Tuesday, July 28, 2009

About That Emergency Fund

When I whined about my $500+ car repair a few posts back, Living Almost Large left a comment, asking: "Don't you have any taxable investment savings? Even in stocks? Is it all in retirement account?"

Good question.

Not-so-good answer.

No, I don't have any taxable investment savings. I don't have any savings at all, except for the ever-changing but never-quite-$1000 emergency fund that Dave Ramsey says we all should have.

While people like Jennifer at "Finding Financial Peace" are well on their way to accumulating three to six months of expenses, others of us are still struggling with Murphy-visitations every time we get near to our first $1000.

JD at "Get Rich Slowly" explores with his readers the issue of what happens after you use your emergency savings. Check out the comments to his post because that's where all the action is. Some readers have three to six months stored away; others are more like Grace.

And just why does Grace have no savings?

16% of my pre-tax income goes into my retirement accounts. When one comes late to the retirement party, cash and time are of the essence. But then there are debts that need to be paid off, and daily life to be lived. When all of those are factored in, not much is left for non-retirement savings.

Right now, I am determined to pay off the car repairs prior to incurring any interest charges (I put the expense onto my dormant Firestone account). I may succeed in doing that during August, but it will mean that my emergency savings must wait another few months before it gets back up to $1000. And that is only if Murphy stays the heck away from my budget!


Sharon said...

Sharon is like Grace too. I will be slowly building it back up. The difference is that you are putting into your retirement account. We have stopped contributions to get an emergency fund up and running...but it just ran away....*sigh*

Living Almost Large said...

Here's another point. Dave Ramsey says you should only be in BS2 for 2 years or you're doing something wrong. You need more income or sell things.

You should be suspending retirement contributions during that time.

Now since you do the opposite of that, I was wondering, shouldn't you also consider at least saving one month of expenses in your account before going forward with debt repayment?

Maybe a slightly bigger cash cushion while in debt repayment could work out better.

Grace. said...

Dave Ramsey and I part ways when it comes to suspending retirement contributions. I started too late, and I'm too far down to take that advice. I see the value of a two year "pay off the debt" plan, but I'm giving myself longer because I know that my house will be paid off in 4.5 years, leaving me with an additional $1200 per month available to wipe out indebtedness. AND I have my rental house, which could be sold if I ever get completely stuck. I am holding up doing that, partly due to the economy, but mostly because that house is my kids/grandkids college fund and my travel-when-I'm-retired fund. It's not liquid, but I don't owe anything against it, so I could sell it anytime if I were willing to take less money for it. It's worth at least $100,000, and probably closer to $150,000 (less, of course, significant capital gains).

DogAteMyFinances said...

I agree, Grace. It's a tough slog, but it's too late to put off retirement savings.

That said, I don't understand why your kids or grandkids (!!) can't pay for college themselves like everybody else. I guess you cross that bridge when you get there.

Revanche said...

I *fondly* (ahem!) remember those days of Murphy. Heck, they were as recent as March and April of this year. [Strangely, I don't actually consider the layoff an act of Murphy.]

I wish you the best in hiding your funds away from the greedy grasp of M long enough to build and keep a good cushion. You can do it! And of course, making more money would certainly help the cause. If it becomes an option.