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Many don't have $2,000 for a rainy day

money.cnn.com

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Re: Many don't have $2,000 for a rainy day

#31

Post by chailatte »

fr0sty wrote: post #19
chailatte wrote: post #14

Earlier quoted context omitted.

Most Americans have their assets stuck in their house and 401k and other toys. House: It would take you 6 months to sell a house (good luck with all those foreclosures out there), 3 months to get a loan against your house (hard to get a loan these days). 401k: It would take you 1 month to withdraw from your 401k (if your 401k plan allows it). Car/TV: There's an abundance of car/TV inventory out there, and it might ta…

The timeframe from the article was 30days. which make 401k or IRA funds available. If you can't sell your car in 30days you are not trying. Also, most Brokers will allow you to borrow against the value of your IRA, or your 401k with very short notice. If you have a house and a mortgage you probably also qualify for an unsecured line of credit and could get a cash advance immediately. The surgery example is a non sequ…

Senate bill seeks to limit 401(k) borrowing http://content.usatoday.com/communities/ondeadline/post/2011...

Hard to get a line of credit when 1 out of 4 mortgages are underwater http://online.wsj.com/article/SB125903489722661849.html

Re: Many don't have $2,000 for a rainy day

#33

Post by ChuckMcM »

billybob wrote: post #6

If you don't have enough money to handle an emergency, you have an emergency. Go ahead and panic. Trade your car for a cheaper one, move into a cheaper apartment, stop eating out, sell your TV, and get an emergency fund . If you're already living on toasted rats in a cardboard box, that's different, but if you've got unnecessary expenditures, you should really cut those out and get an emergency fund. To do otherwise…

I wish I could double raise this.

When raising our kids we often talked about money and "kinds" of money. When you're young you can go for long stretches with "no" money, as you get older you get introduced to the notion of a "cash flow" and a steady stream of expenses that need to be paid.

The single biggest point we try to impress on them was that if you were not able to 'save' (put aside) some money every month (could be $10 but it had to be net positive) such that under 'normal' circumstances you've put money aside in more months than not in a year, then you are, by definition "living beyond your means."

If you found yourself in that space you needed to scale back your life if you could, or upgrade your means.

Being able to come up with $2,000, "if you had to", is pretty important. And while its perfectly ok to say you have to liquidate your savings or sell an asset.

Acquiring it through a credit instrument didn't pass the test, since you just moved the obligation forward in time, and if you couldn't come up with it now then why do you think you can come up with even more later?

It used to bother me a bit when peers whom I knew were making about the same amount of money as I was were living much more "exciting" lifestyles, and it really wasn't until the 90-91 recession hit that it was clear that they were living on credit. One person called me in desperation for a ride to work because their car had been 'stolen.' It turned out it had actually been re-possesed. Thats a hard place to be.

Re: Many don't have $2,000 for a rainy day

#34

Post by kwis »

arn wrote: post #7

I'd be curious what the survey would have shown if it were given in 2007. I bet at least some of the people who can't come up with $2000 today is because they've already eaten into their emergency funds due to lost jobs, economy, etc...

I've seen similar studies about emergency funds for many years. They all say roughly the same thing: most people don't save money. To the point that not only do they not have $2,000, they can't borrow $2,000 to handle an emergency.

Re: Many don't have $2,000 for a rainy day

#35

Post by ebiester »

pavel_lishin wrote: post #23
billybob wrote: post #6

If you don't have enough money to handle an emergency, you have an emergency. Go ahead and panic. Trade your car for a cheaper one, move into a cheaper apartment, stop eating out, sell your TV, and get an emergency fund . If you're already living on toasted rats in a cardboard box, that's different, but if you've got unnecessary expenditures, you should really cut those out and get an emergency fund. To do otherwise…

Does having a credit card count? What if someone has a $5k debt on a credit card, and only $1k in savings? Should they prioritize getting more cash into a low-interest savings account, while racking up interest on the CC?

No. If they have $1k in savings, they should continue working on the credit card. However, if they have under 300 dollars of savings (scraping the bottom of the checking account), making it to $1000 should be the first priority.

Re: Many don't have $2,000 for a rainy day

#36

Post by elbelcho »

fr0sty wrote: post #27
pavel_lishin wrote: post #23

Earlier quoted context omitted.

Does having a credit card count? What if someone has a $5k debt on a credit card, and only $1k in savings? Should they prioritize getting more cash into a low-interest savings account, while racking up interest on the CC?

Unless you are carrying low/no interest debt you should really pay it off rather than put money into savings. As long as your bank is not evil and keeps dropping your credit limit as your balance decreases you can always borrow again against that line of credit if needed.

I disagree.

Saving money for an emergency should be a priority over paying off a credit card debt. In an emergency, you cannot count on the credit card bank keeping your account open. You cannot count on them maintaining your current credit line. ALL banks are "evil" in the sense that they operate with their best interests at heart, and no matter how horrible of a position it may put you in, the CC bank has no obligation to maintain your current credit line.

Having a $2000 emergency fund, even if it's in a shoe box under the bed, is more important and more VALUABLE than $2000 worth of open credit on a credit card. The $2000 under the mattress is almost entirely under your control. The $2000 in open credit is almost entirely OUT of your control.

If you're in a real emergency, what would your rather rely on?

Re: Many don't have $2,000 for a rainy day

#38

Post by kwis »

ssharp wrote: post #11

I think it's very important to instill saving behaviors early on in your adult life. After graduating college, I had plenty of debt, but still made sure I was putting money into a savings account. Technically, it would have been much wiser to put any excess money towards 15% APR credit card debt than in 5% saving accounts (5% savings accounts did exist for a few years prior to the 2008 collapse), but actually having…

http://hbswk.hbs.edu/item/5867.html

Here's a paper that's probably one of the original sources for the Freakonomics piece.

I would love to see Prize-linked savings in the US. It'd be fun to have some money sitting in an account that has powerball-esque payouts, but without the powerball-esque destruction of the original bet.

Re: Many don't have $2,000 for a rainy day

#39

Post by thomasgerbe »

robflynn wrote: post #3

I certainly don't have any put away for a rainy day. After a bit of time being jobless, I finally found some underpaying work to get back on my feet. Coupled with various bills and medical bills, etc., I'm sitting at a paycheck to paycheck point. I get paid again tomorrow and I have $5.00 in the bank. It's quite depressing. Couple that with my girlfriend also losing her job and we tore through any savings pretty quic…

I can understand why you'd feel embarrassed, but as long as you collect yourself from your rut and keep pushing with what motivates you, you can point back to this point where you turned things around.

Re: Many don't have $2,000 for a rainy day

#40

Post by ChuckMcM »

ebiester wrote: post #24
billybob wrote: post #6

If you don't have enough money to handle an emergency, you have an emergency. Go ahead and panic. Trade your car for a cheaper one, move into a cheaper apartment, stop eating out, sell your TV, and get an emergency fund . If you're already living on toasted rats in a cardboard box, that's different, but if you've got unnecessary expenditures, you should really cut those out and get an emergency fund. To do otherwise…

You're looking at it from a middle class perspective. Unfortunately, most of these people are also deep in debt and have already made such cuts. This is the byproduct of double digit unemployment as much as anything. As much as we talk about consumption, most of it is at the middle class level. Now, I've seen poor people make very bad decisions, but many are on purchases you and I would make without a second thought.…

"... most of these people are also deep in debt ..."

At least on the news we see this a lot. The folks who are "screwed" by the banks because they raised their credit card rate and are going broke. When they cover those stories you often get to see how much credit card debt these folks have and it is always > $10,000 and often > $20,000.

To the comment above, at that point you had an emergency a long time ago. If you can't pay off your credit cards at the end of the month you have an emergency.

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