In Case of Emergency Sell Ass.
So the challenge today is to create an emergency fund. Well, I already have an emergency fund. If anything, my fund is too large with inflation nipping at our heels. Probably should put some of it in my Roth IRA, so at the very least, I will stop buying comic book art at Heritage Auctions.
So unlike yesterday’s challenge (The time diary) I found today’s excellent and sensible (I was talking further with my friend Brooklyn about yesterday’s challenge and noted. “Time management diary really is a visceral no from me. I have had jobs in the past (consulting) where I had to document every 15 minutes for the client and I think I still have a touch of PTSD from that anal pointless task.”)
There are a couple of caveats to the overall advice, however. First, the idea of putting your emergency fund in an online high yield savings account is laughable. First of all, the highest you could hope for is around .005% nowadays. I really don’t think that the extra $18 a year is really worth dealing with an extra tax form. (And that is with a very healthy emergency fund).
In addition, a large part of an emergency fund is being able to access it in an emergency. An online savings account may provide a debit card of some sort, but it is hardly ideal in an actual emergency.
Speaking of debit cards, my second caveat is do not have an emergency fund till you zero out your short-term high interest debt. AKA your credit cards. Putting fifty dollars every two weeks in a savings account while you carry a balance on a credit card is insane. Ryan should have emphasised this a bit more. Paying your credit cards to zero is job one in any plan.
Speaking of Credit Cards
No, I am not blaming the New Year New You challenge for this idiocy. “Most people are not financially ready for an emergency. According to a survey from Bankrate, 57% of Americans couldn’t cover a $400 unexpected expense. And 45% of Americans reported incurring a major unexpected expense in the past 12 months. More than 150 MILLION Americans don’t have an emergency fund and are just a few hundred dollars away from financial hardship. That’s as easy as getting in a fender bender or spilling coffee on your laptop.”
I am familiar with this survey, and it is more than a tad misleading. The first question forbids people from using thier credit cards to cover the $400. There are plenty of people who don’t carry a balance and have say 20k in credit and that is thier emergency fund. It is a sensible way to do things. Same goes with those who have a HELOC set up that is untapped. Need a new roof? Write one of the brown checks to the roofer. The survey makes it sound as if most Americans don’t have enough money to cover a Costco run and that is simply not true.
The second part ” More than 150 MILLION Americans don’t have an emergency fund and are just a few hundred dollars away from financial hardship.” is even more misleading. As I noted above, if you have plenty of available credit, you have a version of an emergency fund and are not a few hundred dollars away from financial hardship. In reality, the survey is even worse. It does not include debt or equity you can tap in an emergency, it also does not include cash that is not specifically in a savings account. So if you keep your 10k emergency fund in a checking or brokerage account according to the survey, you to are a few hundred dollars away from financial hardship
Once again, I hardly blame The Stoic Challenge for this somewhat misleading sales pitch. Everyone has dragged this chestnut out from the media to the banking industry, even though the banking industry certainly knows that it is bollocks. That said, while the percentages are certainly exaggerated, there is no question that too many Americans are horrible with money and flat broke every month.
A Good Challenge
Even if you rely on your consumer debt or your home equity in a real emergency, it is still a good idea to have some cash available as well. One of the keys here is available. You don’t want to be at the emergency vet hospital at 3am and find out that your “card” with your savings account is not working. Kitty is depending on you. (About half my emergency expenses over the last twenty years have been vet or dental related. Always at 3am on a Saturday I notice. You need a reliable, hassle free card.)
Well, we see what tomorrow brings.