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It is a myth that a large share of people can’t cover a $400 emergency expense

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Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#31

Post by WalterBright »

flukus wrote: post #29
WalterBright wrote: post #22

Earlier quoted context omitted.

Let's put it another way. Suppose you have a $100,000 mortgage on which you're paying 6% interest. You have a savings account with $2,000 in it that pays 2% interest. The savings account is costing you 4% per year. Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. It puts one in a "cash poor" position, which is not the same as being poor.

> Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. Cash poor means no easily accessible source of cash, it doesn't refer to the amount of money in your wallet. In your scenario you can access that cash again by jumping onto the banks website (or even visiting the bank) and moving it to your everyday account.

I used the term cash poor correctly for the scenario where you used your savings account to buy down the mortgage a bit. It's not quite so easy to increase the mortgage amount, it would depend on what the terms are if you are late or underpay a mortgage payment. If the terms are good, it is one way to recover the cash for an emergency.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#32

Post by WalterBright »

dvfjsdhgfv wrote: post #28
WalterBright wrote: post #22

Earlier quoted context omitted.

Let's put it another way. Suppose you have a $100,000 mortgage on which you're paying 6% interest. You have a savings account with $2,000 in it that pays 2% interest. The savings account is costing you 4% per year. Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. It puts one in a "cash poor" position, which is not the same as being poor.

It seems logical to pay off debts as soon as you can as they're expensive. However, in your example, if I use that $2,000 to pay down (a tiny bit of) my mortgage, I put myself in a dangerous position by not being able to come up with some extra cash in case of emergency. I hope most people with mortgages wouldn't do that.

It all depends on one's risk tolerances are and what other options for obtaining money there are (like being late or underpaying the next mortgage payment).

Keep in mind that taking on a mortgage itself is a risky move, as people found out in 2008.

BTW, even paying a few dollars extra a month on a 30 year mortgage can be surprisingly effective, since nearly all the early payments are interest, not principal.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#33

Post by r721 »

salawat wrote: post #27
loudandskittish wrote: post #24

> You’d frequently have a coworker out of the office who can’t afford to buy a new tire. You’d frequently hear from friends and neighbors who can’t afford to fix their dishwashers. Ugh. The people who can't come up with $400 to cover an emergency DON'T OWN CARS! That's why you don't hear about them missing work because they couldn't afford a new tire. They take public transit, or they walk because they can't afford b…

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Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#35

Post by jackfraser »

SerLava wrote: post #12

This is splitting hairs. 40% of Americans can't come up with $400 but luckily a majority of those know a financial institution that can come up with $400 for them. Anyone who does not have an emergency $400 is not going to have a great time with an unexpected $400 debt on top of whatever else their debt obligations and expenses are. Is it so hard to believe that we want to live in a country where pretty much everyone…

Of course you want that country. The thing is, the magical panacea of giving out free money to everyone just devalues the money. $1000 Yang Bucks will become the equivalent of $100 now within short order, as prices for things go up.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#36

Post by SerLava »

jackfraser wrote: post #35
SerLava wrote: post #12

This is splitting hairs. 40% of Americans can't come up with $400 but luckily a majority of those know a financial institution that can come up with $400 for them. Anyone who does not have an emergency $400 is not going to have a great time with an unexpected $400 debt on top of whatever else their debt obligations and expenses are. Is it so hard to believe that we want to live in a country where pretty much everyone…

Of course you want that country. The thing is, the magical panacea of giving out free money to everyone just devalues the money. $1000 Yang Bucks will become the equivalent of $100 now within short order, as prices for things go up.

No yang bucks. Better wages, publicly funded health care, no more war grift without an actually good reason.

I dont understand why Americans lack this magic spell you're talking about, meanwhile Harry Potter is running around Europe handing out healthcare and extending life spans and shit.

Are we just worse at life or something? Maybe we're not good enough?

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#37

Post by rhacker »

loco5niner wrote: post #34
rhacker wrote: post #15

It's beyond me why two classes aren't in school today that SHOULD have been taught by ones parents: * Golden Rule * Budgeting (I think we know the reasons why parents don't teach this.)

Why?

Golden rule - it's quite obvious this lesson is lost on today's generation - basically called the "me generation". That's quite clearly the opposite of the golden rule that would have you focus on other people's plight to understand what you're doing wrong.

Budgeting - The notion that half of Americans can't afford a $400 mistake (and I know this is contested and there are credit cards, etc.. but the stat came about from something). In any case, I've met a lot of people that know the "budgeting" exists but don't actually know how to do it or that it would even apply to a person. They think of it as something a business or government does.

Parents don't teach these skills because they don't have them either.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#38

Post by loco5niner »

rhacker wrote: post #37
loco5niner wrote: post #34

Earlier quoted context omitted.

Why?

Golden rule - it's quite obvious this lesson is lost on today's generation - basically called the "me generation". That's quite clearly the opposite of the golden rule that would have you focus on other people's plight to understand what you're doing wrong. Budgeting - The notion that half of Americans can't afford a $400 mistake (and I know this is contested and there are credit cards, etc.. but the stat came about…

> Parents don't teach these skills because they don't have them either.

Definitely agree with this! And yes, The Golden Rule and Budgeting should be taught in our schools.

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