Monday, April 16, 2018

Money Friendship Month - Chapter 3

During the month of building friendship with your money, we have talked about saving money, so you can keep more of the money that already flows into your life; and we have talked about protecting your assets. By keeping your wealth and protecting it, you are building a positive relationship with your money. And after talking about the protection that would take care of your family were you taken away by an unexpected event, such as accident or fatal illness, we will now talk about protecting your wealth from other, non-fatal, events that can threaten it.

We will dedicate en entire post to getting out of debt (check out next week's post for that). Today, we will focus on having money set aside as a safety net, a.k.a. emergency fund. The number one reason why it is important to have an emergency fund in place, and to grow the amount in it to the level that brings you comfort, is that without it, you risk getting either deeper in debt or back in it if you just managed to get rid of it. 

I know there are some financial experts who would tell you to not use your credit cards, to put them in a place where you don't have easy access, or where you don't go on a regular basis... but I would like to argue that using a credit card for emergency situations is not the best idea. First, it defeats your hard work with getting out of debt - after car repairs for a couple of thousand dollars you find yourself back to square one with paying that credit card off. Secondly, now you also have to pay interest on the amount you borrowed from your credit card. And last but not least, sometime using a credit card may not be an option, depending on the type of emergency you are dealing with.

An example of an emergency that may come up in anyone's life is being laid off. Many people can attest to that who had great jobs before the 2007-2009 recession. Also many of those people had purchased homes during the real estate boom right before the recession. And the mortgage companies don't accept credit card payments for the mortgage. No need to even mention here the statistics related to the foreclosures from those years, right?!

When I talk to my clients about building up their savings in different accounts, such as for big goals, or vacations or even an emergency fund, I suggest that they call those accounts by a name that resonates with them - i.e. vacation account, BMW fund, or Fun Fund etc. For your emergency fund, I understand the connotation of the word, and I know that it is not wise to use words that have a bad vibe... so I suggest it should be call your Justin Fund. Why Justin? Because this money is for "just in case" something happens. 

If you are working on paying off credit card debt, or any other debt - long-term or short term - please consider setting aside some money for a rainy day, and don't send your last penny to the debt company. It may take you a little longer to pay the debt off, but the upside is that you will have the peace of mind if something goes wrong, and you will also be able to stay on track with paying it off because you won't have to "charge" any emergency bills.

Now that you are setting up an account to house Justin, please make sure the money is somewhere close enough and easy enough to access, though not that close that it starts to look tempting. Because no, a sale at Macy's on the best looking shoes still does not qualify as an emergency!  

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