheaper place to live, but I wouldn’t loose all the money I invested in a house, paying off the giant gobs of interest that you have to pay to afford a house in the first place.

Now, the shit could hit the fan and all stocks could drop to $0, and I’d be poor with no emergency fund, but chances are that isn’t going to happen. Worst case the market goes down for a while and I end up losing money instead of making money. Best (reasonable) case that $8000 earns 10% interest in the stock market and in one year I have $8800 plus dividends.

Emergency funds are important if you don’t have a back up plan, or you have kids and other major responsibilities. I know I could manage to get enough freelance work to cover my basic living expenses month to month — because I am focused on keeping those expenses low. Without a mortgage, I think it’s more reasonable to live without an emergency fund. Just don’t spend that money on random stuff, invest it in something you could sell if you needed to, even if it loses some of its value and you have to pull it out for less than you put in. I’m probably going to cancel my CD this week with the $8k, but I haven’t fully decided what to do with the cash yet. At least I can save $2k per month if needed, so I could quickly build up my emergency fund again as long as remain employed. I guess if I get hit by a car and can’t work and lose my health insurance I’d be screwed, but even with a sizable emergency fund, $8k isn’t exactly going to cover medical bills like that anyway, I’d be better off taking my chances and trying to turn that $8k into more money before I need to use it for an emergency.

 

Put that rebate check into your emergency fund, before it’s too late!

If you work a full-time job and aren’t making a gadzillion dollars, chances are you’ve received (or will receive) a $600 check from the government.

Whatever you do, DON’T use it to “stimulate” the economy.

Don’t let the Iraq war fool you –
It’s not patriotic to be in debt.

For all of you folks out there who always say that you don’t have enough money to start an emergency fund, this handout really is a prime opportunity. Take your $600 (or whatever amount you received), spend, say $100 of it, if you feel the need to, and put the rest of it in a high-interest savings account.

If you haven’t started an emergency fund yet, this is now your emergency fund. While an emergency fund should have more than $500 in it, at least that’s a start.

Try to add $20-$50 a month to this savings account. Otherwise forget the money exists.

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WEALTH, MONEY AND LIFE NETWORK SERIES

The Wealth Money & Life Network is a team of personal finance bloggers ranging in age from 20-60. Each month, we choose a different topic to focus on and write posts about from our perspective. This month’s topic, if you haven’t guessed, is “emergency funds.” Check out some of the other great posts on this topic over at the WEALTH, MONEY AND LIFE NETWORK

Emergency Funds: Save Yourself

THIS IS PART OF THE WEALTH, MONEY AND LIFE NETWORK SERIES.

Sometimes it’s easy to spend every last time we earn and then some. Being in debt is almost synonymous to “being American.” The American Dream is to not have to worry about money spent because, at some point, it will magically reappear. Maybe the streets aren’t paved with gold, but opportunities will eventually balance illogical spending.

The fact is, for most of us, that’s not true. That’s why it’s vital to have an emergency fund. An emergency fund is basically a certain amount of money that’s set aside in a liquid savings account, that can be accessed in cases of – here’s the keyword – emergency.

Having to go on a last-minute vacation does not qualify as an emergency. Needing to get a new shirt definitely not does qualify as an emergency. Losing your job and needing money to pay the rent and eat, does.

It’s actually fairly easy to save up an emergency fund if you budget wisely. Even these days when the economy is so awful, there are ways to save. Skip your morning Latte at Starbucks, put your change into a piggy bank, don’t buy a new outfit this month, etc.

If you’re starting from scratch and your salary seems too low to start a fund, start small. Open a savings account online, pref. one that earns “high interest,” and put in your first $25 when you get your next paycheck.

Every month, promise yourself that you’ll save $25. When you get into this habit, bump it up to $35, and keep going until you’re saving $50 – $100 a month, more if possible.

Ideally you should have about $5000-$8000 in your emergency fund.

I was keeping $5000 in a liquid CD which I considered to be my emergency fund. I’ve recently liquidated that CD, but I’m moving the money over to my ING account which I’m planning to label “DO NOT TOUCH.”

It’s so much better to have that money to tap into when something wicked this way comes in one’s life. Having the fund means you can avoid at least some of the stress that comes with not having enough money to pay for an emergency – bounced checks, collection agencies, bad credit, or even bankruptcy.

Here are some more tips for saving money:

Bring cash to the grocery store, and a list of things you need. Overestimate on the cash that you bring a bit, but stick to your list when you go shopping. Put all of the change into a piggy bank in your room. Every six months or so, bring that to the bank to put into your emergency fund.

Turn off your lights except when you need to use them at night. Take the estimated savings on your electric bill and put it towards your EF.

Don’t go overboard on gifts. This is a hard one for some people. Remember, it’s the thought that counts. The money you spend on a gift for someone else is money that could be saved. I’m not advising you to stop giving gifts entirely, but you don’t need to spend large sums of money for your friends OR significant others. (Especially in boyfriend/girlfriend land, where sometimes gifts can end up costing hundreds of dollars.) Enter into a relationship (or friendship) in a healthy way, including setting gift expectations, will help everyone involved save money and get into good financial habits for the future.

Rebate check? Screw saving the economy, “save yourself.” \ You know that $600 rebate check you received (or will receive) this year? Put it directly into an emergency fund. I know it won’t necessarily help the current economy that way, but what do you owe the economy? Poor spending habits got us all into this mess. To really help the economy, everyone in this country needs an emergency fund and needs to learn how to save!

What do you do to save?

Read what other WLM-Net Bloggers have to say about emergency funds:

Dollar Frugal: Emergency Fund Etiquette (sorry to DF for leaving this post off of my list originally!)
The LocoMono Website: Defining Your Emergency Fund
How I Save Money: Save Money in an Emergency Fund
Saving for a Home of My Own: Rebate Check —> Emergency Fund
Dividends4Life: Are there cracks in your foundation?