Comments on: I’m in Debt! So why should I have an emergency fund?

By: FourPillars

FourPillars — Thu, 06 Sep 2007 17:55:03 +0000

Telly, I’ve heard you can do that with TD. Sounds like a great plan.

I’m not too concerned about this issue since I don’t have huge sums of cash sitting around in bank accounts (it’s mostly under my mattress).

Mike

By: Mr. Cheap

Mr. Cheap — Thu, 06 Sep 2007 16:43:21 +0000

I’m late to the party here, but I’m firmly in the MG, Nobleea and Telly camp. Although I don’t practice what I preach (with unreliable income from contract work I can’t time things to the last $20, but I’ll probably start doing that once I’m comfortable at the new job).

A LOC is at least as good as cash savings if you’re living within your means. Its better for me for the opportunity costs discussed and that I can get easier access to it (instant movement between my LOC and checking account, whereas my PC financial account has a 2 day turn-around).

By: telly

telly — Thu, 06 Sep 2007 16:39:46 +0000

Aww….Mrs. P – how cute!

Mike,
We don’t have to watch our balances so closely (though I do) because we use our LOC as our primary chequing account. TD allows you to keep a positive balance in your LOC accounts (and do direct deposit of pay cheques and such) so it’s essentially a free chequing / free overdraft account. We rarely dip into the LOC but when we do it usually results in

By: FourPillars

FourPillars — Thu, 06 Sep 2007 00:22:43 +0000

Thanks Mrs. P!

Sheila: Very well put.

Mike

By: SHEILA

SHEILA — Thu, 06 Sep 2007 00:08:54 +0000

I am also a strong advocate of an emergency savings account, and I keep mine in a high-interest online savings account. I put the interest I earn to work for me, by using it to pay off debt or fund another savings goal.

I also have a small savings account at the bank (just a few hundred dollars), to cover irregular expenses like car repairs or license tags, vet bills and the like. The rate of interest is paltry, but the account is handy, because I can make immediate transfers.

The bank savings account and the online emergency account allow me to breathe easier while I am paying off loans.

Credit lines may work well for other people, but this is what works for me. Frankly, I would have sleepless nights if I did not have a small pile of money in reserve.

And that is the point, isn’t it? What works well for one person may not work well for another. We all need to do some research and figure out a plan that will work well for each of us, given our particular spending and savings habits.

By: Mrs. Pillars

Mrs. Pillars — Thu, 06 Sep 2007 00:03:32 +0000

I believe it depends on the circumstances. There was a time when I was single, had no assets and was paying off a student loan. At that time, I was working in a month-to-month contract position and felt that having a few months worth of cash available was critically important. I agree with PaidTwice that debt is oppressive.
Times have changed for me, I am happy to say. Now I feel less need for a stash of cash in spite of more responsibilty (one small son) and a much larger debt (the mortgage). My attitude toward debt has changed over the years and I now have assets to work with if something should happen. Besides, I have Mike and that probably makes the biggest difference of all.

By: moneygardener

moneygardener — Wed, 05 Sep 2007 23:38:58 +0000

Whether the market is down or not one will always own a stock that they could sell in a pinch and not ‘take a huge hit on’.

By: the Wealthy Canadian

the Wealthy Canadian — Wed, 05 Sep 2007 22:15:08 +0000

I despise non-constructive debt (unless it is of the zero interest kind) but cash in a chequeing account is losing the battle with inflation. I prefer to some ‘almost cash’ (accessible within a day) on hand, it’s in a high interest savings account. Various types of money market investments would also work but I think they are all less liquid than my savings account which I can access within less than 24 hours.

The problem with using your stocks as an emergency fund is that it eliminates your power to exercise a good exit strategy. If the market is down, you may end up taking a huge hit.

The LOC is a good buffer, however, it can lead you down the same path. If you find yourself down on luck and interest rates go up you now have a growing destructive debt.

By: FourPillars

FourPillars — Wed, 05 Sep 2007 22:01:11 +0000

One reason I do keep a bit of money in my account is so that I don’t have to watch the balance so closely.

Mike

By: telly

telly — Wed, 05 Sep 2007 21:19:27 +0000

I’m with MG and Nobleea on this one as well. We’re usually down to our last $40-100 when paydays roll around.

The line of credit is there if we need it (we keep a + balance (or technically negative) in it and use it as our chequing account anyway). If an emergency came up, our cash flow is pretty good such that we could probably take care of paying off most emergencies within a month or two.

Now if we were living off one income or were pretty tight with the bills etc., I might opt for an emergency stash…