7 ms·

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 apartmen

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 is reckless. And you're cheating yourself of sleep and peace of mind.

deleted 15y ago
[deleted]
pavel_lishin 15y ago
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?
- fr0sty 15y ago
  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.
  - elbelcho 15y ago
    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?
    - arn 15y ago
      The only thing people should be aware of in this situation is that $2000 under your bed actually cost you $4000 or whatever since you are holding a balance on your credit card with high interest.
      - reemrevnivek 15y ago
        But the alternative, having a $2000 expense and no cash, would be a emergency. You can pay off $4000 in debt (and that doubling is probably hyperbole, but whatever), If you can handle small emergencies that will come up. Read Chapter 6 of Dave Ramsey's "Total Money Makeover" for a more thorough analysis.
    - ChuckMcM 15y ago
      "If you're in a real emergency, what would your rather rely on?" I think the point was that if you have credit card debt then you are in a emergency situation already. So using money to pay off that debt means you can get 'out' of the emergency. Paying off the debt and then putting $2,000 into a liquid account allows you to declare the emergency over. The trick that folks often don't quite realize is that when you carry debt, some of your 'income' (whether its a paycheck or money back from recycling aluminum cans) goes to servicing that debt and not to your benefit. If you are living at the edge of your means, any money not going to supporting you directly is wasted. That's the reasoning that says "priority #1" should be "get out of debt." #2 is build a "cushion" so that when unanticipated expenses hit you don't take a long term hit to the income stream, #3 is invest in longer term income growth (could be night classes, could be a washing machine to save on laundromat bills, could be stocks and bonds).
      - elbelcho 15y ago
        I understand that minimum monthly payments and interest only payments are absolutely wasted and provide you with no benefit. However, the emergency I'm referencing is not a general "my finances are a disaster" emergency. I'm talking about an emergency that has an impact far beyond your immediate financial situation. I'm talking about "I cannot afford food" or "I cannot afford transportation to a job interview" type of emergency. That's a real emergency, in my opinion.
- GFischer 15y ago
  I currently don't have U$ 2.000 (not an American, but having money for a rainy day should be worldwide), but I could raise them with a (high interest) loan in about 30 minutes. The article says they don't count, though: "29.5% said they would have to resort to credit cards, a home equity line of credit, reverse mortgage or unsecured loan. "
  - illumin8 15y ago
    I hate to break it to you but you're living beyond your means. A high interest loan is not an emergency fund. Ideally you should have enough money to live for 6-12 months if your income stopped tomorrow. I know when I was younger I didn't have such things, but then the recession of 2002 hit and I found out really quickly how much it sucks trying to make a house payment with an unemployment check.
    - GFischer 15y ago
      I know I am, but one of the niceties of a socialist system is that if I get fired, I get paid my salary for a year and a half in unemployment :) , plus three months' salary straight away. I actually wish I was fired :) (though the black mark in the CV here is really bad). The really bad thing about this system is that it's based on seniority, if I switch jobs, I lose all those perks (start back at zero, only get some minor unemployment after 3 months on the job) I'm also neither a homeowner nor a parent, and could scale back my spending to zero pretty quickly (moving in with my grandfather and selling my car). Not a long term strategy, obviously, and I am thinking of becoming a parent (in 2-3 years) which will force me to be way more conservative with money.
- ebiester 15y ago
  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.
- noodle 15y ago
  this is how i typically recommend people to prioritize their money: (1) pay your bills (2) get a small emergency fund together (enough to pay for a small emergency, car breakdown, 1 month's living expenses, etc) (3) pay down high interest debt (credit cards, etc) (4) get a large emergency fund together (enough to support you for a few months if you lose your job, major emergency, etc) (5) invest and pay down low interest debt (mortgages, student loans, etc). creating a smaller emergency fund to start sets the best precedent because it creates a safety buffer. what happens if you throw tons of cash at paying down your CC bill every month and save nothing, but then you lose your job and have 0 income? you're going to end up missing payments, get penalized, and your debt will snowball again quickly. you need to have something to fall back on when bad things happen, just in case.
  - dailyrorschach 15y ago
    This is exactly how I've been doing it. Auto-transfer set up on the bank account, and taking cash out for spending money instead of just letting myself use a credit or debit card.
    - noodle 15y ago
      credit cards are useful tools. i use mine and just pay it down monthly. if you have any plans on obtaining a loan/mortgage at any point in time, the easiest way to establish yourself with good credit is through actually using a credit card.
      - mattw 15y ago
        Everybody says this, but I've obtained three different mortgages in my lifetime and never had a credit card. In lieu of credit history, the bank has just asked for other evidence that I pay my bills, like statements from the utility company. Maybe I'm just lucky, but in my opinion, wanting a good credit score is a pretty bad reason to get a credit card.
        noodle 15y ago
ebiester 15y ago
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. It is far too easy to forget how good we have it.
- ChuckMcM 15y ago
  "... 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.
  - kamaal 15y ago
    Well the first question that needs to asked here is why do those people borrow money after knowing very well they can't pay it back? Its purely their mistake, and nobody else (society, government etc) can be blamed here.
- hugh3 15y ago
  Unfortunately, most of these people are also deep in debt and have already made such cuts. Sometimes I wonder about this. How many poor folks are wasting their limited budget on frivolous crap? One reality show I really would like to see would be about a sensible financial advice type who parachutes into the lives of low-income, deeply-in-debt people and shows them how to budget properly.
  - rb2k_ 15y ago
    We actually have a show like that in Germany... It's mostly the same basics over and over again (cut the cigaretes, no Pay TV, Why do you have 4 Cell phone contracts, ...). It could very well be scripted though. Maybe I'll remember the name over the next hour or so :)
ChuckMcM 15y ago
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.
- meric 15y ago
  >>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? What about stocks? I need three days for a sale of stocks to settle and take the money out. If I have an emergency I can use my credit card. (and pay it back at the end of the month).
  - ChuckMcM 15y ago
    Stock absolutely counts, but it has an interesting caveat. If you read the article they included the caveat "...within 30 days." Which covers the 'you pay it now with a credit card and you pay it off when the CC bill arrives' scenario. Back in the 80's when I was trying to buy a house, part of the down payment was going to be funded by the sale of stock (I had worked for Intel and had vested a few shares). How much of the down payment was flipping all over the map as Intel's price went up and down and up and down. On the one hand I wanted to hold it as long as possible (the trend was upward) but I didn't want to get caught in a dip either. My wife and I picked a number we felt was "reasonable" and put that in as a 'limit' order. When that fired, we picked the best choice of the three houses we had as candidates and made an offer on the house. The stock was up an additional 5% by the time we closed but had been down at least 5% between the sale and the close. Very stressful if we had been under contract and the price was falling. Flash forward to the dot-com days, a good friend bought a house beyond their means and was making payments by selling stock. When the bubble popped they had to sell the house. Not ideal but it didn't leave them permanently stuck.
nhangen 15y ago
It's easy to say that, but the reality is that many of these people probably blew through their savings while enduring job loss, medical bills, increased energy and food costs, etc. Most people aren't programmers, and are at the mercy of the job market, which sucks right now. There are many cases of irresponsible behavior, but I know of far too many responsible people that tried everything they could to right the ship and kept hanging on, hoping that things would change...with no luck. It would be one thing if gas prices were going down, utilities were getting cheaper, and food prices were getting back to normal, but they aren't. Most of us are fortunate enough to turn to freelancing when money runs out, but much of America is screwed.
- coffeeaddicted 15y ago
  Funny you mention freelancing - this was what got me into the deepest trouble so far. One bad contract where I couldn't get out easily and had miscalculated milestones badly. And it is hard to concentrate on coding when you start wondering about stuff like "will I manage to pay rent once more next week or will the bank not accept that I go over the credit limit".
PagingCraig 15y ago
On top of an Emergency fund, I find taking money out for KNOWN expenses makes sense. Like putting aside money for car repair, basic home repairs, etc separate from emergency stuff.
- veyron 15y ago
  Should be the other way around. Money taken out for known expenses should be on par with money for bills.
  - pyre 15y ago
    I took 'on top of an emergency fund' to mean that the money being set aside for those things was not part of the emergency fund.
  - hugh3 15y ago
    I assume he meant known, yet undetermined, expenses, which is sensible. For instance, you know that your house and car are going to need repairs eventually, so it makes sense to have some money set aside for those rather than dipping into your "emergency fund" -- otherwise what happens if a real emergency occurs before you finish paying it off? Once you have enough money in your savings, though, I think you can stop thinking in these terms.
    - PagingCraig 15y ago
      Yeah, it's stuff you know you'll need money for that won't be an emergency. Just like saving for anything else (like a new laptop).
pasbesoin 15y ago
And you're cheating yourself of sleep and peace of mind. This. The "sacrifices" you make are not a loss, but a gain. Edit: Assuming you are not yet "down to basics" -- which more and more people are, these days.

deleted 15y ago

[deleted]

pavel_lishin 15y ago

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?

fr0sty 15y ago
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.
- elbelcho 15y ago
  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?
  - arn 15y ago
    The only thing people should be aware of in this situation is that $2000 under your bed actually cost you $4000 or whatever since you are holding a balance on your credit card with high interest.
    - reemrevnivek 15y ago
      But the alternative, having a $2000 expense and no cash, would be a emergency. You can pay off $4000 in debt (and that doubling is probably hyperbole, but whatever), If you can handle small emergencies that will come up. Read Chapter 6 of Dave Ramsey's "Total Money Makeover" for a more thorough analysis.
  - ChuckMcM 15y ago
    "If you're in a real emergency, what would your rather rely on?" I think the point was that if you have credit card debt then you are in a emergency situation already. So using money to pay off that debt means you can get 'out' of the emergency. Paying off the debt and then putting $2,000 into a liquid account allows you to declare the emergency over. The trick that folks often don't quite realize is that when you carry debt, some of your 'income' (whether its a paycheck or money back from recycling aluminum cans) goes to servicing that debt and not to your benefit. If you are living at the edge of your means, any money not going to supporting you directly is wasted. That's the reasoning that says "priority #1" should be "get out of debt." #2 is build a "cushion" so that when unanticipated expenses hit you don't take a long term hit to the income stream, #3 is invest in longer term income growth (could be night classes, could be a washing machine to save on laundromat bills, could be stocks and bonds).
    - elbelcho 15y ago
      I understand that minimum monthly payments and interest only payments are absolutely wasted and provide you with no benefit. However, the emergency I'm referencing is not a general "my finances are a disaster" emergency. I'm talking about an emergency that has an impact far beyond your immediate financial situation. I'm talking about "I cannot afford food" or "I cannot afford transportation to a job interview" type of emergency. That's a real emergency, in my opinion.
GFischer 15y ago
I currently don't have U$ 2.000 (not an American, but having money for a rainy day should be worldwide), but I could raise them with a (high interest) loan in about 30 minutes. The article says they don't count, though: "29.5% said they would have to resort to credit cards, a home equity line of credit, reverse mortgage or unsecured loan. "
- illumin8 15y ago
  I hate to break it to you but you're living beyond your means. A high interest loan is not an emergency fund. Ideally you should have enough money to live for 6-12 months if your income stopped tomorrow. I know when I was younger I didn't have such things, but then the recession of 2002 hit and I found out really quickly how much it sucks trying to make a house payment with an unemployment check.
  - GFischer 15y ago
    I know I am, but one of the niceties of a socialist system is that if I get fired, I get paid my salary for a year and a half in unemployment :) , plus three months' salary straight away. I actually wish I was fired :) (though the black mark in the CV here is really bad). The really bad thing about this system is that it's based on seniority, if I switch jobs, I lose all those perks (start back at zero, only get some minor unemployment after 3 months on the job) I'm also neither a homeowner nor a parent, and could scale back my spending to zero pretty quickly (moving in with my grandfather and selling my car). Not a long term strategy, obviously, and I am thinking of becoming a parent (in 2-3 years) which will force me to be way more conservative with money.
ebiester 15y ago
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.
noodle 15y ago
this is how i typically recommend people to prioritize their money: (1) pay your bills (2) get a small emergency fund together (enough to pay for a small emergency, car breakdown, 1 month's living expenses, etc) (3) pay down high interest debt (credit cards, etc) (4) get a large emergency fund together (enough to support you for a few months if you lose your job, major emergency, etc) (5) invest and pay down low interest debt (mortgages, student loans, etc). creating a smaller emergency fund to start sets the best precedent because it creates a safety buffer. what happens if you throw tons of cash at paying down your CC bill every month and save nothing, but then you lose your job and have 0 income? you're going to end up missing payments, get penalized, and your debt will snowball again quickly. you need to have something to fall back on when bad things happen, just in case.
- dailyrorschach 15y ago
  This is exactly how I've been doing it. Auto-transfer set up on the bank account, and taking cash out for spending money instead of just letting myself use a credit or debit card.
  - noodle 15y ago
    credit cards are useful tools. i use mine and just pay it down monthly. if you have any plans on obtaining a loan/mortgage at any point in time, the easiest way to establish yourself with good credit is through actually using a credit card.
    - mattw 15y ago
      Everybody says this, but I've obtained three different mortgages in my lifetime and never had a credit card. In lieu of credit history, the bank has just asked for other evidence that I pay my bills, like statements from the utility company. Maybe I'm just lucky, but in my opinion, wanting a good credit score is a pretty bad reason to get a credit card.
      - noodle 15y ago

ebiester 15y ago

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. It is far too easy to forget how good we have it.

ChuckMcM 15y ago
"... 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.
- kamaal 15y ago
  Well the first question that needs to asked here is why do those people borrow money after knowing very well they can't pay it back? Its purely their mistake, and nobody else (society, government etc) can be blamed here.
hugh3 15y ago
Unfortunately, most of these people are also deep in debt and have already made such cuts. Sometimes I wonder about this. How many poor folks are wasting their limited budget on frivolous crap? One reality show I really would like to see would be about a sensible financial advice type who parachutes into the lives of low-income, deeply-in-debt people and shows them how to budget properly.
- rb2k_ 15y ago
  We actually have a show like that in Germany... It's mostly the same basics over and over again (cut the cigaretes, no Pay TV, Why do you have 4 Cell phone contracts, ...). It could very well be scripted though. Maybe I'll remember the name over the next hour or so :)

ChuckMcM 15y ago

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.

meric 15y ago
>>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? What about stocks? I need three days for a sale of stocks to settle and take the money out. If I have an emergency I can use my credit card. (and pay it back at the end of the month).
- ChuckMcM 15y ago
  Stock absolutely counts, but it has an interesting caveat. If you read the article they included the caveat "...within 30 days." Which covers the 'you pay it now with a credit card and you pay it off when the CC bill arrives' scenario. Back in the 80's when I was trying to buy a house, part of the down payment was going to be funded by the sale of stock (I had worked for Intel and had vested a few shares). How much of the down payment was flipping all over the map as Intel's price went up and down and up and down. On the one hand I wanted to hold it as long as possible (the trend was upward) but I didn't want to get caught in a dip either. My wife and I picked a number we felt was "reasonable" and put that in as a 'limit' order. When that fired, we picked the best choice of the three houses we had as candidates and made an offer on the house. The stock was up an additional 5% by the time we closed but had been down at least 5% between the sale and the close. Very stressful if we had been under contract and the price was falling. Flash forward to the dot-com days, a good friend bought a house beyond their means and was making payments by selling stock. When the bubble popped they had to sell the house. Not ideal but it didn't leave them permanently stuck.

nhangen 15y ago

It's easy to say that, but the reality is that many of these people probably blew through their savings while enduring job loss, medical bills, increased energy and food costs, etc. Most people aren't programmers, and are at the mercy of the job market, which sucks right now. There are many cases of irresponsible behavior, but I know of far too many responsible people that tried everything they could to right the ship and kept hanging on, hoping that things would change...with no luck. It would be one thing if gas prices were going down, utilities were getting cheaper, and food prices were getting back to normal, but they aren't. Most of us are fortunate enough to turn to freelancing when money runs out, but much of America is screwed.

coffeeaddicted 15y ago
Funny you mention freelancing - this was what got me into the deepest trouble so far. One bad contract where I couldn't get out easily and had miscalculated milestones badly. And it is hard to concentrate on coding when you start wondering about stuff like "will I manage to pay rent once more next week or will the bank not accept that I go over the credit limit".

PagingCraig 15y ago

On top of an Emergency fund, I find taking money out for KNOWN expenses makes sense. Like putting aside money for car repair, basic home repairs, etc separate from emergency stuff.

veyron 15y ago
Should be the other way around. Money taken out for known expenses should be on par with money for bills.
- pyre 15y ago
  I took 'on top of an emergency fund' to mean that the money being set aside for those things was not part of the emergency fund.
- hugh3 15y ago
  I assume he meant known, yet undetermined, expenses, which is sensible. For instance, you know that your house and car are going to need repairs eventually, so it makes sense to have some money set aside for those rather than dipping into your "emergency fund" -- otherwise what happens if a real emergency occurs before you finish paying it off? Once you have enough money in your savings, though, I think you can stop thinking in these terms.
  - PagingCraig 15y ago
    Yeah, it's stuff you know you'll need money for that won't be an emergency. Just like saving for anything else (like a new laptop).

pasbesoin 15y ago

And you're cheating yourself of sleep and peace of mind. This. The "sacrifices" you make are not a loss, but a gain. Edit: Assuming you are not yet "down to basics" -- which more and more people are, these days.