Like many of you I have been laid off at times during my career and each time my emergency cash fund has definitely helped me out.
An emergency cash fund is a savings account that will cover your living expenses i.e. rent/mortgage, utilities, food for several months in case your income stops due to layoff accident etc. The goal for my fund has always been 8-12 months. Financial experts like Suze Orman are really stressing the importance of an emergency cash fund An emergency cash fund is a savings account that will cover your living expenses i.e. rent/mortgage, utilities, food for several months in case your income stops due to layoff accident etc. The goal for my fund has always been 8-12 months. Financial experts like Suze Orman are really stressing the importance of an emergency cash fund "If you do not have an emergency savings account that can cover up to at least eight months of living expenses, you need to get very serious about funding that
account ASAP"
account ASAP"
If you don’t have an emergency cash fund and still have income coming in, live on half of your salary and put the other half in the emergency fund. Besides needing the cash for your emergency fund if you lose your job your unemployment benefit will be half of your salary. Learning to live on ½ your salary now will help you if you do lose your job in the future.
If you have credit card debt and a low or no emergency cash fund experts say “If you have an unpaid credit card balance and not much saved up in emergency savings” “only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can.”
There is another advantage to just paying the minimum balance on your credit cards that I never realized before. . If you carry a balance on any card and close down another credit card you will actually reduce your FICO score or your credit rating. Your total debt in relation to your total available credit line - will affect the credit rating –for instance, total debt is $2000.00 you have 5 credit cards with $2000.00 each lines of credit total line of credit is $10,000. If you close down a credit your card your available credit is reduced to $8,000.00.
For those of you who an emergency Cash Fund and have credit card debt Suze Orman states ‘For those of you with a fully-funded emergency account, please make it a priority to pay off any credit card balances as soon as possible.” Payoff the credit card with highest interest rate first and don’t add to the balances. Pay cash or check for everything.
An Emergency cash Fund is something we hope we never need but in this economy it is becoming a necessity.
Great article on helping families save. All your information on how and why to build an emergency cash fund is very well thought out
ReplyDeleteThis is not especially useful for the millions of us, the underemployed wage earners, who can only laugh at the suggestion to "live on 1/2 of your salary."
ReplyDeleteMaybe the key word here is "salary." Wages tend to be far lower than salaries! Most of your readers earn wages. Wages typically range from $7.50-$19.50 an hour. Even those of us earning above $15.00 an hour could NEVER live on "1/2" of our earnings.
Simply to pay for a cheap apartment or mortgage, utilities (heat, electricity), property taxes (or condo fees if you don't own), minimal home repairs, snowplowing, transportation to and from work, minimal communications (a pay-as-you-go cellphone or simple internet connection with VOIP), frugal food items, and Suave shampoo at $1.00 a bottle, you need a minimum of $15.00 an hour - at least in Vermont.
If you're young and single and can share rooms, apartments, and/or houses, you can live on $10.00 an hour.
Notice that this doesn't include healthcare. If, god forbid, you should get sick and have to see a doctor, even for a simple acute illness, your budget is busted (assuming you were earning a living wage). If you get sick pay at work, you're in luck (unless you've used up your 4 days that most employers offer). If you don't get sick pay, which many wage earners do not, you're totally screwed if you miss a day of work. Many employers won't allow you to make up that missed day (largely because they don't allow flexible scheduling).
Most people I know earning between $8.00-$18.00 an hour, which is the typical range for wages in Vermont - for college-educated graduates, mind you - including those with one or two masters degrees - cannot even pay their basic living expenses at these pay scales.
Most people I know here in Vermont are struggling to pay bills for unplanned medical emergencies, unplanned auto repairs, a furnace that died, a roof that leaked, a huge snowplowing bill due to heavy snowfalls the last two years (as much as $400 monthly), or simply paying off legitimate debt such as student loans.
What good is this advice, then? It's useful to those making $25.00 an hour and beyond. For the rest of us, and count us in the many millions, this blogpost is insulting to our intelligence!
Every good financial advisor recommends setting up an emergency cash fund. This can spell the difference between getting by and disaster.
ReplyDeleteYou know, one of the problems, especial here in the States, is we’re so used to having everything we want. Like cell phones, cable TV, transportation, etc. that we don’t know how to deal with not having enough money to meet our demands.
ReplyDeleteWe live pay check to pay check even if we get paid $25 an hour, there’s still not enough to go around. We’re spoiled with “thing” we want and “thing” we need, not to mention the “things” we have to have like insurance, gas, food, etc. Credit cards have made our lives so much easier and now that the economy is on the down side we don’t know how to get by with less.
Putting away half our money for an emergency cash fund is not only difficult but most of the time impossible. Maybe we should look at the old timers and see how they survived.