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Emergency Fund?

November 7th, 2006 at 02:00 pm

Ok, so the debate that everyone has is one that I cannot settle with myself. Any of you have advice for me? The issue is that our family does not have an emergency fund established. Yes, we have savings to cover the expenses that occur on a semi-annual or annual basis. Yes, we put aside $50 into a non-retirement mutual fund each month (bal is up to $8k). The reason we haven't officially designated an e-fund or consciously save each month toward an e-fund is because we have over $100k worth of unsecured credit limits. We haven't charged on these cards for over 3 years. When we were actively paying down the cards, I played the balance transfer game (quite well, I might add) and was able to grab up some really good credit card accounts at very decent rates. I didn't close these accounts but again we don't use them at all and haven't for years. Oh, and just as FYI, the reason we had credit card debt is the typical college scenario of not knowing any better as well as charging some school tuition on the cards... the interest I got on the cards vs. getting a student loan was actually much better in my situation. Gosh, does it feel good not to have any credit card debt floating around!

So, should I continue just considering these credit cards my e-fund in the event that we would ever suffer a true emergency? I know arguments can be for either side... I have been going along the idea that we should put all our extra pennies toward paying off our final car loan and then maybe start actively pursuing a true e-fund savings. Whatcha all think?

Posted in Uncategorized | 8 Comments »

8 Responses to “Emergency Fund?”

  1. Broken Arrow Says:
    November 7th, 2006 at 02:37 pm 1162910277
    1162910277

    If it makes you feel any better, this is a highly controversial issue that many people are not sure what's the best answer either.

    This is what I did for myself:

    1. First, I started with a baby emergency fund. That's 1k in cash. Once I reached that mark....

    2. I proceeded to tackle all of my credit card debts. That was almost 5k. Frown During that time, I had a baby emergency fund (in cash) and, if necessary, I could always use the credit cards again. Luckily, I never had to.

    3. Once I paid the credit cards off, then I started working on a full emergency fund, which was 10k.

    I just finished my full emergency fund recently, so now I'm back to tackling debt: My student loans.

    Anyways, feel free to adapt it to how ever you wish is best. There isn't always a clear cut answer for everyone, but there can certainly be an answer that works best for you and your family.

    Also, please remember that you can split your funds and do a little bit of both at the same time. Personally, my main strategy was to pay down the credit cards and use that as an emergency fund. However, I did not do so until I had a tiny emergency fund first.

    Hope that helps!

  2. monkeymama Says:
    November 7th, 2006 at 02:58 pm 1162911504
    1162911504

    I don't see anything wrong with that. While I am building up my e-fund, I consider the 0% cards my alternate source of emergency funding. I tend to err on the side of paying off debts first before saving, so I totally understand where you are coming from. I think for the long-term you will want to build it up so you don't have to rely on credit. BUT in the meantime if you wanna pay your loans first - go for it.

  3. creditcardfree Says:
    November 7th, 2006 at 03:40 pm 1162914043
    1162914043

    I understand your line of thinking. And I tend to agree with Broken Arrow's post. However, cash is king. An cash emergency fund doesn't require you to pay interest, and it doesn't require you to make payments. There are no penalties or taxes (except on the interest you earn). In a major emergency, such as a job loss these factors are huge! I say try the cash emergency fund and see how it feels. If you don't like it, invest it elsewhere or spend it.

  4. ldyfaile Says:
    November 7th, 2006 at 03:44 pm 1162914299
    1162914299

    I am working on a small 1k efund. Similar to what Broken Arrow already mentioned. I figure I don't want to turn around and charge something because I don't have an emergency fund built up. I always sock away a little every paycheck regardless, $10 twice a month goes to ING and $35 total goes to my local bank's savings account because part of the condition of my checking account is a $25 auto transfer every month (which I already had set up and that basically helped qualify me to move to their new account structure). Once I get my credit card debt taken care of then I'm going to decide what to do next, build up efund to where I really want it (14k) or pay off student loans.

  5. Ima saver Says:
    November 7th, 2006 at 04:24 pm 1162916683
    1162916683

    I think I would build up an emergency fund first, then pay all you can on those credit card debts.

  6. Aleta Says:
    November 8th, 2006 at 02:02 am 1162951375
    1162951375

    There isn't any reason why you can't do both. When we first starting climbing out of debt, we were told to at least save $5. a week for savings and to allocate something even though it was only $10.00 a month for entertainment. It won't help you if every penny goes to debt and you don't see any savings or never have ANY fun. Fun to us was renting blockbuster movies or becoming creative and looking for some free things to do. It's not easy in the beginning, but it all does fall in place. You're not saving much, but you are putting yourself in the habit of saving something. Also, one other thing! You don't get an deduction for paying off debt anymore, but you will be taxed for the money you earn. Why pay 15 % or so on your earnings? Save a little, have some fun, and at the same time pay off your debt and you won't become so frustrated with the process. I know , my husband and I did it. He is not the saver; Iam. But you have to make the decisions to take it a little at a time.
    Aleta

  7. Michelle Says:
    November 8th, 2006 at 02:47 pm 1162997251
    1162997251

    I would consider as little of the 8k as you feel comfortable with your emergency fund and plug the rest away at that debt! We payed of 42k using only a baby ef of 1000$ no problems and it works(thanks Dave Ramsey!). We are now working on our fully funded emergency fund. Best of luck!

  8. quippymcflippy Says:
    November 8th, 2006 at 04:23 pm 1163003027
    1163003027

    I like what I'm reading here about the idea of a mini emergency fund.

    All 4 money, I too am generally in the school of thought that debt servicing is more important to our situation at this time. "This time", of course, being BEFORE I broke my foot and had to rely on credit cards and some habit changes to get us through. Big Grin

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